ROSS et al v. MEYER et al
Filing
81
MEMORANDUM OPINION. SIGNED BY HONORABLE NITZA I QUINONES ALEJANDRO ON 6/19/2014. 6/19/2014 ENTERED AND COPIES MAILED TO PRO SE AND E-MAILED.(amas)
IN THE UNITED STATES DISTRICT COURT
FOR THE EASTERN DISTRICT OF PENNSYLVANIA
CIVIL ACTION
ALAN J.ROSS
Plaintiff
N0.12-0998
v.
BENNETT MEYER,
MEYER-CHATFIELD CORP.,
DAVID L. BRAVERMAN,
JOHN KASKEY, and
BRAVERMAN KASKEY PC
Defendants
NITZA I. QUINONES ALEJANDRO, J.
JUNE 19, 2014
MEMORANDUM OPINION
INTRODUCTION
This Court is presented with a motion to dismiss filed by Bennett Meyer, Meyer-Chatfield
Corporation, David L. Braverman, John Kaskey and Braverman Kaskey, P.C. (collectively,
"Defendants/Plaintiffs Braverman Kaskey") pursuant to Federal Rules of Civil Procedure (Rules)
12(b)(6) and 12(b)(7), [ECF 41], which seeks dismissal of the second amended verified
complaint for breach of contract and fraud filed by Alan J. Ross ("Ross"), [ECF 34], on the
grounds that: (1) the malpractice claim is barred by the applicable statute of limitations and/or
fails to state a claim for relief; (2) neither David L. Braverman nor John Kaskey were parties to
the referenced contract; (3) Ross cannot insist upon performance of a contract when he himself is
guilty of a material breach; (4) the claims of "fraud" are barred by the parol evidence rule, the
"gist of the action" doctrine, and/or by the plain language of the operative agreements; and (5)
Ross has failed to join indispensable parties. Plaintiff, acting pro se, opposes the motion to
dismiss, [ECF 43], and the motion is ripe for disposition. For the reasons set forth herein, this
Court grants Defendants' motion to dismiss.
PROCEDURAL BACKGROUND
This matter has a complex procedural history that can be summarized as follows:
On February 22, 2012, Plaintiff and Alan J. Ross Insurance Agency, Inc.,
filed this action against Defendants alleging breach of contract, promissory fraud,
fraud in the inducement, fraudulent concealment, and legal malpractice.
On April 16, 2012, Meyer-Chatfield Corporation, Bennett Meyer,
Zcrackerbox, LLC, and Braverman Kaskey, P.C. (collectively, "Plaintiffs/
Defendants Zcrackerbox") filed a separate breach of contract action (hereinafter
"Defendants' Complaint") in state court against Alan J. Ross, individually and
doing business as SAVE Associates, and against Alan J. Ross Insurance Agency,
Inc., also doing business as SAVE Associates (collectively, Defendants Ross).
This state action was removed to federal court on May 18, 2012, and docketed as
CIV. A. 12-2760.
By Order dated December 3, 2012, the Honorable Stewart Dalzell,
consolidated these two actions pursuant to Rule 42(a) 1 under CIV. A. 12-998;
denied without prejudice a motion to dismiss filed in the 12-2760 action by
Defendants Ross; removed Alan J. Ross Insurance Agency, Inc., as a plaintiff,
and continued the matter with Alan J. Ross as the sole plaintiff. [ECF 18].
On December 21, 2012, Ross reasserted his motion to dismiss the
complaint filed by Plaintiffs Zcrackerbox. [ECF 21].
On January 7, 2013, Plaintiffs Zcrackerbox filed a cross-motionfor entry
of default and default judgment against Alan J. Ross Insurance Agency, Inc. [ECF
23]. A response thereto was filed. [ECF 24]. By Order dated August 16, 2013, the
cross-motion was granted and all pleadings filed by "Alan J. Ross Insurance
Agency, Inc.," as an incorporated sole proprietorship and not represented by
licensed counsel, were dismissed. [ECF 38]. 2
In the interim, on August 8, 2013, Ross was granted leave to file a second
amended verified complaint (hereinafter "Ross's Complaint"). [ECF 34]. On
September 13, 2013, Defendants Braverman Kaskey filed the instant motion to
dismiss. [ECF 41].
1
If actions before the court invo Ive a common question of law or fact, the court may: ( 1) join for hearing
or trial any or all matters at issue in the actions; (2) consolidate the actions; or (3) issue any other orders
to avoid unnecessary cost or delay. Fed. R. Civ. P. 42(a).
2
On July 30, 2013, this matter was reassigned to this Judge. See [ECF 30].
2
On January 15, 2014, Defendants Braverman Kaskey filed a notice of
judicial disposition that has res judicata and collateral estoppel affects thereby
providing notice of a decision in a related matter - Meyer-Chatfield, et al. v. Alan
J Ross, et al., CIV. A. 12-966 (N.D. Ill. 2012) (the "Illinois Action"). [ECF 47].
By Order dated March 18, 2014, Ross and Defendants Braverman Kaskey
were directed to supplement their respective pleadings and arguments in the
pending motion to dismiss, and to address what implications, if any, the notice of
res judicata and collateral estoppel have on the motion to dismiss. 3 [ECF 58].
