Rogers et al v. Gentex Corporation
Filing
66
MEMORANDUM OPINION - For the foregoing reasons, the Court will grant in part and deny in part Defendant's Motion to Dismiss. A separate order follows.Signed by Honorable Robert D. Mariani on 3/6/17. (jfg)
IN THE UNITED STATES DISTRICT COURT
FOR THE MIDDLE DISTRICT OF PENNSYLVANIA
DAVID ROGERS and OPTION-X, LLC
Plaintiffs,
v.
3:16-CV-00137
(JUDGE MARIANI)
GENTEX CORPORATION,
Defendant.
MEMORANDUM OPINION
Presently before the Court is Defendant Gentex Corporation's Motion to Dismiss. (Doc.
34). For the reasons that follow, Defendant's Motion will be granted in part and denied in
part.
I.
INTRODUCTION AND PROCEDURAL HISTORY
On January 26, 2016, Plaintiffs filed a Complaint against Defendant Gentex Corporation.
(Doc. 1). In the Complaint, Plaintiffs asserted the following causes of action: (1) Breach of
Contract/Stock Purchase Agreement (Count I); (2) Breach of Contract/Employment
Agreement (CoLint II); (3) Declaratory Judgment (Count III); and (4) Violation of
Pennsylvania Wage Payment & Collection Law (Count IV). (Id.). Defendant moved to
dismiss the Complaint on March 4, 2016. (Doc. 23). Thereafter, Plaintiffs filed an Amended
Complaint, asserting three additional causes of action: (1) fraudulent misrepresentation
(Count V); (2) negligent misrepresentation (Count VI); and (3) fraud (Count VII). (Doc. 32).
On April 18, 2016, Defendant moved to dismiss the Amended Complaint. 1 (Doc. 34).
II.
STATEMENT OF FACTS
A. Factual Background
In December 2011, Plaintiff David Rogers "sold the assets of his company, Artisent, Inc.
and the stock of his company Ops-Core, Inc. to Gentex." (Doc. 32, at ~ 1). "Among other
things, the parties' agreement required Gentex to pay to acompany owned by Mr. Rogers,
Option-X LLC a royalty based upon its sale of a particular product." (/d.). As part of the
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transaction, Mr. Rogers also entered into an Employment Agreement with Gentex, "through
which Mr. Rogers would receive a salary and the opportunity to eam a bonus for a defined
period of time." (/d.). Each of the three contracts (the Asset Purchase Agreement C'APA"),
the Stock Purchase Agreement, (the "SPA"), and the Employment Agreement) contain noncompetition clauses, as well as various terms which Plaintiffs allege that the Gentex has
breached. 2 In the instant action, Plaintiffs request "money damages arising from Gentex's
failure to pay sums due and owing under the parties' various agreements, as well as arising
from Gentex's fraudulent misconduct associated with same." (ld.).
1 On June 29, 2016, Plaintiffs moved for a preliminary injunction. (Doc. 42). In their Motion, Plaintiffs
requested that the Court permit them "to operate a business that does not compete with that of Gentex
Corporation ("Gentex") under the terms of the relevant restrictive covenants." (Doc. 43, at 1). The Court
denied Plaintiffs' Motion on September 8,2016. (Doc. 63).
2 The Court has extensively discussed the non-competition clauses as well as Plaintiffs' proposed
business in a prior memorandum opinion and need not repeat such details here. See Rogers v. Gentex
Corp., 3:16-CV-00137, 2016 WL 4708004, at **1-5 (M.D. Pa. Sept. 8, 2016).
2
B. The Stock Purchase Agreement
On December 19, 2011, Gentex entered into the SPA "through which it agreed to
purchase the stock of Ops-Core, Inc. from the shareholders of Ops-Core, Inc., including Mr.
Rogers."3 (Id. at 11 7). Section 2.3 of the SPA is entitled "Products Revenue Earn-Out and
Chinstrap Fee." (Doc. 32-1, at 20). According to the Amended Complaint, "[t]he parties
have collectively acknowledged that Section 2.3 of the SPA provides for a royalty to OptionXarising from the operating profits received by Gentex arising from all orders, contracts,
royalties, revenue, and profits resulting from sale of the IHRS chinstrap and any
amendment, extension, renewal, assignment, or successor contract thereto." (Doc. 32, at 11
12). "Section 2.4 of the SPA provides that neither Buyer nor its Affiliates shall breach or
cause a default under the Chinstrap Contract." (ld. at 11 13).
