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January 21, 2004.

LEGALGARD, INC., et al Defendants

The opinion of the court was delivered by: WILLIAM YOHN, JR., District Judge


On February 11, 2003, plaintiff, Frank J. Dalicandro, filed a third amended complaint against Legalgard Inc., Reliance Insurance Co., Inc., Howard Steinberg, Dennis Costello, Edward Charlton, and Lawrence Kwasny, alleging violations of §§ 10(b) and 20(a) of the Securities Exchange Act of 1934 (Counts I and II), common law fraud (Count III), breach of fiduciary duty (Count IV), violation of § 1-501 of the Pennsylvania Securities Act of 1976 (Count V), breach of contract (Count VI), unjust enrichment (Count VII), and fraud as to present and future creditors (Count VIII).

Presently before the court is a motion for judgment on pleadings which defendants Costello, Charlton, and Kwasny bring pursuant to Federal Rule of Civil Procedure 12(c). For the reasons stated below, the motion will be granted in part and denied in part.


  From 1987 until 1998, plaintiff, Frank Dalicandro ("Dalicandro"), was a founder, shareholder, director, and officer of Legalgard, Inc. ("Legalgard"), a corporation that "offers Page 2 independent analysis and consulting related to legal services performed for insurance companies by outside counsel." Third Amd. Compl. ¶ 12 (identifying plaintiff as a founder); id. at ¶ 21 (implying that plaintiff was a shareholder as he signed a shareholders' agreement); id., Exh. A. at 1 (identifying plaintiff as a director); id., Exh. A at 2 (identifying plaintiff as an officer). In 1996, another company, Reliance Insurance Co., Inc. ("Reliance"), "acquired an 80% majority interest in Legalgard by purchasing or acquiring an option to purchase all shares held by outside shareholders." Id. at ¶ 15. This action resulted in Reliance taking control of the company. Id. at ¶ 16.

  Following Reliance's acquisition of the control of Legalgard, Dalicandro entered into a Shareholders' Agreement in December 1996 with the defendant corporations and the individual defendants — Dennis Costello ("Costello"), Edward Charlton ("Charlton"), and Lawrence Kwasny ("Kwasny"), all of whom were also employee shareholders — which "provided for the purchase of shares held by the employee shareholders who terminated employment with the Company within the first two years of the Agreement,*fn1 as follows: a) If terminated for cause, the lower of $0.70 or adjusted book value per share; b) If terminated without cause, the higher of $0.70 or adjusted book value per share; c) If employment terminated voluntarily, the higher of $0.70 or adjusted book value per share." Id. at ¶ 21. Page 3

  This agreement also contained a clause stating that "neither the Corporation, its shareholders nor its directors and officers has any duty or obligation to disclose to the Executive any material information regarding the business of the Corporation or affecting the value of the capital stock of the Corporation before or at the time of a termination of the employment of the Executive, including, without limitation, any information concerning plans for the Corporation to make a public offering of its securities or to be acquired by or merged with or into another firm or entity." Defs. Mot., Exh. 5 at 9-10.*fn2

  During the course of 1998, Legalgard and Reliance negotiated with two other companies Page 4 — Examen, Inc. ("Examen") and Policy Management System, Inc. ("Policy Management") — for the sale of or merger with Legalgard. In January 1998, the companies began merger negotiations with Examen, which promptly ended in February that same year when Examen "withdrew from the negotiations in order to focus on raising additional capital." Third Amd. Compl. at ¶ 31-33. Examen eventually renewed these negotiations in April or May 1998. Id. at ¶ 35. At about the same time, the companies also initiated negotiations with Policy Management for the sale of Legalgard. Id. at 55 & 59. As a result of these negotiations, on March 31, 1999, Policy Management purchased the assets of Legalgard for "approximately $23 million, which represented a price of approximately $4.00 per each Legalgard share." Id. at ¶ 93.

