SIEMENS INDUSTRY, INC. v. NAGEL
MEMORANDUM OPINION & ORDER granting in part, denying in part 12 First MOTION TO DISMISS FOR FAILURE TO STATE A CLAIM filed by HARRY C. NAGEL. Signed by Magistrate Judge Robert C. Mitchell on 9/15/2017. (spc)
IN THE UNITED STATES DISTRICT COURT
FOR THE WESTERN DISTRICT OF PENNSYLVANIA
SIEMENS INDUSTRY, INC.,
HARRY C. NAGEL,
Civil Action No. 17-405
Magistrate Judge Mitchell
MEMORANDUM OPINION AND ORDER
Plaintiff, Siemens Industry, Inc. (“Siemens”), brings this action under Pennsylvania law
against Defendant, Harry C. Nagel (“Nagel”), alleging claims of breach of contract, fraudulent
inducement/ misrepresentation and breach of loyalty arising out of a Settlement Agreement
previously reached between the parties.
Presently submitted for disposition is a motion to dismiss, filed by the Defendant. In
response, Plaintiff agrees to withdraw Count II of the Amended Complaint, the claim for
fraudulent inducement/misrepresentation, but opposes the motion in all other respects. For the
reasons that follow, the motion will be granted with respect to Counts II and III of the Amended
Complaint and denied with respect to Count I.
Prior to May 9, 2012, Nagel was one of two co-owners of PHW, Inc. (“PHW”). (Am.
Compl. ¶ 7.)1 On May 9, 2012, Invensys Rail Corporation (“Invensys”) purchased all of the
shares of PHW from Nagel and John Harrison (“Harrison”) pursuant to a Stock Purchase
Agreement (“SPA”). (Id. ¶ 8 & Ex. B.) As consideration for the sale of PHW, Invensys paid
Nagel and Harrison $17,000,000. (Id. ¶ 9.) Under the terms of the SPA, Nagel and Harrison were
also eligible to receive additional “Contingent Consideration” if certain conditions were met
ECF No. 6.
during the relevant Measurement Periods. (Id. ¶ 10.)
In connection with the SPA, Nagel entered into an Employment Agreement with
Invensys pursuant to which he agreed to be employed as Senior General Manager of the PHW
business unit. (Id. ¶ 12.) On May 2, 2013, Siemens acquired Invensys and assumed the SPA and
Nagel’s Employment Agreement. (Id. ¶ 13.) On April 3, 2015, Nagel resigned from his
employment with Siemens. (Id. ¶ 14.)
Between April 2015 and December 2015, Siemens and Nagel had communications
regarding both the calculation and payment of Contingent Consideration to Nagel for the final
Measurement Period. (Id. ¶ 15.) Nagel and Siemens did not agree on the terms and conditions for
the Contingent Consideration to be paid to Nagel, and Nagel threatened suit. (Id. ¶ 16.)
Ultimately, Siemens and Nagel agreed to resolve their dispute, with Siemens agreeing to pay
Nagel a final Contingent Consideration payment in the amount of $950,000, in exchange for
Nagel agreeing, among other things, to release any and all rights and claims under the SPA. (Id.
During the course of these negotiations, Nagel represented to Siemens that he had not
removed or retained any information or documents belonging to Siemens, other than some older,
duplicate files that predated the sale of PHW to Invensys. (Id. ¶ 19.) This was a material term of
the parties’ agreement to resolve their dispute, and was a term that Siemens insisted be included
in the Settlement Agreement. (Id. ¶ 20.) On December 9, 2015, Nagel executed the Settlement
Agreement, agreeing to its terms. (Id. ¶ 21 & Ex. A.) By the terms of the Settlement Agreement,
Nagel represented and agreed that he had not “removed from [Siemens] or Invensys Rail
Corporation or retained in any form, including electronic form, any original or duplicated
confidential information of [Siemens] or Invensys Rail Corporation or any modified or extracted
version thereof.” (Id. ¶ 22 & Ex. A ¶ 4.) Siemens agreed that: “in consideration of [Nagel]
signing and not revoking this Agreement and the satisfaction of [his] other commitments
provided herein, [Siemens] will provide [Nagel] with certain benefits…specifically a lump sum
amount of $950,000.” (Id. ¶ 23 & Ex. A ¶ 5.)