"The SPA also includes references to two escrow arrangements, designed to hold a
portion of the purchase price in escrow pending certain contingencies." (Id. at 11 14). "The
terms by which the escrow funds would be held and administered contain identical terms
relating to the payments by the parties to PNC Bank, as escrow agent." (Id. at 11 15).
Specifically, "Section 2.2(b)(i) of the SPA, which incorporates by reference, Exhibit 2.2(b)(i)
entitled 'Escrow Agreement,' states within Section 3.04" the following provision:
The Escrow Agent shall be entitled to compensation for its services as stated in the fee
schedule attached hereto as Exhibit C, which compensation shall be paid one-half by
3 Also on December 19,2011, Gentex, "along with GC Boston Acquisition, LLC, as Purchaser and
Artisent, Inc. (Seller) and David Rogers (Shareholder)" entered into the APA. (Doc. 32, at 'if 16). At this
time "Mr. Rogers and Gentex negotiated awritten employment agreement," (ld. at 'if 19). and thereafter Mr.
Rogers "commenced his work at Gentex as Vice President of Concept Development" (/d. at 'if 25).
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each of (i) Purchaser and (ii) Aliisent, David Rogers and Viktoria Rogers, jointly and
severally. The fee agreed upon for the services rendered hereunder is intended as full
compensation for the Escrow Agent's services as contemplated by this escrow
agreement ... If any amount due to the Escrow Agent hereunder is not paid within thirty
(30) days of the date due, the Escrow Agent in its sole discretion may charge interest on
any unpaid amount up to the highest rate permitted by the applicable law. The Escrow
Agent shall have, and is hereby granted, a prior lien upon the Escrow Property with
respect to its unpaid fees, non-reimbursed expenses and unsatisfied indemnification
rights, superior to the interests of any other persons or entities and is hereby granted the
right to set off and deduct any unpaid fees, non-reimbursed expenses and unsatisfied
indemnification rights from the Escrow Property.
(Id.).
According to the Plaintiffs, "Gentex has breached the SPA agreement by not providing
Option-X and David Rogers an accurate and complete accounting of Gentex's IHRS
chinstrap sales, profits, or any royalty payment as required by the SPA, despite written
demand." (/d. at ~ 26). Moreover, "Gentex has breached the SPA agreement 2.3(b)(iv) by
not adhering to the accounting terms specified therein and changing its calculation of
Chinstrap 'operating profits' to result in zero or negative profits in a deliberate effort to avoid
paying the chinstrap royalty," (Id. at ~ 29), as well as "by not adhering to the terms specified
therein and replacing the Corporation's SAP accounting software including the chart of
accounts used in profit and loss calculations with a totally different accounting software with
adifferent chart of accounts." (/d. at ~ 30). Gentex is further alleged to have breached
"and/or caused some degree of default under the Chinstrap Contract by failing to provide
on-time product deliveries, timely information to customers when requested, products and
components that meet agreed upon quality standards, sales and business development
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support of this product, and production of this product." (/d. at 1f 31). Plaintiffs further
allege that "Gentex has actively defrauded the Plaintiffs by concealing information from
Plaintiffs which would allow them to calculate their royalty. When information and anecdotal
information has been provided by Gentex, Gentex has fraudulently mischaracterized
expenses and revenues in order to artificially and improperly reduce chinstrap profits so as
to avoid paying any royalty." (/d. at 1f 28).
Plaintiffs also allege that "Gentex has breached the SPA by failing to pay its share of the
Annual Administration Fees owed to the escrow agent for managing the IP Escrow
Agreement," and that the "PNC bank representative responsible for managing these escrow
accountants [sic] has confirmed that no fees were paid by Gentex for years 2012, 2013, and
2014." (/d. at 1f 32). In addition, Plaintiffs further aver that "Gentex unilaterally and without
Plaintiffs' knowledge or consent, agreed to increase the escrow agent's compensation to
$7,500 per year," (Jd.), and also "failed to pay its share of the escrow agent's fee for 2015
(and possibly 2013 and 2014) years as welL" (Id. at 1f 33). "As a result of Gentex's failings
in this regard, the escrow agent has taken the position in accordance with the terms of the
Escrow Agreement that it may unilaterally deduct amounts due to it from the amounts being
held in escrow, which amounts are payable to Plaintiffs." (Jd. at 1f 34). This conduct,
according to the Plaintiffs, has "had the practical effect of reducing the amount of money
payable to Plaintiffs in the escrow accounts themselves, thus causing Plaintiffs' damage."