Supplemental briefs were submitted. [ECF 59, 61]. 4
FACTUAL BACKGROUND
The following is a brief summary of the relevant facts gleaned from the pleadings and
supplemental briefs: 5
The Patent
Ross invented the Pooled Benefit Trust ("PBT"), designed as a business
method for pooling death benefits of institutionally-owned life insurance
policies, 6 and obtained a United States Patent for it, identified as Number
5,974,390, dated October 26, 1999 (the "Patent"). 7 SAVE Associates ("SAVE") is
alleged to be a sole proprietorship and brand name consisting of Alan J. Ross and
is indistinguishable in operation or for tax purposes from Alan J. Ross. 8
3
See Gen. Elec. Co. v. Deutz AG, 270 F.3d 144, 158 (3d Cir. 2001) ("The party seeking to take advantage
of claim preclusion has the burden of establishing it.") (citation omitted).
4
In a related motion for partial summary judgment filed on May 9, 2014, [ECF 67], Plaintiffs
Zcrackerbox brought to this Court's attention that on March 28, 2014, Ross assigned all of his right, title,
and interest in the Patent to IPB, subsequent to Judge Zagel's January 15, 2014, memorandum and order.
5
Ross's Complaint includes the following counts: Breach of Contract - The Demand Letter (Count I);
Breach of Contract - The Unauthorized and Secret Agreement (Count 2); Breach of Contract Preventing Ross from Enrolling Policyowners (Count 3); Breach of Contract - As to Payments Due Ross
(Count 4); Breach of Contract - The Exclusion of SAVE (Counts 5, 6); Breach of Contract - The
Exclusion of SAVE from Ownership of IPB (Count 7); Promissory Fraud - The MC and BK Knowingly
False Representation (Count 8); Fraud in the Inducement - The Settlement Agreement False Inducement
(Count 9); Declaratory Judgment (Counts 10, 11); Specific Performance (Count 12); Fraudulent
Concealment (Count 13); and Legal Malpractice (Count 14). See Ross's Compl. [ECF 34].
6
Dfts' Mem. in Supp. Mot. at 4 [ECF 41-1].
7
Id. The Patent enables sales through the enrollment of bank-owned life insurance ("BOLi"), carrierowned life insurance ("IOLI"), non-BOLi and non-IOLI corporate-owned life insurance ("COLI") or
government-owned life insurance ("GOLi") through which specialized funds are set aside as a trust.
Settlement Agrt. ~ 1, Dfts' Supp. Brief, Ex. A [ECF 59-1].
8
Ross's Compl. ~ 2.
3
The Marketing Agreement
In 2006, Ross and Bennett Meyer entered into an agreement for MeyerChatfield to market the PBT. In 2008, Meyer-Chatfield expressed an interest in
obtaining an equity interest in SAVE's 50% ownership in the Patent. After
negotiations, a general oral understanding was reached which provided MeyerChatfield a significant minority equity interest in the Patent. 9
The Settlement Agreement
The Chicago firms, Balshe LLC and The Simon Law Firm (collectively
"Balshe") had also been negotiating with Ross on the purchase of the Patent. Jo
Negotiations broke down when Ross declined Balshe's offer, and on May 27,
2008, Balshe filed a Complaint for Injunctive and Other Relief against Ross and
SAVE in the Circuit Court of Cook County, Illinois. This matter was removed to
the District Court for the Northern District of Illinois under the caption Balshe
LLC and The Simon Law Firm v. Alan J Ross and SAVE Associates, CIV. A. 083256, JJ and assigned to the Honorable James B. Zagel. The complaint averred,
inter alia, that Ross had sold to Balshe all of his right, title, and interest to the
Patent. J2 Apparently, Meyer-Chatfield intervened claiming an interest in the
Patent and the outcome of the District Court action. 13
It was in this federal court action that the Braverman Kaskey, P.C. law
firm agreed to represent Ross. As payment for the professional legal fees, Ross
agreed to give Braverman Kaskey, P.C. an equity interest in a newly-formed
entity, MRB Pooled Benefits, LLC, to which Ross agreed to transfer ownership
.
.
an d interest m t he p atent. J4
The lawsuit settled, and Balshe and Ross executed the June 26, 2008,
Settlement Agreement and General Release ("Settlement Agreement"), wherein
they agreed, inter alia, to settle all disputes and claims between them regarding
the ownership and commercial exploitation of the Patent. JS While MeyerChatfield was not a party to the 08-3256 Illinois federal case, it was a signatory to
the Settlement Agreement due to its legal interest and its right to market the PBT,
. J6
as a sa1 representative.
es
Ross's Compl. ~ 4, 5.
Id. at~ 6.
11
Dfts' Compl. ~ 9 [CIV. A. 12-2760 ECF 1-1].
12
Settlement Agrt., First Recital, Dfts' Supp. Brief, Ex. A.
13
Id. at 1.
14
Ross's Compl. ~~ 7, 8; Dfts' Mem. in Supp. Mot. at 5.
15
Settlement Agrt., Fifth Recital, Dfts' Supp. Brief, Ex. A; Dfts' Compl. ~ 10.
16
Pursuant to a July 14, 2006, Marketing Agreement between Ross and Meyer-Chatfield. Ross's Compl.
~ 4; see also Settlement Agrt., Fourth Recital, Dfts' Supp. Brief, Ex. A.