  During this same time, Dalicandro alleges that Reliance and its representatives, including Costello and Charlton, were engaged in a scheme "to push Dalicandro into resigning from Legalgard and selling his shares for amounts much less than they were worth . . . in order to increase the amount of money paid to Reliance, Costello, and Charlton as shareholders in Legalgard." Id. at ¶¶ 95-96. As part of this scheme, none of the defendants informed Dalicandro about the negotiations with the companies interested in acquiring Legalgard despite their knowledge of or participation in the negotiations. See id. at ¶¶ 30-49, 50-75 (stating that Costello participated in both the Examen and Policy Management negotiations and failed to disclose); id. at ¶ 48 (stating Charlton knew of the Examen negotiations and failed to disclose); id. at ¶¶ 50-52, 55-56, 59-62, 67-75 (stating that Charlton participated in the Policy Management negotiations and failed to disclose); id. at ¶¶ 99-100 (stating Kwasny knew of the negotiations by mid-December 1999 and participated in the subsequent January and February 1999 negotiations and failed to disclose). Page 5

  Moreover, plaintiff alleges that Costello and Charlton actually misrepresented the status of negotiations. Specifically, he claims that instead of advising plaintiff about the "renewed negotiations with Examen" or the "serious overture from Policy Management," both "Costello and Charlton merely informed Dalicandro that other businesses, but not Policy Management and Examen, might be interested in Legalgard." Id. at ¶ 83-84. Moreover, despite his knowledge of Policy Management's interest in purchasing Legalgard, "Costello specifically represented to Dalicandro that Policy Management was only interested in doing joint marketing and joint business development with Legalgard." Id. at ¶¶ 86-87. Plaintiff alleges that Costello made this misrepresentation with the intent "to mislead Dalicandro into believing that Policy Management had no interest in purchasing Legalgard." Id. at ¶ 89. Similarly, "Costello told Dalicandro that nothing further had proceeded with Examen subsequent to February, 1998." Id. at ¶ 49. Finally, plaintiff claims that Costello specifically told Dalicandro that Reliance wanted him to continue his employment with Legalgard despite the fact that he knew otherwise. Id. at ¶¶ 90-91. This alleged "misrepresentation was intended to mislead Dalicandro into believing that Reliance wanted to `lock him in' to continued employment and to conceal Examen's and Policy Management's interest in Legalgard." Id. at ¶ 92.*fn3

  In November 1998, Reliance, with the participation of Costello and Charlton, then insisted that Dalicandro sign an amendment to the Shareholders' Agreement. Id. at ¶ 76. The amendment would have altered the terms such that "the price of the shares [would] be reduced to the lower of book value or $0.70 per share in the event of voluntary termination or in the event of termination without cause through June 10, 2000." Id. Unless Dalicandro signed this amended Page 6 agreement, "Reliance [would] refuse[] to invest the additional funds" promised to Legalgard. Id. at ¶ 77. The adjusted book value at the time was "no more than $0.10 per share." Id. at ¶ 78. As a result of defendants' omissions and misrepresentations, and in an effort to avoid signing the amendment to the Shareholders' Agreement, which would have disappointed other Legalgard executives who wanted Reliance to invest additional funds, Dalicandro resigned on December 11, 1998. Id. at ¶ 81. Pursuant to the Shareholders' Agreement, on February 16, 1999, Legalgard exercised its right to buy back his shares at $0.70 per share as that was the greater figure as compared to the then-book value of $0.10 per share. Id. at ¶ 82.

  Dalicandro claims that he would not have left his job had he known about the negotiations to sell Legalgard. Id. at ¶¶ 103-04. Furthermore, he asserts that he would have purchased additional shares of the company. Id. at ¶ 104. As a result of this alleged fraud, he claims to have lost $731,475 in stock value, $875,000 in salary over a five-year period (less those severance payments made to him), bonuses, and royalties. Id. at ¶ 107.