(Id. at 1f 35).
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C. The Employment Agreement
In addition to breaching the SPA, Plaintiffs allege that Defendant Gentex has breached
the Employment Agreement. The Employment Agreement "specifically sets out the
compensation Mr. Rogers could earn while acting as a Gentex employee." (/d. at ~ 22).
With respect to Mr. Rogers' contemplated bonus, Section 3 of agreement, which references
Exhibit Bto the agreement, provides that he "shall also be eligible to participate in
Company's bonus and incentive programs at same the level [sic] as employees in similar
leadership positions." (/d. at 1f 23). Section 11 of the Employment Agreement addresses
termination of Mr. Rogers' employment and provides that "[n]either the Company nor
Rogers may terminate this Agreement prior to the expiration of the Term, except as
provided below." (/d. at 1f 24). "If the Company terminates this Agreement for Cause, or if
Rogers terminates this Agreement for other than Good Reason, then the Company shall
pay to Rogers, within (30) days after the date of such termination, all accrued but unpaid
amounts payable under Section 3 with respect to the period ending on the date of
termination, plus unreimbursed business expenses through the date of termination if
properly incurred and documented, but not any unpaid bonus or other amount under this
Agreement." (/d.).
In December 2014, "Mr. Rogers informed Gentex of his intentions to leave his position in
the near future; however, Mr. Rogers did not specify an exact date at that time. It was
agreed with senior company management that the resignation date would be decided after
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a plan was developed and implemented to transition his work responsibilities to other
personnel within the company." (Id. at ~ 36). "In early January 2015, Mr. Rogers inquired
about his 2014 incentive bonus, to which he was entitled based on the terms of the
Employment Agreement." (ld. at ~ 37). Mr. Rogers was told that, as happened in 2013,
"the company would not be paying 2014 bonuses since the company did not meet its 2014
profit/revenue targets according to the corporate bonus structure. A bonus was paid after
the 2012 calendar year as the targets had been achieved." (/d. at 1f 38). "Based upon the
affirmative representations made by Gentex concerning the 2014 bonuses, on January 28,
2015, Mr. Rogers informed Gentex that his final date of employment would be February 2,
2015, which was then extended to February 6,2015." (Id. at ~ 39). According to Plaintiffs,
"[h]ad Mr. Rogers been informed truthfully by Gentex that company revenue targets had
been met and bonuses would be paid, Mr. Rogers would have deferred his departure until
after the bonus payment was made in the early Spring of 2015." (ld.).
In March of 2015, "Mr. Rogers discovered that Gentex's representation was inaccurate
as the company, in fact, did meet its 2014 revenue targets." (Id. at ~ 41). Plaintiffs allege,
upon information and belief, that "many, if not all, employees in similar leadership positions
to Mr. Rogers received their 2014 bonuses." (Id.). Thus, Gentex, 'la]ware of Mr. Rogers
pending departure and intending to induce him to leave without having to pay the bonus...
fraudulent and/or negligently made false representations relating to the 2014 bonus." (/d. at
~ 42).
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Plaintiffs further allege that Mr. Rogers was due a bonus "in accordance with the plain
language of the Employment Agreement." (Id. at ~ 43). Citing Section 11 of the
Employment Agreement, discussed above, Plaintiffs claim that "Mr. Rogers was entitled to
the 'unpaid amounts payable under Section 3 with respect to the period ending on the date
of termination.'" (Id. at ~ 44). "Section 3 of the Employment Agreement entitled
'Compensation' refers to Exhibit B of the Employment Agreement," (Id. at ~ 45), which, in
turn, "includes provisions for Mr. Rogers' base salary and bonus." (Id. at ~ 46). Thus,
according to Plaintiffs "Mr. Rogers bonus was an 'accrued but unpaid amounts payable
under Section 3." (Id.). Finally, Plaintiffs note that "[w]hile Section 11 (c) also contains
language stating that Mr. Rogers would not receive a bonus, such language is contradictory
and inconsistent with the language in the same section entitling Mr. Rogers to payments for
'accrued but unpaid amounts payable under Section 3.'" (Id. at ~ 47).