On November 17, 2015, Nagel filed a complaint against Siemens in the Court of
Common Pleas of Allegheny County, Pennsylvania. In that complaint, Nagel alleged claims for
breach of his Employment Agreement by Siemens and for violation of the Pennsylvania Wage
Payment and Collection Law (“WPCL”). On December 17, 2015, Siemens removed that case to
this Court. (See Civil Action No. 2:15-cv-1669 (the “Nagel Action,” ECF No. 1)). On December
23, 2015, Siemens timely filed its Answer to Nagel’s Complaint and Affirmative and Additional
Defenses (“Answer”). (Nagel Action, ECF No. 3.)
On July 22, 2016, during discovery, Nagel’s counsel informed Siemens that Nagel was in
possession of flash drives and other electronic devices containing, inter alia, a .PST file with
“over 30,000 emails” dating from 2011 to 2015, including files converted to Siemens Exchange
server from the legacy PHW and Invensys systems” as well an unspecified number of
“documents from the Microsoft Office suite (.doc, .xls, .ppt, etc.)” and PDFs.” (Am. Compl. ¶ 29
& Ex. C.)
On August 15, 2016, Siemens filed a Motion for Leave to File an Amended Answer
(“Motion to Amend”) to include the affirmative defense of after-acquired evidence. (Nagel
Action, ECF No. 19). The Court subsequently entered an Order granting Siemens’ Motion to
Amend and Siemens filed its Amended Answer on September 6, 2016. (Nagel Action, ECF Nos.
44, 45.) The Amended Answer does not contain counterclaims.
On August 19, 2016, Siemens filed an Emergency Motion seeking, inter alia, a court
order directing Nagel to return Siemens’ property, preserve Nagel’s electronic data sources, and
produce Nagel’s data sources to a forensic examiner. (Am. Compl. ¶ 30; Nagel Action, ECF No.
28.) On August 26, 2016, Nagel served his response on Siemens and the Court via email, per the
Court’s instruction. The parties engaged in further meet and confer discussions on August 29,
2016. Siemens indicates that, during those discussions, the parties agreed that all matters
addressed in the Emergency Motion would be resolved amicably and notified the Court
regarding same. Accordingly, on that same date, the Court entered an Order dismissing, without
prejudice, Siemens’ Emergency Motion. (Nagel Action, ECF No. 35.) The parties engaged in
further meet and confer discussions and developed a mutually agreeable protocol for the forensic
examination of Nagel’s data sources. On November 8, 2016, the parties filed their agreed-upon
Stipulated Protocol for Forensic Inspection of Nagel’s Electronic Data Sources (“Forensic
Protocol”). (Nagel Action, ECF No. 49.) On November 9, 2016, the Court issued an Order
approving the Forensic Protocol. (Nagel Action, ECF No. 50.) (Am. Compl. ¶¶ 30-33.)
On March 10, 2017, Siemens deposed Nagel. (Am. Compl. ¶ 37.) During his deposition,
Nagel admitted that he had: (1) entered into a Settlement Agreement with Siemens which
contained the clause cited above; (2) taken and retained confidential documents and information
belonging to Siemens, including documents containing bids, pricing, and other financial
information; and (3) knowingly retained this confidential information in breach of the Settlement
Agreement until November 2016, when he was forced to turn them over pursuant to the Forensic
Protocol. (Am. Compl. ¶¶ 38-39 & Ex. D at 48-49, 51-54, 118-19.)
On April 3, 2017, Plaintiff filed this action (ECF No. 1) and on April 24, 2017, it filed an
Amended Complaint (ECF No. 6). Jurisdiction is based upon diversity of citizenship in that:
Plaintiff is a Delaware corporation with its principal place of business in Alpharetta, Georgia;
Defendant is a citizen of Pennsylvania; and the amount in controversy exceeds the sum of
$75,000.00, excluding interest and costs. (Am. Compl. ¶¶ 3-5.)
Count I alleges a claim of breach of contract. Count II alleges a claim of fraudulent
inducement/misrepresentation. Count III alleges a claim of breach of the duty of loyalty.
On July 17, 2017, Defendant filed a motion to dismiss (ECF No. 12). On August 7,
2017, Plaintiff filed a brief in opposition (ECF No. 20) and August 22, 2017, Defendant filed a
reply brief (ECF No. 21).
Standard of Review
The Supreme Court has issued two decisions that pertain to the standard of review for
failure to state a claim upon which relief could be granted. The Court held that a complaint must
include factual allegations that “state a claim to relief that is plausible on its face.” Ashcroft v.
Iqbal, 556 U.S. 662, 678 (2009) (citing Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007)).
“[W]ithout some factual allegation in the complaint, a claimant cannot satisfy the requirement
that he or she provide not only ‘fair notice’ but also the ‘grounds’ on which the claim rests.”