9
10
4
As part of the Settlement Agreement, Balshe and Ross also agreed to form
a new entity ("Newco") to commercially exploit the Patent. 17 Accordingly, Balshe
formed Institutional Pooled Benefits LLC ("IPB"), a Delaware limited liability
company. 18 Ross was required to execute all the documents required to assign to
Newco (now known as IPB) "all right, title and interest in the Patent". 19
The Revised MRB Agreement
On June 26, 2008, Ross and Braverman Kaskey, P.C. (the law firm
representing Ross), revised their MRB Agreement, specifying that it would be
governed by Pennsylvania law, 20 and referencing the new entity Newco/IPB to be
formed in accordance with the Settlement Agreement, which was to be owned by
Balshe, Ross, and Meyer-Chatfield; and reiterating that Ross would transfer all of
his right, title and interest in the Patent. 21
The Illinois Action and Decision
On February 10, 2012, Balshe and Meyer-Chatfield commenced an action
against Ross in the District Court for the Northern District of Illinois, assigned to
Judge Zagel; to wit: Balshe LLC, The Simon Law Firm, and The Meyer-Chatfield
Corporation v. Alan J Ross and SAVE Associates, CIV. A. 12-966 (the "Illinois
Action"), to enforce the Settlement Agreement. On January 9, 2014, Judge Zagel
issued a memorandum and order, writing, in part, that:
By mid-September 2009, Balshe and Meyer-Chatfield
agreed to and entered into the IPB Operating Agreement ... [Ross
had} refused to transfer [his} interest in the Patent to !PB, alleging
that certain provisions contained in the IPB Operating Agreement
were inconsistent with and contrary to the terms and conditions set
forth in the Settlement Agreement. [Ross] contested ... in particular,
a provision 6(a) that would have prohibited [him} from attempting
to dissuade banks from selling a particular type of policy to
[Balshe and Meyer-Chatfield}. .. This court ordered [Ross} to
transfer his remaining interest in the Patent to IP B in compliance
with the Settlement Agreement upon removal of the language
regarding the right to dissuade.
On October 1, 2010, [Balshe and Meyer-Chatfield] filed
with the Court an Operating Agreement with provision 6(a)
17
Settlement Agrt. if 1, Dfts' Supp. Brief, Ex. A.
Ross's Campi. iii! 15, 16; Dfts' Campi. ii 12.
19
Settlement Agrt. if 2, Dfts' Supp. Brief, Ex. A.
20
Revised from a June 5, 2008, agreement amongst these parties allocating ownership and management
rights to commercially exploit the Patent. Ross's Campi. iii! 8, 9; Revised MRB Agrt. if 11 [CIV. A. 122760 ECF 1-1]; Dfts' Campi. if 12.
21
Revised MRB Agrt. ii 2.
18
5
stricken and signed by MRB Pooled Benefits and Institutional
Longevity Assets LLC.
* * *
[Balshe and Meyer-Chatfield] claim that they have
completed performance of their duties by forming IPB in
conformance with the Settlement Agreement and are entitled to
have all rights, title, and interests in the Patent transferred to /PB.
[Ross] contend[s] that [he] is not required to transfer [his}
remaining property interest in the Patent until the /PB Operating
Agreement conforms to the Settlement Agreement ... Bals he and
[Meyer-Chatfield] transferred their equity interests in /PB to
[Institutional
Longevity
Assets
LLC]
and
MRB,
respectively ... There is nothing in the Settlement Agreement that
restricts [them] from transferring their equity interests. The
ownership rights provided in the /PB Operating Agreement, while
not identical, are consistent with the rights provided in the
Settlement Agreement.
* * *
The IPB Operating Agreement and the Settlement
Agreement are in conformance regarding ownership and
management rights. [Balshe and Meyer-Chatfield} have completed
performance of the Settlement Agreement by forming the IP B and
IP B Operating Agreement in accordance with the Settlement
Agreement.
[Balshe and Meyer-Chatfield] contend that [Ross 's}
continued refusal to transfer his remaining interest in the [ ]
Patent is a breach of the Settlement Agreement. Paragraph 2 of the
Settlement Agreement expressly requires that [Ross] "execute all
necessary documents to assign ... all right, title, and interest in the
patent held by Ross and [SA VE], and any of his/their affiliates,
parents and assigns" to IPB. Instead of transferring his remaining
interest to IPB, [Ross] recorded his remaining interest ... with the
USPTO on December 19, 2011.
[Ross has breached his] obligations under the Settlement
Agreement to sign the IPB Operating Agreement and transfer [hisJ
interest in the Patent to /PB. As a consequence, [Balshe and
Meyer-Chatfield] have suffered a loss from not being able to
exploit its patent interests. [Balshe and Meyer-Chatfield] have
spent over three years and almost $2 million trying to develop
business opportunities to exploit the Patent.
6
* * *
[Ross is] ordered to execute the IP B Operating Agreement
and transfer [his} right, title, and interest in the []Patent to IPB. 22
LEGAL STANDARDS OF REVIEW
When considering a motion to dismiss for failure to state a claim pursuant to Rule
12(b)(6), the court "must accept all of the complaint's well-pleaded facts as true, but may
disregard any legal conclusions." Fowler v. UPMC Shadyside, 578 F.3d 203, 210-11 (3d Cir.
2009). The court must determine "whether the facts alleged in the complaint are sufficient to
show that the plaintiff has a 'plausible claim for relief."' Id. at 211 (quoting Ashcroft v. Iqbal,
556 U.S. 662, 679 (2009)). The complaint must do more than merely allege the plaintiffs
entitlement to relief; it must "show such an entitlement with its facts." Id (citations omitted).
"[W]here the well-pleaded facts do not permit the court to infer more than the mere possibility of
misconduct the complaint has alleged - but it has not 'show[n]' - 'that the pleader is entitled to
relief."' Iqbal, 556 U.S. at 679 (quoting Fed. R. Civ. P. 8(a)) (alterations in original). "A claim
has facial plausibility when the plaintiff pleads factual content that allows the court to draw the
reasonable inference that the defendant is liable for the misconduct alleged." Id. at 678 (citing
Bell Atlantic Corp. v. Tomboy, 550 U.S. 544, 555 (2007)). "Threadbare recitals of the elements
of a cause of action, supported by mere conclusory statements do not suffice." Id. To survive a
motion to dismiss under Rule 12(b)(6), "a plaintiff must allege facts sufficient to 'nudge [his]
claims across the line from conceivable to plausible."' Phillips v. County of Allegheny, 515 F.3d
224, 234 (3d Cir. 2008) (quoting Tomboy, 550 U.S. at 570).