III.
STANDARD OF REVIEW
A complaint must be dismissed under FED. R. CIV. P. 12(b)(6), if it does not allege
"enough facts to state a claim to relief that is plausible on its face." Bell At!. Corp. v.
Twombly, 550 U.S. 544, 570, 127 S. Ct. 1955, 167 L. Ed. 2d 929 (2007). The plaintiff must
aver "factual content that allows the court to draw the reasonable inference that the
defendant is liable for the misconduct alleged." Ashcroft v. Iqbal, 556 U.S. 662, 129 S. Ct.
1937,1949, 173 L. Ed. 2d 868 (2009).
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"Though a complaint 'does not need detailed factual allegations, ... aformulaic
recitation of the elements of acause of action will not do.'" DelRio-Mocci v. Connolly Prop.
Inc., 672 F.3d 241, 245 (3d Cir. 2012) (citing Twombly, 550 U.S. at 555). In other words,
'T~actual
allegations must be enough to raise a right to relief above the speculative level."
Covington v. Int'l Ass'n of Approved Basketball Officials, 710 F.3d 114, 118 (3d Cir. 2013)
(internal citations and quotation marks omitted). A court "take[s] as true all the factual
allegations in the Complaint and the reasonable inferences that can be drawn from those
facts, but ... disregard[s] legal conclusions and threadbare recitals of the elements of a
cause of action, supported by mere conclusory statements." Ethypharm S.A France v.
Abbott Laboratories, 707 F.3d 223, 231, n.14 (3d Cir. 2013) (internal citations and quotation
marks omitted).
Twombly and Iqbal require [a district court] to take the following three steps to
determine the sufficiency of acomplaint: First, the court must take note of the
elements a plaintiff must plead to state a claim. Second, the court should
identify allegations that, because they are no more than conclusions, are not
entitled to the assumption of truth. Finally, where there are well-pleaded
factual allegations, a court should assume their veracity and then determine
whether they plausibly give rise to an entitlement for relief.
Connelly v. Steel Valley Sch. Dist., 706 F.3d 209, 212 (3d Cir. 2013).
"[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 (internal citations and quotation marks
9
omitted). This "plausibility" determination will be a "context-specific task that requires the
reviewing court to draw on its judicial experience and common sense." Id.
IV.
ANALYSIS
A. Breach of Contract
"To allege breach of contract in Pennsylvania, a plaintiff must show '(1) the existence of
a contract including its essential terms, (2) a breach of a duty imposed by the contract and
(3) resultant damages.'" Kaymark v. Bank of Am. N.A., 783 F.3d 168, 182 (3d Cir. 2015)
(quoting Omicron Sys., Inc. v. Weiner, 860 A.2d 554,564 (Pa. Super. 2004))
i. Breach of Stock Purchase Agreement
In Count I of the Amended Complaint, Plaintiffs allege that "Gentex has breached the
SPA by, among other things, failing to accurately account for, disclose, calculate and pay
royalties due and owing under the SPA. causing a breach or some degree of default under
the Chinstrap Contract and by failing to pay its share of the amounts owed to the escrow
agent for the administration of the escrow accounts." (Doc. 32, at ~ 63).
Defendant seeks dismissal of Count I on two bases. First, Defendant maintains that
Plaintiffs' claim "is hypothetical" in that Plaintiffs do not and cannot claim to have "suffered
actual harm as a result of any action by Gentex with respect to the escrow accounts." (Doc.
35, at 17). Second, Defendant maintains that "Plaintiff fails to state a claim under the Stock
Purchase Agreement because the escrow terms are embodied in the agreement,lI which
"expressly contemplates that the parties would enter into aseparate escrow agreement with
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PNC Bank, the escrow agent, concerning the escrow terms." (Id. at 17) (emphasis supplied)
(citing Doc. 34-1). Moreover, Defendant claims that "the term that Plaintiffs claim was
breached-Section 3.04-does not appear in the Stock Purchase Agreement, but rather in
the separate 'Escrow Agreement.'" (ld.). Accordingly, Defendant maintains that "to the
extent Plaintiffs wish to assert a breach of the escrow terms, they have no claim under the
Stock Purchase Agreement."4 (ld.). Plaintiffs counter that Gentex does not "seek dismissal
of Plaintiffs' claims asserted in Count One alleging that Gentex breached the parties' Stock
Purchase Agreement in connection its [sic] requirements to account for and pay royalties
arising from its sale of the so-called 'chinstrap' products." (Doc. 37, at 10).