Phillips v. County of Allegheny, 515 F.3d 224, 232 (3d Cir. 2008). In determining whether a
plaintiff has met this standard, a court must reject legal conclusions unsupported by factual
allegations, “[t]hreadbare recitals of the elements of a cause of action, supported by mere
conclusory statements;” “labels and conclusions;” and “‘naked assertion[s]’ devoid of ‘further
factual enhancement.’” Iqbal, 556 U.S. at 678 (citations omitted). Mere “possibilities” of
misconduct are insufficient. Id. at 679. The Court of Appeals has summarized the inquiry as
To determine the sufficiency of a complaint, a court must take three steps.
First, the court must “tak[e] note of the elements a plaintiff must plead to state a
claim.” Ashcroft v. Iqbal, 556 U.S. 662, 129 S.Ct. 1937, 1947, 173 L.Ed.2d 868
(2009). Second, the court should identify allegations that, “because they are no
more than conclusions, are not entitled to the assumption of truth.” Id. at 1950.
Third, “whe[n] 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.” Id. This means that our inquiry is normally broken into
three parts: (1) identifying the elements of the claim, (2) reviewing the complaint
to strike conclusory allegations, and then (3) looking at the well-pleaded
components of the complaint and evaluating whether all of the elements identified
in part one of the inquiry are sufficiently alleged.
Malleus v. George, 641 F.3d 560, 563 (3d Cir. 2011).
The Court of Appeals has explained that: “In deciding a Rule 12(b)(6) motion, a court
must consider only the complaint, exhibits attached to the complaint, matters of public record, as
well as undisputedly authentic documents if the complainant’s claims are based upon these
documents.” Mayer v. Belichick, 605 F.3d 223, 230 (3d Cir. 2010) (citation omitted).
Therefore, the documents from the Nagel Action cited by the parties and the Settlement
Agreement may be considered without converting the motion into a motion for summary
Nagel contends that: 1) all of Siemen’s claims are compulsory counterclaims that should
have been filed in the Nagel Action and are now waived; 2) the parol evidence rule bars claims
for fraudulent inducement and misrepresentation; 3) Siemens cannot state claims for fraudulent
inducement and misrepresentation or breach of the duty of loyalty, which are torts, because of
the gist of the action doctrine; and 4) Siemens has failed to plead sufficient facts to state claims
for breach of contract or breach of the duty of loyalty.
As noted above, Siemens agrees to withdraw Count II, the claim for fraudulent
inducement/misrepresentation. However, it argues that: 1) counterclaims are not compulsory if
they have not “matured” at the time a defendant files an answer and in this case the claim did not
mature until Nagel’s deposition on March 10, 2017, nor do Siemens’ claims arise out of the same
transaction and occurrence as Nagel’s claims in the Nagel Action; 2) the gist of the action
doctrine does not bar a claim for breach of the duty of loyalty which is based on a societal
fiduciary duty rather than a contractual provision; and 3) it has sufficiently stated claims for
breach of contract and breach of the duty of loyalty.
In a reply brief, Nagel argues that: 1) Siemens’ claims accrued before it filed its answer
in the Nagel Action and it could not have filed them in a supplemental pleading; 2) the breach of
contract and breach of the duty of loyalty claims are insufficient; and 3) if Nagel removed
confidential information, he must have done so while employed by Siemens and therefore the
breach of the duty of loyalty claim is mutually exclusive with the breach of contract claim and
the duties violated were contemplated by Nagel’s employment documents and thus the gist of the
action doctrine does apply to bar the claim.
The Federal Rules of Civil Procedure provide that:
(a) Compulsory Counterclaim.
(1) In General. A pleading must state as a counterclaim any claim that--at
the time of its service--the pleader has against an opposing party if the claim:
(A) arises out of the transaction or occurrence that is the subject matter of
the opposing party’s claim; and
(B) does not require adding another party over whom the court cannot
(b) Permissive Counterclaim. A pleading may state as a counterclaim against an
opposing party any claim that is not compulsory….
(e) Counterclaim Maturing or Acquired After Pleading. The court may permit a
party to file a supplemental pleading asserting a counterclaim that matured or was
acquired by the party after serving an earlier pleading.
Fed.R.Civ.P. 13(a, b, e).