22
Memorandum at 6, Meyer-Chatfield, et al. v. Alan J Ross, et al., CIV. A. 12-966 (N.D. Ill. 2012) [ECF
47-1].
7
The issue of res judicata can be resolved on a Rule 12(b)( 6) motion, "when all relevant
facts are shown by the court's own records, of which the court takes notice." Evans Supplies and
Communication Co., Inc. v. Elliot Lewis Corporation, No. 06-5685, 2007 WL 1630187, at *3
(E.D. Pa. May 31, 2007) (citing Day v. Moscow, 955 F.2d 807, 811 (2d Cir. 1992)). See also
Toscano v. Connecticut General Life Ins. Co., 288 F. App'x 36, 38 (3d Cir. 2008) ("The defense
of claim preclusion, however, may be raised and adjudicated on a motion to dismiss and the
court can take notice of all facts necessary for the decision."). Cf Connelly Found. v. Sch. Dist.
Of Haverford Twp., 461 F.2d 495, 496 (3d Cir. 1972) (res judicata may be raised in a motion to
dismiss prior to an answer).
A court may also take judicial notice of the record from a previous court proceeding
between the parties, see Oneida Motor Freight, Inc. v. United Jersey Bank, 848 F.2d 414, 416 n.
3 (3d Cir. 1988), "[n]ot for the truth of the facts recited therein, but for the existence of the
opinion, which is not subject to reasonable dispute over its authenticity." Mumma v. High-Spec,
Inc., No. 09-1447, 2009 WL 4723258, at * 1 n. 1 (M.D. Pa. Dec. 2, 2009) (quoting Cross
Overseas Agencies, Inc. v. Wah Kwong Shipping Group, Ltd., 181F.3d410, 426 (3d Cir. 1999)).
Here, neither party disputes that Pennsylvania state law applies to all of Ross's claims in
this lawsuit, as well as to the claims of res judicata and collateral estoppel. See Semtek Int'! Inc.
v. Lockheed Martin Corp., 531 U.S. 497, 508 (2001) (adopting, as the federally prescribed rule
of decision, the law that would be applied by state courts in the State in which the federal
diversity court sits). Under Pennsylvania law, the doctrine of res judicata "requires a showing
that there has been (1) a final judgment on the merits in a prior suit involving (2) the same claim
and (3) the same parties or their privies." United States v. 5 Unlabeled Boxes, 572 F.3d 169, 173
(3d Cir. 2009) (citing EEOC v. United States Steel Corp., 921 F.2d 489, 493 (3d Cir. 1990));
8
Daley v. A. W Chesterton, Inc., 37 A.3d 1175, 1189-90 (Pa. 2012) (citing In the Matter of Iulo,
766 A.2d 335, 337 (Pa. 2001)). The doctrine of collateral estoppel, on the other hand, requires a
previous determination that "(1) the identical issue was previously adjudicated; (2) the issue was
actually litigated; (3) the previous determination was necessary to the decision; and (4) the party
being precluded from re-litigating the issue was fully represented in the prior action." Jean
Alexander Cosmetics, Inc. v. L'Oreal USA, Inc., 458 F.3d 244, 249 (3d Cir. 2006) (citing
Henglein v. Colt Indus. Operating Corp., 260 F.3d 201, 209 (3d Cir. 2001)); see also In re
Stevenson, 40 A.3d 1212, 1222 (Pa. 2012). Collateral estoppel customarily refers to issue
preclusion, while res judicata, when used narrowly, refers to claim preclusion. The Third Circuit
has noted that "the preferred usage" of the term res judicata "encompasses both claim and issue
preclusion." 5 Unlabeled Boxes, 572 F.3d at 174 (quoting Venuto v. Witco Corp., 117 F.3d 754,
758 n. 5 (3d Cir.1997)). This Court will adopt this meaning.
DISCUSSION
As this Court opines that many of the arguments made in the motion to dismiss will be
resolved by the arguments offered regarding the doctrines of res judicata and collateral estoppel,
this issue will be addressed first. The remaining arguments will thereafter be considered.
Res Judicata and Collateral Estoppel
As stated, res judicata "requires a showing that there has been a final judgment on the
merits in a prior suit involving the same claim and the same parties or their privies. The essential
inquiry is whether the ultimate and controlling issue(s) has been decided in a prior proceeding in
which the present parties had an opportunity to appear and assert their rights. Chada v. Chada,
756 A.2d 39, 43 (Pa. Super. 2000) (citing Hammel v. Hammel, 636 A.2d 214, 218 (Pa. Super.
1994) (citations omitted)).
9
Here, judicial notice is taken of Judge Zagel's memorandum and order in the Illinois
Action, "[n]ot for the truth of the facts recited therein, but for the existence of the opinion," in
which no one disputes the authenticity. Applying the elements of the doctrines of res judicata
and collateral estoppel to the instant matter, this Court finds that: the parties in this case and the
Illinois Action are one and the same, see Green v. Cooper Hospital/University Medical Center,
No. 97-5745, 1997 WL 749475, at *1-2 (E.D. Pa. Dec. 3, 1997) (district court found identical
parties where second action contained two less and two additional parties than the first action,
but contained defendants common to both); that the central component and contention in both
actions as evidenced by the Revised MRB Agreement (which explicitly references the Settlement
Agreement)23 and the Settlement Agreement itself, is the same - Ross's obligation to transfer all
interest and rights in the Patent; 24 and lastly, that the federal judge, having considered the merits
which led to the Illinois Action, compelled the parties' obligations as contemplated in both the
Settlement and Revised MRB Agreements. Clearly, all the elements of the doctrine of res
judicata have been met.