The Court agrees with the Plaintiffs and finds they have adequately stated a claim for
breach of the SPA in Count I of the Amended Complaint. The Plaintiffs have alleged the
existence of a contract, and that Defendant Gentex breached the contract by, among other
things, "failing to accurately account for, disclose, calculate and pay royalties due and owing
under the SPA" and by "causing a breach or some degree of default under the Chinstrap
Contract." (Doc. 32, at ~ 63). Moreover, Plaintiffs have alleged to have suffered damages
as a result of the breach. Thus, the Court will deny Defendant's Motion to Dismiss Count I.
ii. Breach of Employment Agreement
In Count II of the Amended Complaint, Plaintiffs allege that "Gentex has breached the
Employment Agreement by, among other things, failing to tender to Mr. Rogers his earned
4 Defendant further notes that "[ilf Plaintiffs elect to pursue aclaim under the escrow agreement, the
escrow agent is a necessary and indispensable party that must be joined." (Doc. 35, at 17 n.B).
11
bonus for year-end 2014, prior to the termination of his employment on February 6,2015."
(Doc. 32, at 1f 67). Defendant seeks dismissal of Count II on the theory that, under the
terms of the Employment Agreement, Plaintiffs have "no plausible claim to such a bonus."
(Doc. 35, at 12). Speci'fically, Defendant notes that although Plaintiffs claim that Gentex
breached an obligation to pay an earned bonus for the year-end 2014, "he avers no facts
that plausibly suggest entitlement to a bonus." (ld. at 13).
The Court disagrees and, accepting Plaintiffs' factual allegations as true, concludes that
Count II of the Amended Complaint adequately states a claim for breach of the Employment
Agreement. Plaintiffs have alleged: (1) the existence of a contract (here, the Employment
Agreement); (2) that Defendant Gentex has breached the terms of the employment
agreement by failing to tender to Mr. Rogers his earned bonus, which Plaintiffs submit "was
an 'accrued but unpaid amountD payable under Section 3,'" (Doc. 32, at 1f 46), of the
Employment Agreement; and (3) that, as a result, Plaintiffs have suffered damages. 5 That
is sufficient to state a claim of breach of contract and, accordingly, the Court will deny
Defendant's Motion to Dismiss Count II of the Amended Complaint.
As Plaintiffs note. I/[w]hile Section 11 (c) also contains language stating that Mr. Rogers would not
receive a bonus. such language is contradictory and inconsistent with the language in the same section
entitling Mr. Rogers to payments for 'accrued but unpaid amounts payable under Section 3.'" (ld. at ~ 47).
Given this apparent ambiguity. the Court believes it would be inappropriate to resolve the parties'
competing interpretations of the Employment Agreement on a Motion to Dismiss. See Butters Living Trust
v. Swepi. L.P., No. 4:12·cv·02010, 2013 WL 3679533. at *5 (M.D. Pa. July 12. 2013) (where a contract
contains ambiguities "a motion to dismiss on the pleadings [is] inappropriate").
5
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B. Declaratory Judgment
In Count III of the Amended Complaint, Plaintiffs request a declaratory judgment
declaring that their "proposed and contemplated business venture which will design,
manufacture and market toy replicas of tactical military products will not violate certain
restrictive covenants." (Doc. 43, at 4). After the filing of the Amended Complaint, Plaintiffs
moved for a preliminary injunction seeking an order permitting them to operate a business
that they assert does not compete with that of Defendant Gentex under the terms of the
relevant restrictive covenants. Specifically, in the Proposed Order (submitted along with
Plaintiffs' Motion for Preliminary Injunction) Plaintiffs request an order providing that "Mr.
Rogers is permitted to pursue his proposed business of design, manufacture and market
[sic] toy replicas of tactical military products. Defendant Gentex Corporation is precluded
from taking any action to interference [sic] with Mr. Rogers's toy replica business." (Doc.
42-1). The Court denied Plaintiffs' Motion on September 8, 2016. (Doc. 63).