The Court of Appeals has held that:
For a claim to qualify as a compulsory counterclaim, there need not be
precise identity of issues and facts between the claim and the counterclaim; rather,
the relevant inquiry is whether the counterclaim “bears a logical relationship to an
opposing party’s claim.” Xerox Corp. v. SCM Corp., 576 F.2d 1057, 1059 (3d
Cir. 1978). The concept of a “logical relationship” has been viewed liberally to
promote judicial economy. Thus, a logical relationship between claims exists
where separate trials on each of the claims would “involve a substantial
duplication of effort and time by the parties and the courts.” Id. Such a duplication
is likely to occur when claims involve the same factual issues, the same factual
and legal issues, or are offshoots of the same basic controversy between the
parties. See id.; Great Lakes Corp. v. Herbert Cooper Co., 286 F.2d 631, 634 (3d
Cir. 1961). In short, the objective of Rule 13(a) is to promote judicial economy, so
the term “transaction or occurrence” is construed generously to further this
Transamerica Occidental Life Ins. Co. v. Aviation Office of America, Inc., 292 F.3d 384, 289-90
(3d Cir. 2002) (footnote omitted). In that case, two insurance companies (U.S. Fire and North
River) brought suit against Transamerica in Texas. Transamerica then brought suit in New
Jersey against International Insurance Co. (IIC), which had assumed the rights and obligations of
U.S. Fire and North River, raising the same issues presented in the Texas action. IIC argued that
the second action should be barred because Transamerica had failed to raise its claims as
compulsory counterclaims in the Texas action. Transamerica argued that Rule 13(a) did not
apply because IIC was not a named “opposing party” in the Texas action, but the court held that
IIC was equivalent to the named parties therein. Therefore, the court dismissed the second
Siemens argues that its claims do not arise out the same transaction or occurrence as
Nagel’s claims in the Nagel Action because Nagel’s claims are predicated upon the interpretation
of his Employment Agreement, his employment with Siemens from May 9, 2012 to April 3,
2015, and whether he experienced a material diminution in his job duties and responsibilities
thereby giving him “Good Reason” to resign. By contrast, Siemens notes that its claims against
Nagel in this case arise from the separately negotiated Settlement Agreement and his obligations
Nagel responds that, when Siemens filed this case, it explicitly related it to the Nagel
Action on the Civil Cover sheet, which explains that actions are related when a case “involves
the same issues of fact or it grows out of the same transactions as another suit….” (Nagel Action
ECF No. 1-1 at 1-2.) As noted above, “the relevant inquiry is whether the counterclaim bears a
logical relationship to an opposing party’s claim.” Transamerica, 292 F.3d at 389. A case that is
designated as “related” to another case also meets the test for a compulsory counterclaim.
However, as the Rule states, a claim must be in existence “at the time of service” of the
answer. That is, “Rule 13(a) applies to counterclaims that have ‘matured at the time’ the
defendant serves his pleadings.” Union Corp. v. Brown, 1988 WL 31080, at *2 (E.D. Pa. Mar.
29, 1988) (citations omitted). Siemens contends that its counterclaims did not exist at the time it
filed its answer in the Nagel Action (December 23, 2015) and that they “matured” on March 10,
2017 based on Nagel’s statements during his deposition. Nagel responds that Siemens was
aware of these facts before it filed its answer in the Nagel Action.
Nagel contends that the Union Corp. case never ruled on whether the claim had matured,
because the parties did not adequately brief the issue. However, the two cases that it cited did
make this determination. In Stahl v. Ohio River Co., 424 F.2d 52 (3d Cir. 1970), the court held
that a claim for contribution “is not a matured claim as contemplated under Rule 13(e) because
such claim is contingent upon a verdict and judgment establishing liability of a party as a joint
tortfeasor.” Id. at 55 (footnote omitted). And in Steinberg v. St. Paul Mercury Insurance Co.,
108 F.R.D. 355 (S.D. Ga. 1985), the court held that claims on an assignment of a security deed
and promissory note did not mature until the assignment was executed: “The fact that the insurer
might have known that eventually it would have this counterclaim against Steinberg does not
affect the determination of the time at which this counterclaim matured for the purposes of
Fed.R.Civ.P. 13(a).” Id. at 358-59.
Nagel cites case law holding that:
Under Rule 13(e), leave is not proper if claims were ripe prior to the filing of the
answer. Furthermore, “Rule 13 must be read in conjunction with Rule 15 of the
Federal Rules of Civil Procedure.” Gasser Chair Co., Inc. v. Infanti Chair Mfg.