Ross argues, however, that this Court's decision regarding the application of the doctrines
of res judicata and collateral estoppel is premature pending resolution of the appeal of Judge
Zagel' s decision. He is mistaken. Collateral estoppel "does not require the entry of a judgment,
final in the sense of being appealable." In re Brown, 951 F.2d 564, 569 (3d Cir. 1991); see also
Briggs v. Godby, No. 08-5239, 2009 WL 4756390, at *6 n. 5 (E.D. Pa. Dec. 10, 2009). Rather,
'"final judgment[ ] includes any prior adjudication of an issue in another action that is
determined to be sufficiently firm to be accorded conclusive effect."' Brown, 951 F.2d at 569
(quoting Restatement (Second) of Judgments §13 at 132 (1982)). Further, "insistence on a final
23
24
See Revised MRB Agrt., Seventh Recital.
See Id. at~ 1; Settlement Agrt., ~ 2, Dfts' Supp. Brief, Ex. A.
10
and fully appealed judgment can involve needless duplication and expense to decide the same
issue or, alternatively, undue delay in a second action while the first action is brought to a
complete finish." In re Brown, 951 F.2d at 569 (citing Restatement (Second) of Judgments §13
cmt. g). Thus, "for purposes of issue preclusion ... 'final judgment' includes any prior
adjudication of an issue in another action that is determined to be sufficiently firm to be accorded
conclusive effect." Id. (quoting Restatement (Second) of Judgments §13); see also Henglein, 260
F.3d at 210 (citing Brown with approval); Briggs, 2009 WL 4756390, at *6 n. 5.
In his memorandum and order, Judge Zagel directs Ross to "execute the IPB Operating
Agreement and transfer [his] right, title, and interest in the [ ] Patent to IPB". This directive is
"sufficiently firm" for purposes of deciding the import and effects of the doctrines of res judicata
and collateral estoppel upon this matter. Thus, the final judgment on the issues and claims in the
Illinois Action that are common to this instant action will be considered to comprise an "essential
similarity of the underlying events giving rise to the various legal claims," Lubrizol Corp. v.
Exxon Corp., 929 F.2d 960, 963 (3d Cir. 1991) (citation omitted), between the same adversaries
in both actions, thereby, fulfilling the requisite elements of the doctrines of res judicata and
collateral estoppel. In considering the averments in Ross's Complaint and the Illinois Action
decision, this Court finds that most of Ross's claims in the amended complaint have been
adjudged by Judge Zagel, to wit: In Counts 1 through 7, Ross contends that a breach of contract
occurred in particular instances in his relationship with Defendants. Specifically, Ross alleges
that:
•
In Count 1, Defendants breached the Revised MRB Agreement when MeyerChatfield, Braverman Kaskey, and IPB sent a demand letter in December 2008
that Ross comply with the Revised MRB Agreement.
11
•
In Count 2, Defendants' breach occurred when Defendants entered into and
approved a secret September 2009 agreement in breach of Section 3(a) of the
Revised MRB Agreement.
•
In Count 3, Defendants breached Section 4(c) of the Revised MRB Agreement by
precluding Ross from enrolling policy owners into the PBT, which MeyerChatfield had the right to market pursuant to the Marketing Agreement between
Ross, Meyer-Chatfield, and Bennett Meyer.
•
In Count 4, Defendant Meyer-Chatfield is alleged to have withheld the final
payment due Ross pursuant to the Revised MRB Agreement.
•
In Counts 5 and 6, Defendants intentionally excluded SAVE from participating in
the Management Committee of MRB.
•
In Count 7, Defendant breached the June Agreement by excluding SAVE from
participating in the ownership of IPB.
These claims cannot herein be re-litigated, since they were addressed by Judge Zagel as
follows:
•
•
As to Ross' s contention that Defendants breached Section 4(c) of the Revised MRB
Agreement by precluding Ross from enrolling policy owners into the PBT, before any
enrollments could occur, Ross had to first transfer the Patent to IPB, which he refused
to do, and was subsequently ordered to comply in the Illinois Action.
•
26
As to the "Secret Agreement," Ross's signature is found on the IPB Operatin~
Agreement, the same document Ross refers as the "Secret Agreement" in Count 2. 2
Attached to the IPB Operating Agreement is a statement by Ross that the execution
thereof "does not in any way confirm or validate the legitimacy of the Bennett Meyer
execution of this document." 26 However, Judge Zagel found the IPB Operating
Agreement was in conformance with the Settlement Agreement, and ordered Ross to
sign the IPB Operating Agreement.
•
25
Judge Zagel found that Ross was in breach of the Settlement Agreement (by refusing
to sign the IPB Operating Agreement). Defendants were, therefore, justified in issuing
the "demand letter" and cannot be considered in breach of the contract.
Judge Zagel further determined that Ross did not have a voting right or the ability to
exercise managerial control under either the Settlement Agreement or the IPB
Operating Agreement, and that the executed IPB Operating Agreement conferred a
Ross's Coml. iii! 55, 56.
Dfts' Supp. Brief, Attachment, Ex. D [ECF 59-4].
12
10% non-voting membership interest to Ross in IPB. This judicial finding precludes
Ross's claim that he was excluded from ownership in IPB.