As Plaintiffs noted in their brief in support of their Motion for Preliminary Injunction,
"waiting on his declaratory judgment claim will render his claim moot, as his restrictive
covenants expire on December 18,2016." (Doc. 43, at 1). As of this date, the restrictive
covenants have now expired, rendering Count III of Plaintiffs' Amended Complaint moot.
See Mercier v. lCH Corp., Civ. A. No. 87-3855,1990 WL 107325, at *3 (E.D. Pa. July 25,
1990) (dismissing as moot plaintiffs declaratory claim where, as here, "the restrictive
13
covenant no longer has any force or effect"). Accordingly. the Court will grant Defendant's
Motion to Dismiss Count III of the Amended Complaint.
C. Violation of Pennsylvania Wage Payment & Collection Law
In Count IV of the Amended Complaint. Plaintiffs assert a claim under Pennsylvania
Wage Payment & Collection Law. Plaintiff alleges that Defendant Gentex "is an 'employer'
under the Pennsylvania Wage Payment and Collection Law." (Doc. 32. at ~ 76). and that
"Mr. Rogers is due unpaid wages for his earned bonus for year-end 2014." (Id. at ~ 77).
Plaintiffs further allege that "Mr. Rogers. through counsel. has made repeated demands for
payment of wages due and owing." (Id. at ~ 78). but "Gentex has refused to pay the wages
due and owing to Mr. Rogers."6 (Id. at ~ 79). Defendant seeks dismissal of Count IV on
the theory that Plaintiffs have "no plausible claim of entitlement to a bonus" under the
Employment Agreement. (Doc. 35. at 15). Plaintiffs counter by maintaining that "Gentex
argues that because Mr. Rogers has no contract claim relating to the payment of a bonus.
his WPCL claim fails as well. To the contrary. Count II should not be dismissed; nor should
Count IV." (Doc. 37. at 16).
'The WPCL requires employers. among other things. to pay to employees wages and
agreed-upon fringe benefits in a regularly scheduled manner and by lawful money or check
and to make only lawful deductions from employees' pay." Williams v. Jani-King of
6 In
Count IV Plaintiffs request "liquidated damages in an amount equal to twenty-five percent of the
amount due and owing in accordance with 43 P.S. § 260.10," (Doc. 32, at ~ 80), as well as "an award of
attorneys' fees associated with this action in accordance with 43 P.S. § 260.9a(D." (Id. at ~ 81).
14
Philadelphia, Inc., 837 F.3d 314, 319-20 (3d Cir. 2016) (citing 43 P.S. §§ 260.3,260.4)).
The statute "gives employees the right to institute a civil action to recover wages owed
under the statute." Id. (citing 43 P.S. §§ 260.9(a)). Because the Court has concluded that
Plaintiffs have adequately stated a claim for breach of the Employment Agreement in Count
II, it necessarily follows that Plaintiffs have adequately stated a claim for relief under the
WPCL. Accordingly, Defendant's Motion to Dismiss Count IV of the Amended Complaint
will be denied.
D. Fraudulent Misrepresentation
In Count V of the Amended Complaint Plaintiffs assert a claim for fraudulent
misrepresentation. According to the Plaintiffs, as of December 2014, "Gentex was on notice
that Mr. Rogers planned to leave the company on an undetermined date." (Doc. 32, at ~
83). Thereafter, "Gentex fraudulently represented to Mr. Rogers on or around mid-January
2015 that the Company did not meet its 2014 profit/revenue targets and therefore, would not
distribute any bonuses for the 2014 calendar year." (ld. at ~ 84). "Mr. Rogers detrimentally
relied upon the fraudulent representations of Gentex concerning bonuses for the 2014
calendar year prior to setting the date for his official termination of the Employment
Agreement." (ld. at ~ 85). In March 2015, Plaintiffs allegedly discovered that "Gentex
fraudulently misrepresented that it did not meet its 2014 profit/revenue targets and awarded
bonuses," (ld. at ~ 87), and that "[b]ut for the fraudulent representation, Mr. Rogers would
have delayed terminating his employment relationship." (ld. at ~ 88). In sum, Plaintiff
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alleges that Gentex not only breached the Employment Agreement by failing to award Mr.