Corp., No. 88 Civ. 3931, 1991 WL 10931, at *1 (E.D.N.Y. Jan. 24, 1991);
Tommy Hilfiger Licensing, Inc. v. Bradlees, Inc., 99 Civ. 4677, 2001 WL
1702151 (S.D.N.Y. Jan. 11, 2002). Rule 15(d), which specifically deals with
supplemental pleadings, only permits a “party to serve a supplemental pleading
setting forth transactions or occurrences or events which have happened since the
date of the pleading sought to be supplemented.” Fed.R.Civ.P. 15(d) (emphasis
Bergquist v. Aetna US Healthcare, 289 F. Supp. 2d 400, 414-15 (S.D.N.Y. 2003). In that
case, the court held that Aetna was on notice of a claim two months prior to the date it
moved to amend its answer to assert a counterclaim. Therefore, it could not assert the
counterclaim pursuant to Rule 13(e). Nevertheless, the court allowed Aetna to amend its
answer pursuant to Rule 13(f).2
Nagel points out that, on August 15, 2016, Siemens requested leave of Court to file an
Amended Answer to Nagel’s Complaint in the Nagel Action based upon the affirmative defense
of after-acquired evidence and that it relied upon the same facts it now cites as the basis for its
claims in this case. Siemens responds that it did not learn until July 22, 2016 that Nagel was in
possession of electronic devices containing, inter alia, over 30,00 emails and other documents
belonging to Siemens and that it was not until Nagel’s deposition on March 10, 2017 that Nagel
confirmed that the documents he possessed included confidential information, thereby violating
Rule 13(f) was deleted in 2009 as largely redundant and potentially misleading. The note to
this Rule indicates that amendments to assert counterclaims are governed by Rule 15.
the Settlement Agreement.
In his reply brief, Nagel cites the fact that the August 19, 2016 motion to compel
explicitly stated that Siemens had “confirm[ed] that confidential information was taken.” (Nagel
Action, ECF No. 29 at 2.) Moreover, the Statement of Material Facts filed with the motion
Given the nature of [Nagel’s] former position, and because of the
extraordinary amount of electronic data/information misappropriated from
Siemens, it is virtually certain that [Nagel] and his counsel are in possession of
confidential, proprietary and/or privileged information. (As described in
paragraphs 34 and 39, below, it is evident that they are in fact in possession of at
least two confidential documents taken from Siemens, which [Nagel] used as
exhibits at recent depositions.)
Accordingly, on August 1, 2016, Siemens requested that [Nagel] and his
counsel immediately return the flash drives containing Siemens’ property.
Significantly, Siemens also explained the [Nagel’s] conduct in
downloading and retaining Siemens’ property directly related to [Siemens’]
defenses in this case…
Thus, by August 1, 2016, [Nagel] was clearly on notice that:
a. [Nagel] was in possession of an extraordinary amount of Siemens’
property that, due to Nagel’s position as General Manager, likely contained
Siemens’ proprietary, confidential, and/or privileged information;
b. [Nagel’s] possession of Siemens’ property was unauthorized…
c. [Nagel’s] conduct in downloading and taking Siemens’ property, and
the flash drives which may evidence this conduct, were important to [Siemens’]
affirmative defenses (as was as to a possible counterclaim)...
(Nagel Action, ECF No. 30 ¶¶ 25-28.)
Nagel argues that Siemens’ claims “matured” on the date his alleged acts took place, that
is, while he was still employed by Siemens, and that Rules 13(e) and 15(d) only permit parties to
supplement their pleadings with claims arising out of transactions or occurrences that have
transpired since the date of the pleading sought to be supplemented. Therefore, he contends that
Siemens could not have used Rules 13(e) or 15(d) to supplement its answer in the Nagel Action
to assert a counterclaim. However, Siemens is not attempting to file a counterclaim in the Nagel
Action pursuant to Rules 13(e) and 15(d) and thus Nagel’s citations are inapposite.
The facts are disputed as to when Siemens acquired sufficient information to assert that
Nagel breached the Settlement Agreement by retaining confidential Siemens information.
Construing the facts in Siemens’ favor as the non-moving party, it did not learn until March 10,
2017 that Nagel had breached the Settlement Agreement. The fact that Siemens asserted on
August 19, 2016 that Nagel “likely” had Siemens’ confidential information in his possession is
not equivalent to the information acquired by Siemens on March 10, 2017 during Nagel’s
deposition, namely that he actually admitted possessing such information. In any event,
Siemens’ claims were not “mature” at the time it filed an answer in the Nagel Action (December
23, 2015), which is what Nagel is asserting herein. Its claims are thus not compulsory
counterclaims that would be waived because it did not file them in the Nagel Action.
