PARAMOUNT FINANCIAL COMMUNICATIONS, INC. et al v. BROADRIDGE INVESTOR COMMUNICATION SOLUTIONS, INC.

Filing 15

MEMORANDUM AND/OR OPINION. SIGNED BY HONORABLE JAN E. DUBOIS ON 7/6/15. 7/7/15 ENTERED AND COPIES E-MAILED.(kw, )

IN THE UNITED STATES DISTRICT COURT
FOR THE EASTERN DISTRICT OF PENNSYLVANIA
PARAMOUNT FINANCIAL
COMMUNICATIONS, INC., doing
business as “PLAN MANAGEMENT
CORP.,” and
JONATHAN MILLER,
Plaintiffs,

CIVIL ACTION

NO. 15-405

v.
BROADRIDGE INVESTOR
COMMUNICATION SOLUTIONS, INC.,
Defendant.
DuBois, J.

July 6, 2015
MEMORANDUM

I.

INTRODUCTION
This breach of contracts/torts case arises out of two contracts: a Marketing Agreement

between plaintiffs Paramount Financial Communications, Inc., doing business as “Plan
Management Corp.,” (“Plan Management”) and Jonathan Miller and defendant Broadridge
Investor Communication Solutions, Inc. (“Broadridge”) and a Stock Purchase Agreement
between plaintiff Miller and defendant Broadridge. Plaintiffs allege that defendant entered into
the Marketing Agreement despite knowing that it could not perform under the contract.
Plaintiffs further contend that defendant fraudulently and/or negligently induced plaintiffs to
enter into the Marketing Agreement and plaintiff Miller to enter into the Stock Purchase
Agreement.
Presently before the Court is defendant’s Partial Motion to Dismiss Counts II, III, and IV
of the Complaint. For the reasons set forth below, defendant’s Motion is granted in part and
denied in part.

II.

BACKGROUND
In the Complaint, plaintiffs allege the following facts:1 On March 8, 2010, plaintiffs and

defendant entered into a five-year Marketing Agreement, with a term extending from March 8,
2010 to March 8, 2015. (Compl. ¶ 7.) Defendant terminated the Marketing Agreement as of
March 10, 2015. (Id. ¶ 24.)
Section 1 of the Marketing Agreement provides:
By the date that is twelve (12) months from the Effective Date, Broadridge will
use commercially reasonable efforts to refer at least 200 Viable Clients to Plan
Management (as adjusted, the “Referral Target”). During each twelve (12) month
period thereafter during the Term [March 8, 2010 to March 8, 2015], Broadridge
will use commercially reasonable efforts to refer such number of Viable Clients as
equals or exceeds the Referral Target applicable to the previous twelve month
period multiplied by one hundred and ten (110%) percent. As used herein,
“Viable Client” is a corporate issuer that has any type of securities or securities
related incentive plan or that expresses an interest in implementing such a plan
and expresses to Plan Management or Broadridge an interest in learning about
Plan Management’s services and which observes a demonstration of Plan
Management’s OptionTrax® system.
(Id. ¶ 12.)
As of the date plaintiffs filed the Complaint, January 28, 2015, defendant had referred
only fourteen “Viable Clients” to Plan Management. (Id. ¶ 14.) Plaintiffs aver that the Marketing
Agreement required defendant to use commercially reasonable efforts to refer at least 1,221
Viable Clients by March 8, 2015, and that defendant “intentionally failed and refused to refer”
Viable Clients to Plan Management. (Id. ¶¶ 13, 16-17.)

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As required on a motion to dismiss, the Court “accept[s] all factual allegations as true, [and]
construe[s] the complaint in the light most favorable to the plaintiff.” Phillips v. Cnty. of
Allegheny, 515 F.3d 224, 231, 233 (3d Cir. 2008) (internal quotation marks omitted).