In addition, because Judge Zagel's decision in the Illinois Action holds that Ross
materially breached the June 26, 2008, Settlement Agreement and, by implication, the
simultaneously executed Revised MRB Agreement, Ross's claim that Defendants breached the
Revised MRB Agreement fails as a matter of law. It is a well-settled principle of contract law
that "a material breach by one party to a contract entitles the non-breaching party to suspend
performance." Figueroa v. Precision Surgical, Inc., 423 F. App'x 205, 209 (3d Cir. 2011)
(quoting Widmer Engineering, Inc. v. Dufalla, 837 A.2d 459, 467 (Pa. Super. 2003)); see also S
& R Corp. v. Jiffy Lube Intern., Inc., 968 F.2d 371, 376 (3d Cir. 1992) ("Under basic contract
principles, when one party to a contract feels that the other contracting party has breached its
agreement, the non-breaching party may either stop performance and assume the contract is
avoided, or continue its performance and sue for damages. Under no circumstances may the nonbreaching party stop performance and continue to take advantage of the contract's benefits."). "It
is true that Pennsylvania courts have "long recognized the established precept of contract law
that a material breach of a contract relieves the non-breaching party from any continuing duty of
performance thereunder." J.K. v. Council Rock School Dist., 833 F. Supp. 2d 436, 454 (E.D. Pa.
2011); see also LJL Transp., Inc. v. Pilot Air Freight Corp., 962 A.2d 639, 648 (Pa. 2009) ("It is
equally well established, that '[a] party also may not insist upon performance of the contract
when he himself is guilty of a material breach of the contract.'")).
Ross concedes to his own breach of contract and refusal to transfer ownership interest in
the Patent. Ross's Complaint clearly states that "SAVE withheld transfer of the Patent."27
Additionally, Ross declared that "[s]ince June 26, 2008, the date of the execution of the
27
Ross's Compl. ~ 16 n. 1.
13
Settlement Agreement, and to the current time, [he has] not engaged in any activity of any sort in
which [he has] attempted to transfer, sell or license the [] Patent to any third competitor, party or
entity of any sort."28 Hence, Ross's claims of alleged breaches by Defendants fail, as a matter of
law, because Defendants' actions occurred after Ross's material breach; for example:
•
The December 2008 letter demanding that Ross sign the IPB Operating Agreement
(Count 1);29
•
The "September 2009 Secret Agreement" (the IPB Operating Agreement) (Count 2); 30
•
Cutting off communication with Ross from July 2009 to March 12, 2010 (Counts 3,
11);31
•
Withholding a payment to Ross which was purportedly "due on July 1, 2009" (Count
4); 32 and
•
By excluding Ross from participating in the management of MRB after it was formed in
September 2008 and from participating in the management and ownership of IPB after
the Settlement Agreement was executed on June 26, 2008) (Counts 5, 6, 7, 10).33
As to Ross's claims for declaratory judgment pled in Counts 10 and 11, these also fail as
a matter of law because (1) Judge Zagel has addressed these arguments and (2) requests for
declaratory judgments that a contract has been breached are inappropriate where they merely
duplicate other claims for breach of contract in the same complaint, as is done here. ATD-
American Co. v. Krueger Int'!, Inc., No. 12-0032, 2012 U.S. Dist. LEXIS 55650, at *35-36 (E.D.
Pa. Apr. 20, 2012).
In Count 12, Ross pleads for "specific performance" of the Revised MRB Agreement.
Clearly, Judge Zagel has ruled on this issue, by ordering the transfer of Ross's interest in the
Patent, and, therefore, no further comment is warranted. Consequently, it is this Court's findings
Ross Deel.,~ 3, Sept. 4, 2013, Dfts' Mem. Supp. Mot., Ex. A [ECF 41-2].
Ross's Compl. ~~ 52-53.
30
Id. at~~ 55-56.
31
Id. at~~ 58, 85-86.
32
Id. at~ 61.
33
Id. at~~ 64, 67, 70, 83.
28
29
14
that Counts 1, 2, 3, 4, 5, 6, 7, 10, 11, and 12 of Ross's Complaint are barred by the doctrines of
res judicata and collateral estoppel and are, therefore, dismissed.
Ross titles Count 8 "promissory fraud" and contends that Defendants willfully
misrepresented to Ross and SAVE that all management decisions would be approved and
executed by unanimous vote, in violation of Section 3(a) of the Revised MRB Agreement. 34
Defendants contend that Ross's claim for promissory fraud is in actuality a breach of contract
claim and precluded by the "gist of the action" doctrine. This Court agrees.
The gist of the action "doctrine is designed to maintain the conceptual distinction
between breach of contract claims and tort claims. As a practical matter, the doctrine precludes
plaintiffs from re-casting ordinary breach of contract claims into tort claims." Pediatrix
Screening, Inc. v. TeleChem Int'!, Inc., 602 F.3d 541, 548 (3d Cir. 2010) (quoting eToll, Inc. v.
Elias/Savion Adver., Inc., 811 A.2d 10, 14 (Pa. Super. 2002) (citation omitted)). In some
circumstances, "it is possible that a breach of contract also gives rise to an actionable tort[.] To
be construed as in tort, however, the wrong ascribed to defendant must be the gist of the action,
the contract being collateral." eToll, Inc., 811 A.2d at 14 (alteration in original) (citation
omitted). That the misconduct was fraudulent does not bar application of the gist of the action
principle. Pediatrix Screening, Inc., 602 F.3d at 548 (citing Werwinski v. Ford Motor Co., 286
F.3d 661, 681 (3d Cir. 2002)); see also Galdieri v. Monsanto Co., 245 F. Supp. 2d 636, 650
(E.D. Pa. May 7, 2002) (a "breach of contract claim cannot be 'bootstrapped' into a fraud claim
merely by adding the words 'fraudulently induced' or alleging the contracting parties never
intended to perform."'). 35
Ross's Compl. ~~ 72-75.