Moreover, Nagel has omitted the fact that case law holds that: “Failure to assert a
compulsory counterclaim before the related action proceeds to judgment results in the barring of
the counterclaim.” James E. McFadden, Inc. v. Bechtel Power Corp., 1986 WL 4195, at *3 (E.D.
Pa. Apr. 3, 1986) (emphasis added) (citing Bristol Farmers Market & Auction Co. v. Arlen
Realty & Dev. Corp., 589 F.2d 1214, 1220 (3d Cir. 1978)). The Nagel Action has not proceeded
In addition, dismissal is not necessarily the appropriate remedy in any event. The
Transamerica case involved suits in two different courts. By contrast, in a case in which the
second suit had been transferred to the same court as the first one, a court stated that:
Here, judicial economy would be best served by consolidating the
California Action with the Pennsylvania Action. See Wells v. Rockefeller, 728
F.2d 209, 214 (3d Cir. 1984) (noting that when a claim assertable as a compulsory
counterclaim in another action is brought in the same court as that other action,
both actions can be consolidated); 6 Charles Alan Wright et al., Federal Practice
& Procedure § 1418 (3d ed. 2007) (“Of course, if both actions are pending before
the same federal court, they can be consolidated in whatever manner is most
convenient for the purpose of trial.”)
Premier Payments Online, Inc. v. Payment Sys. Worldwide, 848 F. Supp. 2d 513, 524 (E.D. Pa.
2012). See also Internet Law Library, Inc. v. Southridge Capital Mgmt., LLC, 208 F.R.D. 59, 63
(S.D.N.Y. 2002) (“the filing of a separate action in lieu of a compulsory counterclaim … is not a
violation of Rule 13(a), F.R. Civ. P.” and the procedural devices of transfer, stay and
consolidation can be used to avoid multiple litigation and effectuate the Rule.)
Siemens is not attempting to add a compulsory counterclaim to the Nagel Action using
Rule 13(e) or Rule 15(d). Therefore, the Court will deny Defendant’s motion based on the
compulsory counterclaim argument and will defer the decision on whether to consolidate the
remaining claims in this case with the Nagel Action. The next issue to be determined is whether
the claims otherwise survive a motion to dismiss.
Determining State Law
The Court of Appeals has stated that:
In adjudicating a case under state law, we are not free to impose our own
view of what state law should be; rather, we are to apply state law as interpreted
by the state’s highest court in an effort to predict how that court would decide the
precise legal issues before us. Kowalsky v. Long Beach Twp., 72 F.3d 385, 388
(3d Cir. 1995); McKenna v. Pacific Rail Serv., 32 F.3d 820, 825 (3d Cir. 1994).
In the absence of guidance from the state’s highest court, we are to consider
decisions of the state’s intermediate appellate courts for assistance in predicting
how the state’s highest court would rule. McKenna, 32 F.3d at 825; Rolick v.
Collins Pine Co., 925 F.2d 661, 664 (3d Cir. 1991) (in predicting state law, we
cannot disregard the decision of an intermediate appellate court unless we are
convinced that the state’s highest court would decide otherwise).
Gares v. Willingboro Township, 90 F.3d 720, 725 (3d Cir. 1996). Because this is a diversity
action, the Court must predict how the Pennsylvania Supreme Court3 would rule if presented
with this situation. Whether a doctrine applies in this case is an issue of law to be resolved by
the court. Bohler-Uddehom America, Inc. v. Ellwood Group, Inc., 247 F.3d 79, 103 (3d Cir.
Count I: Breach of Contract
In Count I, Siemens alleges that Nagel breached the Settlement Agreement by removing
and retaining confidential information belonging to Siemens, despite express terms prohibiting
him from doing so. Siemens alleges that this breach has deprived it of the benefit of the bargain
and has caused it damages, including but not limited to the $950,000 consideration payment
made to Nagel and costs associated with the Forensic Protocol.
Nagel argues that Siemens fails to state a claim for breach of contract. To state such a
claim, a plaintiff must allege: “(1) the existence of a contract, including its essential terms; (2) a
breach of duty imposed by the contract; and (3) resultant damages.” Alpart v. General Land
Partners, Inc., 574 F. Supp. 2d 491, 502 (E.D. Pa. 2008) (citing CoreStates Bank, N.A. v. Cutillo,
723 A.2d 1053, 1058 (Pa. Super. 1999)).
In this case, Siemens has alleged that: Nagel signed a Settlement Agreement, in which he
promised not to retain confidential Siemens documents; that Nagel breached this duty by
retaining such documents (and even admitted to doing so at his deposition); and that it has been
damaged by this breach. These allegations are more than sufficient to state a claim for breach of
contract. Therefore, with respect to Count I, the motion to dismiss will be denied.