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Plaintiff Jonathan Miller, the principal shareholder of Plan Management, also entered into
a Stock Purchase Agreement with defendant’s affiliate, Broadridge Output Solutions, Inc.
(“BOSI”). (Id. ¶ 19.) Under the Stock Purchase Agreement, BOSI purchased shares of Stock
Trans, Inc. from plaintiff Miller. (Id. ¶ 19.) Plaintiffs allege that defendant entered into the
Marketing Agreement to induce plaintiff Miller to enter into the Stock Purchase Agreement and
never intended to perform its obligations under the Marketing Agreement. (Id. ¶¶ 20-21.)
On June 5, 2014, plaintiffs sent a letter to defendant’s counsel as a formal notice of
defendant’s alleged breach of the Marketing Agreement. (Id. Ex. B.) On June 25, 2014,
defendant’s counsel sent a letter to plaintiffs that stated, inter alia:
The Marketing Agreement’s definition of “Viable Client” requires that clients
referred to Plan Management express an interest in learning about Plan
Management’s services…Plan Management has not had a feasible
infrastructure to support the types of services required by Broadridge’s clients.
For example, Plan Management does not have the name recognition in the
industry necessary to compete for the type of clients served by Broadridge’s
transfer agent business. Due in no small part to Plan Management’s lack of
name recognition, these clients were not interested in being referred to Plan
Management and, therefore, were not “Viable Clients.”
(Id. Ex. C.)
Before entering into the Marketing and Stock Purchase Agreements, defendant
“performed extensive due diligence upon Plan Management’s reputation and capabilities.”
(Id. ¶¶ 18, 42.) Plaintiffs aver that Plan Management’s name recognition and infrastructure have
increased since defendant performed its due diligence and that “Broadridge’s 2014 Admission
that it viewed Plan Management’s infrastructure and name recognition as lacking in 2014,
evidences, conclusively, that it viewed such attributes as lacking” when it executed the contract
in 2010. (Id. ¶ 43.)

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In the Complaint, with respect to the Marketing Agreement, plaintiffs allege: breach of
contract (Count I), fraud/fraudulent inducement (Count II), constructive/equitable fraud (Count
III), and negligent misrepresentation (Count IV). With respect to the Stock Purchase Agreement,
plaintiffs allege: fraud/fraudulent inducement (Count II), constructive/equitable fraud (Count
III), and negligent misrepresentation (Count IV).
III.

LEGAL STANDARD
Rule 12(b)(6) of the Federal Rules of Civil Procedure provides that, in response to a

complaint, a defense of “failure to state a claim upon which relief can be granted” may be raised
by motion to dismiss. To survive a motion to dismiss brought under Rule 12(b)(6), a civil
plaintiff must allege facts that “raise a right to relief above the speculative level.” Victaulic Co.
v. Tieman, 499 F.3d 227, 234 (3d Cir. 2007) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544,
555 (2007)). 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
Twombly, 550 U.S. at 570). Additionally, “[i]n alleging fraud…a party must state with
particularity the circumstances constituting fraud. ” Fed. R. Civ. P. 9(b). “Malice, intent,
knowledge, and other conditions of a person's mind may be alleged generally.” Id.
IV.

DISCUSSION
The Court addresses plaintiffs’ claims with respect to the Marketing Agreement and

Stock Purchase Agreement in turn.
A.

Plaintiffs’ Claims With Respect to the Marketing Agreement

In Counts II, III, and IV of the Complaint, plaintiffs allege that defendant fraudulently or
negligently misrepresented its intention to perform under the Marketing Agreement to induce

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plaintiffs to enter into the contract. (Compl. ¶¶ 20-21, 37-38.) Defendant contends that these
claims are barred under Pennsylvania’s gist of the action doctrine. The Court agrees.
The gist of the action doctrine bars a plaintiff from recovering under tort theories for a
defendant’s breach of contract. TruePosition, Inc. v. Sunon, Inc., No. 05-3023, 2006 WL
1451496, at *3 (E.D. Pa. May 25, 2006) (internal citation omitted). Whether a claim sounds in
contract or tort depends on “the nature of the duty alleged to have been breached.” Bruno v. Erie
Ins. Co., 106 A.3d 48, 68 (Pa. 2014). “A claim should be limited to a contract claim when the
parties’ obligations are defined by the terms of the contracts, and not by the larger social policies
embodied by the law of torts.” StockTrans, Inc. v. Rostolder, No. 07-1339, 2008 WL 4111916, at
*6 (E.D. Pa. Sept. 3, 2008) (internal quotations and citation omitted).
In this case, plaintiffs base their tort claims on representations and omissions that are
grounded in defendant’s duties under the contract: namely, defendant’s duty to refer Viable
Clients to Plan Management. See Penn City Investments, Inc. v. Soltech, Inc., No. 01-5542, 2003
WL 22844210, at *3 (E.D. Pa. Nov. 25, 2003) (concluding that since the representations at issue
concerned specific duties that the parties later outlined in the contract, “the gist of the action
doctrine preclude[d] such statements from forming the basis of a tort cause of action”). The
parties incorporated defendant’s promise to refer clients to Plan Management into the Marketing
Agreement. Thus, “the fraud is properly considered as fraud relating to the performance of the
contract,” which is barred under the gist of the action doctrine. Quandry Solutions, Inc. v.
Verifone Inc., No. 07-097, 2007 WL 655606, at *3 (E.D. Pa. Mar. 1, 2007) (dismissing
plaintiff’s tort claims under the gist of the action doctrine, because the claims essentially alleged