See id. at ~ 74 (" ... MC and BK never actually intended to recognize the unanimity terms of the
Agreement and [ ] they willfully and knowingly misrepresented their actual intention to ignore Section
34
35
15
Fraud claims should be barred where they arose during the course of the parties'
contractual relationship; where the allegedly fraudulent acts also were breaches of duties
"created and grounded in the ... contract[;]" and where the damages "would be compensable in an
ordinary contract action [and] thus, the claim would essentially duplicate a breach of contract
action." Pediatrix Screening, Inc., 602 F.3d at 548 (citing eToll, Inc., 811 A.2d at 20-21). That
is, where fraud claims are "inextricably intertwined" with the contract claims, the gist of the
action is contractual, and the fraud claim should be dismissed. eToll, Inc., 811 A.2d at 21.
Here, Section 3(a) of the Revised MRB Agreement provides that all MRB management
decisions will require the unanimous vote of the MRB' s Executive Committee, comprised of
David L. Braverman, Bennett Meyer, and Ross. 36 This Court finds that the complaint's numerous
references to Section 3(a) 37 cannot belie the gist of Ross's actual claims in this matter, i.e.,
claims of breach of the Revised MRB Agreement. Therefore, Ross's claim for promissory fraud
duplicates his contract claims arising out of the Revised MRB Agreement and is, therefore,
dismissed.
Remaining Counts Addressed in Defendants' Motion to Dismiss
Defendants have not argued that Ross' s remaining claims - fraud in the inducement
(Count 9), fraudulent concealment (Count 13), and legal malpractice (Count 14) - are directly
affected by the Illinois Action decision. However, this Court finds that fraud in the inducement
and fraudulent concealment, as they relate to negotiations leading up to both the MRB
Agreement and the Settlement Agreement, 38 are affected by Judge Zagel's decision and should
3(a) to Ross .... "); see also Id. at~ 79 ("Plaintiffs were fraudulently induced into executing the Settlement
Agreement. ... ").
36
Revised MRB Agrt. ~ 3.
37
See Ross's Compl. Counts 1, 2, 5, and 6 - all alleging various breaches of the Revised MRB
Agreement.
38
See Id. at Counts 9, 13.
16
likewise be dismissed. Notwithstanding, to the extent Defendants address these counts in their
motion to dismiss, this Court is persuaded that dismissal of these counts is warranted, as will be
addressed.
As stated, Ross alleges that he was "fraudulently induced" (Count 9) into executing the
Settlement Agreement, when Defendants misled him that they would abide by Section 3(a), the
unanimity of voting requirement, and misrepresented that he would be permitted to participate in
the management of IPB. Where "'the parties, without any fraud or mistake, have deliberately put
their engagements in writing, the law declares the writing to be not only the best, but the only
evidence of their agreement[;]'" that "'[a]ll preliminary negotiations, conversations and verbal
agreements are merged in and superseded by the subsequent written contract[;]"' and that
'"unless fraud, accident, or mistake be averred, the writing constitutes the agreement between the
parties; and its terms cannot be added to nor subtracted from by parol evidence."' Toy v.
Metropolitan Life Ins. Co., 928 A.2d 186, 204 (Pa. 2007) (quoting Yocca v. Pittsburgh Steelers
Sports, Inc., 854 A.2d 425, 436 (Pa. 2004) (citations omitted)).
For the rule to apply there must be a writing that represents the "entire contract between
the parties." Yocca, 854 A.2d at 436 (citing Gianni v. Russell & Co., 126 A. 791, 792 (Pa.
1924)). To determine whether or not a writing is the parties' entire contract, the writing must be
looked at and "if it appears to be a contract complete within itself couched in such terms as
import a complete legal obligation without any uncertainty as to the object or extent of the
[parties'] engagement, it is conclusively presumed that [the writing represents] the whole
engagement of the parties .... " Id. An integration clause that states that the writing is meant to
represent the parties' entire agreement is a clear sign that the writing is meant to be just that, and
thereby expresses all of the parties' negotiations, conversations and agreements made prior to its
17
execution. Yocca, 854 A.2d at 436. Under Pennsylvania law, the rule applies to fraudulent
inducement, fraudulent misrepresentation, and negligent misrepresentation claims. See Coram
Healthcare Corp. v. Aetna US. Healthcare, Inc., 94 F. Supp. 2d 589, 595 (E.D. Pa. 1999).
However, parol evidence may be introduced to vary a writing meant to be the parties'
entire contract when a party avers that the contract is ambiguous or that a term was omitted from
the contract because of fraud, accident, or mistake. Yocca, 854 A.2d at 437. The Pennsylvania
Supreme Court has restricted the exception to allegations of fraud in the execution of a contract,
and has refused to apply the exception to allegations of fraud in the inducement of a contract. Id.
at n. 26. (citing HCB Contractors v. Liberty Place Hotel Associates, 652 A.2d 1278, 1279 (Pa.