Rogers a bonus in year 2014, but that "Gentex intentionally and fraudulently misinformed
Mr. Rogers about the 2014 bonuses to avoid payment" causing Plaintiffs' "significant
damage." (ld. at mr 89-91).
Defendant seeks dismissal of Count V, asserting that the allegations contained in Count
V"Iack[] the specificity required by the Federal Rules, fails to allege the necessary elements
of afraud claim and is based on afalse premise." (Doc. 35, at 21-22). Specifically,
Defendant asserts that "Plaintiffs do not describe the nature and subject of the alleged
misrepresentation with the detail required by Rule 9(b)," and "do not identify who allegedly
stated that the company would not pay bonuses for 2014, how the alleged statement was
communicated or where the communication is alleged to have occurred." (Doc. Id. at 22
23). Moreover, Defendant claim that dismissal is necessary because Plaintiffs fail to plead
the necessary elements of common law fraud, namely that Plaintiffs "do not allege that: (1)
the unidentified speaker had knowledge of the purported falsity of any statement concerning
the payment of bonuses; (2) Mr. Rogers was unaware of the truth; or (3) the speaker
intended for Mr. Rogers to act upon the purportedly false representation by delaying his
separation date," (ld. at 23). Finally, Defendant seeks dismissal of Count Vby noting that
in accordance with Gentex's Incentive Bonus Policy, "employees must be on 'active status'
at the time bonuses are paid to be eligible for a bonus," and that "Mr. Rogers does not
allege and cannot allege that he was an active status employee during the second half of
I
I
J
,
16
2014 and early part of 2015 and therefore he would not have received a bonus even if he
had delayed his technical separation beyond the dates set for payment of bonuses." (ld. at
24).
"Under Pennsylvania law, a fraudulent misrepresentation claim has six elements: '(1) a
representation; (2) which is material to the transaction at hand; (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 into relying on it; (5) justifiable reliance on the misrepresentation; and (6)
the resulting injury was proximately caused by the reliance.'" Bouriez v. Carnegie Mellon
Univ., 585 F.3d 765,771 (3d Cir. 2009) (quoting Overall v. Univ. of Pennsylvania, 412 F.3d
492, 498 (3d Cir. 2005)). Where, as here, a party asserts a claim of fraudulent
misrepresentation, Federal Rule of Civil Procedure 9(b) imposes a heightened pleading
standard. Specifically, the Rule provides that "[i]n alleging 'fraud or mistake, a party must
state with particularity the circumstances constituting fraud or mistake. Malice, intent,
~-
knowledge, and other conditions of a person's mind may be alleged generally." Fed. R. Civ.
I
P.9(b). "To satisfy this standard, the plaintiff must plead or allege the date, time and place
I
of the alleged fraud or otherwise inject precision or some measure of sUbstantiation into a
I
t
fraud allegation." Frederico v. Home Depot, 507 F.3d 188, 200 (3d Cir. 2007).
Turning to Plaintiffs' allegations of fraudulent misrepresentation, the Court agrees with
the Defendant that Plaintiffs' fraud claim must be dismissed for failure to satisfy Rule 9(b)'s
heightened pleading standard. A review of the Amended Complaint reveals that Plaintiffs
17
fail to identify any speaker of the allegedly fraudulent statements. See Klein v. Gen.
Nutrition Co. Inc., 186 F.3d 338, 345 (3d Cir. 1999) ("The complaint fails to attribute the
statement to any specific member of GNC management. Fed. R. Civ. P. 9(b) requires, at a
minimum, that the plaintiff identify the speaker of the allegedly fraudulent statement."). Nor
does the Amended Complaint allege all the requisite elements of fraudulent
misrepresentation. Nowhere in the Amended Complaint do Plaintiffs allege that the
unidentified speaker possessed knowledge of the falsity of the representation, or that the
unidentified speaker intended Plaintiffs to rely on the representation. In the absence of
allegations of the necessary elements of afraudulent representation claim, and without
sufficient factual allegations to satisfy the "stringent pleading requirements of Rule 9(b)/'
Frederico, 507 F.3d at 200, Count V of the Amended Complaint must be dismissed.