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that defendant committed fraud by inducing plaintiff into a contract it did not intend to honor);
StockTrans, 2008 WL 4111916 at *6 (same).
Furthermore, the gist of the action doctrine bars plaintiffs’ tort claims, to the extent that
they concern defendant’s alleged omissions of material fact: namely, defendant’s intention not to
perform under the contract and conclusion that plaintiffs’ infrastructure and name recognition
would prevent defendant from fulfilling its contractual obligations. (Compl. ¶¶ 22, 41, 61.)
Defendant’s alleged omissions of material fact are “closely intertwined with [plaintiffs’] breach
of contract claim, as [they] were intended to facilitate [defendant’s]…breach of the agreement.”
StockTrans, 2008 WL 4111916 at *6. As such, to the extent that plaintiffs’ tort claims concern
defendant’s alleged omissions of material fact, those claims are also barred under the gist of the
action doctrine. Id.
For these reasons, that part of defendant’s Partial Motion to Dismiss, which seeks
dismissal of Counts II, III, and IV of the Complaint, is granted, to the extent that the claims relate
to the Marketing Agreement.2
B.

Plaintiffs’ Claims With Respect to the Stock Purchase Agreement
1. Fraud/Fraudulent Inducement (Count II)

Plaintiffs allege that defendant fraudulently promised performance under the Marketing
Agreement to induce plaintiff Miller to enter into the Stock Purchase Agreement.
(Compl. ¶¶ 37-40.) The Court concludes that plaintiffs have stated a plausible claim for
fraudulent inducement with respect to the Stock Purchase Agreement.
2

Because the Court concludes that plaintiffs’ tort claims are barred under the gist of the action
doctrine, it does not reach defendant’s arguments related to plaintiffs’ other tort claims – its
constructive fraud and negligent misrepresentation claims in Counts III and IV.

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Under Pennsylvania law, the elements of fraud include: “(1) a representation; (2) material
to the transaction; (3) made falsely, with knowledge of its falsity or recklessness as to whether it
is true or false; (4) with the intent of misleading another to rely on the misrepresentation; (5)
justifiable reliance on the misrepresentation; and (6) injury proximately caused by the reliance on
the misrepresentation.” Gibbs v. Ernst, 647 A.2d 882, 889 (Pa.1994); Eigen v. Textron
Lycoming Reciprocating Engine Div., 874 A.2d 1179, 1185 (Pa. Super. Ct. 2005) (applying the
same standard to a fraudulent inducement claim). Although a party alleging fraudulent
inducement must “point to a specific statement that caused a particular harm,” De Lage Landen
Fin. Servs., Inc. v. Rasa Floors, LP, 792 F. Supp. 2d 812, 837 (E.D. Pa. 2011), “[a] statement of
present intention which is false when uttered may constitute a fraudulent misrepresentation of
fact.” Mellon Bank Corp. v. First Union Real Estate Equity & Mortg. Investments, 951 F.2d
1399, 1409 (3d Cir. 1991). In other words, “[a] representation of the maker’s own intention to do
or not to do a particular thing is fraudulent if he does not have that intention.” Id. at 1410. The
Court addresses each of the elements of fraud in turn.
First, it is undisputed that defendant represented its intention to refer clients to Plan
Management when it entered into the Marketing Agreement. (Compl. ¶ 53.) Second, plaintiffs
allege that Miller relied on this representation in entering into the Stock Purchase Agreement,
demonstrating that the representation was material to the transaction. (Id. ¶ 39.)
Third, plaintiffs sufficiently allege that defendant falsely promised to perform under the
Marketing Agreement. (Id. ¶¶ 37-40.) To meet Rule 9(b)’s pleading requirements, plaintiffs must
plead facts to support the inference that defendant knew its representations were false when
made. Timberline Tractor & Marine, Inc. v. Xenotechnix, Inc., No. 98-3629, 1999 WL 248644,