1995)). Where the parol evidence rule will bar the admission of statements necessary to establish
a contract or tort claim, a court may properly grant a motion to dismiss. See Coram Healthcare
Corp., 94 F.Supp.2d at 595; see also Bray v. Dewese, No. 07-4011, 2008 WL 623824, at *2
(E.D. Pa. Mar. 6, 2008). Other courts in this district have not hesitated to apply the parol
evidence rule upon the existence of an incorporation/integration clause resulting in the dismissal
of fraud in the inducement claims. See Sheinman Provisions, Inc. v. Nat'! Deli, LLC, No. 08-453,
2008 WL 2758029, at *3 (E.D. Pa. July 15, 2008); Cottman Transmission Systems v. McEneany,
No. 05-6768, 2007 WL 210094, at *8-9 (E.D. Pa. Jan. 19, 2007); Interwave Technology, Inc. v.
Rockwell Automation, Inc., No. 05-398, 2005 WL 3605272, at* 19 (E.D. Pa. Dec. 30, 2005).
Here, Ross does not aver that the Revised MRB Agreement is ambiguous, or that any
terms were omitted due to fraud, accident, or mistake. In fact, the Settlement Agreement (clearly
referenced in the Revised MRB Agreement) is a fully integrated written contract, evidenced by
its terms and the integration clause, which reads as follows:
This Agreement contains the entire agreement between the Parties relating
to the rights herein granted and the obligations herein assumed, and completely
18
merges and supersedes any prior written or oral agreements or representations
between the Parties concerning the subject matter thereof... All parties warrant
that no statement, promise, representation, warranty, condition, inducement or
agreement of any kind with respect to the subject matter of this Agreement shall
be, or has been, relied ufgon by the respective Party unless specifically contained
and incorporated herein. 9
Further, there can be no "misrepresentation" with respect to Ross's ability to participate
in the management of IPB when he negotiated for, with the assistance of other separate counsel
(Stanley Twarog, Esquire, and Henry Sullivan, Esquire of the Boston-based firm, Mintz Levin)4°
and agreed in writing to a 10% non-voting interest, as provided in the Settlement Agreement. 41
Consistent with the case law cited, Ross's claims at Count 9 fail, as a matter of law, and are
dismissed.
In Count 13 (fraudulent concealment), Ross asserts that but for Defendants' concealed
assurances to Balshe that only Balshe and Meyer-Chatfield would maintain management and
voting authority of IPB, Ross would not have executed the Settlement Agreement and that he
was harmed by such assurances. 42 As stated, however, the court-enforced execution of the IPB
Operating Agreement conferred a 10% non-voting membership to Ross, and no right to
participate in the management oflPB's affairs. 43 All of the parties to the Settlement Agreement,
including Ross, upon the advice of his counsel, knew and agreed that Ross would be excluded
from the management ofIPB. There was no concealment, much less fraudulent, of this portion of
the Settlement Agreement; accordingly, Count 13 for fraudulent concealment is dismissed for
failure to state a claim.
Settlement Agrt. ii 19, Dfts' Supp. Brief, Ex. A.
Dfts' Mem. in Supp. Mot. at 7.
41
Settlement Agrt. ii 4, Dfts' Supp. Brief, Ex. A.
42
Ross's Compl. iii! 95-103.
43
Settlement Agrt. ii 4, Dfts' Supp. Brief, Ex. A. See also id. at §5 (granting Meyer-Chatfield ''the
exclusive right to manage all aspects of [IPB's] involvement with BOLi"); Id. at §8 (granting Balshe "the
exclusive right to manage all aspects of [IPB's] involvement with ... COLI and ... GOLi").
39
40
19
Turning to Ross's claim for legal malpractice (Count 14), addressed in the Defendants'
motion to dismiss, Pennsylvania imposes a two-year statute of limitations on tortious conduct,
including legal malpractice actions. See 42 Pa. C.S.A. §5524; Knapick v. Connelly, 639 F.3d
600, 606 (3d Cir. 2011 ). Pennsylvania favors strict application of statutes of limitations. Knapick,
639 F.3d at 606 (citing Glenbrook Leasing Co. v. Beausang, 839 A.2d 437, 441 (Pa. Super.
2003)). The trigger for the accrual of a legal malpractice action is not the realization of actual
loss, but the occurrence of a breach of duty. Wachovia Bank, NA. v. Ferretti, 935 A2d 565, 572
(Pa. Super. 2007). Under the occurrence rule, "the statutory period commences upon the
happening of the alleged breach of duty." Id. at 572 (quoting Robbins v. Seventko Orthopedic
Surgeons, Inc. v. Geisenberger, 674 A.2d 244, 246-47 (Pa. Super. 1996)).
Ross alleges that the individuals and firm of Braverman Kaskey, P.C., in conspiracy with
Meyer-Chatfield, breached their ethical and professional duty of care, good faith, and their
fiduciary duty during negotiations that lead to the June 26, 2008, Settlement and Revised MRB
Agreements. 44 Pursuant to Pennsylvania law, Ross had two years from the alleged breach of duty
to bring a cause of action for legal malpractice against Defendants, i.e., by June 26, 2010. Having
brought this claim well past the two-year statute of limitations, Ross's claim fails and Count 14
is dismissed as time-barred.
Motion to Dismiss Based Upon Rule 12(b)(7)
In light of the analysis made, this Court need not address Defendants' arguments under
Rule 12(b)(7).
44
See Ross's Compl. at 'if'il 106, 107.
20
CONCLUSION
For the foregoing reasons, Defendants' motion to dismiss is granted. An appropriate
order consistent with this memorandum opinion follows.
Nitza I. Quinones Alejandro, US.D.C.J
21
Disclaimer: Justia Dockets & Filings provides public litigation records from the federal appellate and district courts. These filings and docket sheets should not be considered findings of fact or liability, nor do they necessarily reflect the view of Justia.
Why Is My Information Online?