E. Negligent Misrepresentation
In Count VI Plaintiffs assert aclaim for negligent misrepresentation based on the same
set of facts identified in Count V of the Amended Complaint. Specifically, that Gentex
"negligently represented to Mr. Rogers ... that the Company did not meet its 2014
profit/revenue targets and therefore, would not distribute any bonuses for the 2014 calendar
year." (Doc. 32, at,-r 94). Defendant seeks dismissal of Count VI on the basis that
"Plaintiffs fail to allege the requisite elements of a negligent misrepresentation claim," and
"do not allege that the unidentified speaker was aware or should have been aware of the
purported falsity of any statement concerning bonuses or intended to induce Mr. Rogers to
18
move up his departure date." (Doc. 35, at 26). Moreover, Defendant claims that Plaintiffs
"do not allege any material facts which might arguably support an inference that the
purported speaker (whom they did not identify) had authority to speak for Gentex." (Id.).
Under Pennsylvania law, a "[n]egligent misrepresentation requires proof of: (1) a
misrepresentation of a material fact; (2) made under circumstances in which the
misrepresenter ought to have known its falsity; (3) with an intent to induce another to act on
it; and (4) which results in injury to a party acting in justifiable reliance on the
misrepresentation." Bilt-Rite Contractors, Inc. v. The Architectural Studios, 581 Pa.454,
466 (2005) (internal citation and quotation marks omitted). Here, a review of the Amended
Complaint reveals that Plaintiffs have failed to plead the requisite elements of negligent
misrepresentation. Nowhere in Count VI do Plaintiffs allege facts showing that the
unidentified speaker made the misrepresentation "under circumstances in which the
misrepresenter ought to have known its falsity," or that the unidentified speaker acted "with
an intent to induce another to act on it." Id. Without such factual allegations, Plaintiffs
cannot state a claim for negligent misrepresentation under Pennsylvania law. Therefore,
the Court will grant Defendant's Motion to Dismiss Count VI.
F. Fraud
Finally, Count VII of the Amended Complaint asserts a claim for Fraud. According to the
Plaintiffs:
Gentex further engaged in fraudulent misconduct with regard to its misrepresentations,
mischaracterization and misclassification of revenues, expenses and products in order
19
to fraudulently avoid paying proper and appropriate royalties relative to the Chinstrap
payments. In effect, Gentex over-attributed expenses to the Chinstrap products and
underreported revenues to deprive Plaintiffs of valuable royalty payments. This
fraudulent concealment and related misrepresentations and manipulations also caused
Option X, LLC significant damage.
(Doc. 32, at 1f 102). Defendant seeks dismissal of Count VII on three theories. First, that
"Plaintiffs fail to allege 'the who, what, when, where and how' of the alleged fraud and
therefore fail to satisfy the heightened pleading burden imposed by Rule 9(b)." (Doc. 35, at
27). Second, "Plaintiffs fail to allege the essential elements of a claim for fraud" as "[t]hey
do not allege a material misrepresentation, made with knowledge of its falsity, that was in
any way relied upon or resulting in speci'flc harm." (Id.). Finally, Defendant maintains that
"the claim is barred by the 'gist of the action' doctrine," because where, as here, "the nature
of the duty alleged to be breached is contractual, the gist of the action sounds in contract
and tort remedies are not available." (Id. at 28).
In order to establish common law fraud under Pennsylvania law, '''a plaintiff must prove:
(1) misrepresentation of a material fact; (2) scienter; (3) intention by the declarant to induce
action; (4) justifiable reliance by the party defrauded upon the misrepresentation; and (5)
damage to the party defrauded as a proximate result. Hunt v. United States Tobacco Co.,
III
538 F.3d 217, 225 n.13 (3d Cir. 2008) (quoting Colaizzi v. Beck, 895 A.2d 36, 39 (Pa.
Super. Ct. 2006)). As discussed in connection with Plaintiffs' fraudulent misrepresentation
claim, allegations of fraud are subject to a heightened standard of pleading pursuant to
Federal Rule of Civil Procedure 9(b). For the reasons set forth above in connection with
20
Plaintiffs' fraudulent misrepresentation claim, supra at 16-18, Plaintiffs' fraud claim alleged
in Count VII also fails for failure to plead the necessary elements of fraud and failure to
satisfy Rule 9(b)'s heightened pleading standard. Accordingly, Defendant's Motion to
Dismiss Count VII of the Complaint will be granted.
V.
CONCLUSION
For the foregoing reasons, the Court will grant in part and deny in part Defendant's
Motion to Dismiss. A separate order follows.
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