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at *3 (E.D. Pa. Apr. 27, 1999). In this case, plaintiffs base their fraudulent inducement claim on
the following allegations: defendant conducted extensive due diligence before executing the
Marketing and Stock Purchase Agreements, Plan Management’s infrastructure and name
recognition have increased since defendant conducted said due diligence, and defendant
acknowledged in 2014 that Plan Management did not have the infrastructure that would allow
defendant to refer clients to plaintiffs. (Compl. ¶¶ 18, 40-42.) Taking these allegations as true,
one could reasonably infer that defendant viewed Plan Management’s infrastructure and name
recognition as lacking when it executed the Marketing Agreement in 2010 and thus made a false
promise to perform under the contract. (Id. ¶ 42.)
Plaintiffs sufficiently allege the remaining elements of fraudulent inducement. Fourth,
plaintiffs aver that defendant had the intent to mislead plaintiff Miller to rely on its promise to
perform. Compl. ¶ 37; Fed. R. Civ. P. 9(b). Finally, plaintiffs allege that plaintiff Miller relied on
defendant’s promise to perform in deciding to sell his shares of StockTrans, Inc. to BOSI, and
that he suffered a loss as a result, as he accepted a lower price for those shares. (Id. ¶ 48-49.)
Those allegations satisfy the fifth and sixth elements of plaintiffs’ fraud claim.
Because plaintiffs plead sufficient facts to state a plausible claim of fraudulent
inducement, the Court denies defendant’s Partial Motion to Dismiss as to Count II, relating to the
Stock Purchase Agreement.
2. Constructive Fraud and Negligent Misrepresentation (Counts III and IV)
As to Counts III and IV of the Complaint, plaintiffs allege that defendant induced
plaintiff Miller to enter into the Stock Purchase Agreement through omissions of material fact:
namely, its intention not to perform under the contract and conclusion that Plan Management’s

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infrastructure and name recognition would prevent defendant from fulfilling its contractual
obligations.3 (Compl. ¶¶ 22, 37-41, 61.) The Court dismisses Counts III and IV because
defendant did not have a duty to speak.
An omission is actionable in tort law only if defendant had a duty to speak. See Chiarella
v. United States, 445 U.S. 222, 228 (1980) (“When an allegation of fraud is based upon
nondisclosure, there can be no fraud absent a duty to speak.”); Goldfish Shipping, S.A. v. HSH
Nordbank AG, No. 07-3518, 2008 WL 4809410, at *9 (E.D. Pa. Nov. 3, 2008), aff’d 377 F.
App’x 150 (3d Cir. 2010). Generally, such a duty arises when a fiduciary or special relationship
exists between parties. See Morton’s Rest. Grp., Inc. v. Charest, No. 97-7013, 1998 WL 767444,
at *4 (E.D. Pa. Nov. 4, 1998). A duty to speak rarely arises between experienced business
entities in an arms-length transaction. Id.
In this case, defendant’s claims arise out of arms-length transactions between
sophisticated parties: namely, the agreement between Plan Management, Miller, and Broadridge
to enter into the Marketing Agreement and between Miller and BOSI to enter into the Stock
Purchase Agreement. The parties have not cited any Pennsylvania cases imposing a duty to
speak on sophisticated business entities, absent a special or fiduciary relationship, and the Court
has found none. See Penns Crossing Builders v. Jeld-Wen, Inc., No. 10-3967, 2011 WL
3

To the extent that Count IV- claim of negligent misrepresentation - is based on defendant’s
affirmative promise to perform under the Marketing Agreement, plaintiffs’ claim fails, because a
party cannot be negligent as to its future intentions. A negligent misrepresentation claim cannot
be based on a statement of opinion or future fact shown to be false at the time it was made. See
Bennett v. Itochu Int'l, Inc., 682 F. Supp. 2d 469, 481 (E.D. Pa. 2010) (“At the time that a
statement is made regarding what the speaker intends to do in the future, the speaker either
intends at the moment to take the action he is promising or not. The speaker cannot be negligent
as to his future intentions.”).

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4528384, at *5 (E.D. Pa. Sept. 30, 2011) (citing Duquesne Light Co. v. Westinghouse Elec.
Corp., 66 F.3d 604, 612 (3d Cir. 1995) (“The Third Circuit noted that there was virtually no
Pennsylvania case in which a defendant has been held to have a duty to speak when both the
plaintiff and the defendant were sophisticated business entities.”). Here, the parties have not
entered into a fiduciary or special relationship. See Bruno v. Bozzuto’s, Inc., 850 F. Supp. 2d
462, 468 (M.D. Pa. 2012) (citing eToll, Inc. v. Elias/Savion Adver., Inc., 2002 PA Super 347,
811 A.2d 10 (2002) (“Parties to an arms-length business contract [can] not be in a ‘special
relationship.’”). Thus, the Court concludes that defendant had no duty to speak and that
defendant’s alleged omissions of material fact are not actionable as a negligent misrepresentation
or constructive fraud claim.
For these reasons, the Court grants that part of defendant’s Partial Motion to Dismiss
which seeks dismissal of Counts III and IV of the Complaint, to the extent that those Counts
relate to the Stock Purchase Agreement.
V.

CONCLUSION
Defendant’s Partial Motion to Dismiss is granted with respect to Count II of the

Complaint, to the extent that it relates to the Marketing Agreement, and Counts III and IV in
their entirety. Defendant’s motion is denied in all other respects.
An appropriate order follows.

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