Count III: Breach of the Duty of Loyalty
In Count III, Siemens alleges that Nagel breached his common law duty of loyalty to
The parties both cite Pennsylvania law in support of their positions. Moreover, the Settlement
Agreement states that it shall be governed by Pennsylvania law. (Am. Compl. Ex. A ¶ 12.)
Siemens by copying and/or downloading Siemens’ confidential, privileged and/or proprietary
information without authorization and for his personal benefit. Nagel argues that claim is barred
by the gist of the action doctrine, and that Siemens fails to sufficiently state a claim. Siemens
responds that the gist of the action doctrine does not apply to this situation and that it has
sufficiently stated a claim for relief. In a reply brief, Nagel argues that Siemens confirms that
any alleged breach occurred during his employment and arises out of employment agreements.
Gist of the Action Doctrine
In 2014, the Pennsylvania Supreme Court issued a decision which discusses the gist of
the action doctrine at length. The court stated that:
The general governing principle which can be derived from our prior cases
is that our Court has consistently regarded the nature of the duty alleged to have
been breached, as established by the underlying averments supporting the claim in
a plaintiff’s complaint, to be the critical determinative factor in determining
whether the claim is truly one in tort, or for breach of contract. In this regard, the
substance of the allegations comprising a claim in a plaintiff’s complaint are of
paramount importance, and, thus, the mere labeling by the plaintiff of a claim as
being in tort, e.g., for negligence, is not controlling. If the facts of a particular
claim establish that the duty breached is one created by the parties by the terms of
their contract—i.e., a specific promise to do something that a party would not
ordinarily have been obligated to do but for the existence of the contract—then
the claim is to be viewed as one for breach of contract. If, however, the facts
establish that the claim involves the defendant’s violation of a broader social duty
owed to all individuals, which is imposed by the law of torts and, hence, exists
regardless of the contract, then it must be regarded as a tort. Although this dutybased demarcation was first recognized by our Court over a century and a half
ago, it remains sound, as evidenced by the fact that it is currently employed by the
high Courts of the majority of our sister jurisdictions to differentiate between tort
and contract actions. We, therefore, reaffirm its applicability as the touchstone
standard for ascertaining the true gist or gravamen of a claim pled by a plaintiff in
a civil complaint.
Bruno v. Erie Ins. Co., 106 A.3d 48, 68-69 (Pa. 2014) (footnotes and citations omitted). In
Bruno, the plaintiff homeowners sued their insurer (Erie) after its adjuster and engineer came to
their home to investigate black mold the Brunos found in their basement and told the Brunos that
the mold was harmless, that it had no health consequences and that they should continue to tear
out the paneling in their basement. The Brunos followed this advice, but suffered health
problems from mold exposure and eventually the house became uninhabitable such that it had to
be destroyed. Erie paid the Brunos $5,000, as owed under the insurance policy for testing and
attempted remediation of the mold.
The court held that:
Accordingly, while Erie had contractual obligations under its policy to
investigate whether mold was present, and also to pay for all property damage
caused by mold, the substance of the Brunos’ allegations is not that it failed to
meet these obligations; rather, it is that Erie, during the course of fulfilling these
obligations through the actions of its agents, acted in a negligent manner by
making false assurances regarding the toxicity of the mold and affirmatively
recommending to the Brunos that they continue their renovation efforts, which
caused them to suffer physical harm because of their reasonable reliance on those
assurances. Consequently, these allegations of negligence facially concern Erie’s
alleged breach of a general social duty, not a breach of any duty created by the
insurance policy itself. The policy in this instance merely served as the vehicle
which established the relationship between the Brunos and Erie, during the
existence of which Erie allegedly committed a tort. We, therefore, reverse the
order of the Superior Court affirming the trial court’s dismissal of the Brunos’
negligence claim on the basis of its application of the gist of the action doctrine.
Id. at 71 (footnote omitted).
Nagel argues that any duty of loyalty that he allegedly owed to Siemens would have been
based on his employment agreement and thus is barred by the gist of the action doctrine.
Siemens responds that the duty of loyalty is a societal duty governed by the law of torts.
As one court recently summarized it:
“A breach of fiduciary duty claim is barred by the gist of the action doctrine if the
fiduciary duty alleged is grounded in contractual obligations.” Alpart v. Gen.
Land Partners, Inc., 574 F.Supp.2d 491, 499 (E.D. Pa. 2008). The cases that
evaluate whether breach of fiduciary duty claims are barred by the gist of the
action doctrine can be grouped generally into two categories. Certainteed Ceilings
Corp. v. Aiken, No. 14-3925, 2015 WL 410029, at *9 (E.D. Pa. Jan. 29, 2015).
“First, ... claims for breach of fiduciary duty are not barred if the fiduciary duty at
issue goes ‘beyond the particular obligations contained in’ the parties’ contract.”
Id. citing Bohler–Uddeholm Am., Inc. v. Ellwood Grp., Inc., 247 F.3d 79, 105 (3d
Cir. 2001); Rahemtulla v. Hassam, 539 F. Supp. 2d 755, 779 (M.D. Pa. 2008);
Orthovita, Inc. v. Erbe, No. 07-2395, 2008 WL 423446, at *7-8 (E.D. Pa. Feb. 14,
2008); Murphy v. Mid E. Oil Co., No. 06-1343, 2007 WL 527715, at *6-7 (W.D.
Pa. Feb. 14, 2007). “Second, ... breach of fiduciary duty claims are barred by the
gist of the action doctrine if there are ‘no allegations of breach of fiduciary duty
or duty of loyalty that transcend or exist outside of’ the parties’ contractual
agreements.” Certainteed Ceilings, 2015 WL 410029, at *9, citing Brown &
Brown, Inc. v. Cola, 745 F. Supp. 2d 588, 621 (E.D. Pa. 2010); Cunningham
Lindsey U.S., Inc. v. Bonnani, No. 13-2528, 2014 WL 1612632, at *7 (M.D. Pa.
Apr. 22, 2014); Hill v. Best Med. Int’l, Inc., No. 07-1709, 2011 WL 5082208, at
*31 (W.D. Pa. Oct. 25, 2011); AMG Nat’l Trust Bank v. Ries, No. 06-4337, 2011
WL 6840586, at *5 (E.D. Pa. Dec. 29, 2011). The courts agree that dismissals
under the gist of the action doctrine should take care not to preclude a party’s
right to plead claims in the alternative, USG Ins. Services, Inc. v. Bacon, No. 1601024, 2016 WL 6901332, at *7 (W.D. Pa. Nov. 22, 2016).
DePuy Synthes Sales, Inc. v. Globus Med., Inc., No. CV 17-1068, 2017 WL 1493365, at *6
(E.D. Pa. Apr. 26, 2017). The court concluded that that the breach of fiduciary claim was barred
by the gist of the action doctrine for two reasons: 1) the acts which formed the basis of the
breach of fiduciary duty/breach of loyalty claim were the identical acts forming the breach of
contract action; and 2) the complaint did not allege that the Sales Consultants’ positions with
their employer gave rise to fiduciary duties separate and apart from the obligations under the
contracts. Id. at *7-8.
Similarly, in this case, the Amended Complaint explicitly states that Nagel breached his
duty of loyalty by retaining confidential Siemens information, which is precisely the basis for the
breach of contract claim in Count I.4 Moreover, the Amended Complaint does not allege that
Nagel’s position with Siemens gave rise to fiduciary duties separate and apart from his
obligations under the Settlement Agreement. Nagel also notes that any obligations stemming
from his employment were governed by the confidentiality and non-disclosure agreements and
The Amended Complaint describes it as a “common law duty of loyalty,” but the Court is not
bound by the labels parties use. Bruno, 106 A.3d at 68.
other policies referred to and incorporated into his Employment Agreement. (Nagel Action ECF
No. 1-3 at 86.) Therefore, the breach of the duty of loyalty claim merely reiterates the breach of
contract claim and is barred by the gist of the action doctrine.
For these reasons, the motion to dismiss will be granted with respect to Counts II and III
of the Amended Complaint and denied with respect to Count I.
An appropriate order follows.
IN THE UNITED STATES DISTRICT COURT
FOR THE WESTERN DISTRICT OF PENNSYLVANIA
SIEMENS INDUSTRY, INC.,
HARRY C. NAGEL,
Civil Action No. 17-405
Magistrate Judge Mitchell
AND NOW, this 15th day of September, 2017,
IT IS HEREBY ORDERED that the motion to dismiss filed by the Defendant (ECF No.
12) is granted with respect to Counts II and III of the Amended Complaint and denied with
respect to Count I.
s/Robert C. Mitchell___________
ROBERT C. MITCHELL
United States Magistrate Judge
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