  Procedural Background

  Plaintiff filed his initial complaint on July 26, 1999, alleging claims against only Legalgard and Reliance. See Doc. #1. On September 24, 1999, plaintiff amended his complaint to include a breach of contract claim. See Doc. #7. On January 24, 2001, plaintiff moved to amend his complaint a second time in order to include claims against the current defendants, who are individual employees, executives, and officers of Legalgard and Reliance. See Doc. #32; Sec. Amd. Compl. ¶¶ 14, 17-19. The court denied plaintiffs motion to amend due to undue delay in making the request and the then-impending trial date. Ord. (Yohn, J., Feb. 15, 2001)(Doc. #34). On February 27, 2001, plaintiff filed a motion requesting the court to reconsider its decision. See Page 7 Doc. #35. The court granted plaintiffs motion, vacated its previous decision, and proceeded to evaluate the merits of plaintiffs motion to amend his complaint. Ord. (Yohn, J., Mar. 15, 2001)(Doc. #37).*fn4 Plaintiff's motion to amend was granted "only to the extent that it adds claims against four new parties and a claim of unjust enrichment against Legalgard." Ord. (Yohn, J., Jan. 11, 2002) (Doc. #48). On January 17, 2002, plaintiff filed his second amended complaint. See Doc. #49.*fn5 Thereafter, defendant Steinberg filed a motion to dismiss (Doc. #59), which the court granted with prejudice as to Counts I, II and V and without prejudice to the right of plaintiff to file a third amended complaint as to Count III. Plaintiff then filed a third amended complaint on February 12, 2003. See Doc. #72. Defendants Costello, Charlton and Kwasny filed their answer and affirmative defenses on March 13, 2003. See Doc. #75. On May 9, 2003, plaintiff voluntarily dismissed this complaint as against defendant Steinberg. See Doc. #84.*fn6 Defendants Costello, Charlton, and Kwasny thereafter filed the instant motion.

  Standard of Review

  Federal Rule of Civil Procedure 12(c) states that "[a]fter the pleadings are closed but within such time as not to delay the trial, any party may move for judgment on the pleadings." FED. R. Civ. P. 12(c)(WEST 2003). The standard for reviewing such a motion is the same as that applied to motions brought pursuant to Federal Rule of Civil Procedure 12(b)(6). See Turbe v. Page 8 Government of Virgin Islands, 938 F.2d 427, 428 (3d Cir. 1991) (citations omitted) (stating that because "Rule 12(h)(2) provides that a defense of failure to state a claim upon which relief can be granted may also be made by a motion for judgment on the pleadings . . ., we apply the same standards as under Rule 12(b)(6)"). Thus, to survive this motion, the plaintiff must set forth facts that state a claim as a matter of law. See Constitution Bank v. DiMarco, 815 F. Supp. 154, 157 (E.D.Pa. 1993) ("[V]iewing all of the facts in a light most favorable to the non-moving party and accepting as true the allegations in that party's pleadings and as false all controverted assertions of the movant, the court may only grant the motion if it is beyond doubt that the non-movant can plead no facts that would support his claim for relief"). The district court must view these facts and the inferences drawn there from in the light most favorable to the non-moving party. See Janney Montgomery Scott, Inc. v. Shepard Niles, Inc., 11 F.3d 399, 406 (3d Cir. 1993). The court may grant the motion only "if no relief could be granted under any set of facts that could be proved." Turbe, 938 F.2d at 428 (citing Unger v. National Residents Matching Program, 928 F.2d 1392, 1394-95 (3d Cir. 1991)).


 I. Counts I and II: Plaintiff's Federal Claims Against Costello, Charlton, and Kwasny

  In his Third Amended Complaint, plaintiff alleges that, through their acts and omissions, the moving defendants violated §§ 10(b) and 20(a) of the Securities Exchange Act.*fn7 In their motion for judgment on the pleadings, defendants argue that the statute of limitations has expired on plaintiff's federal securities claims because he had inquiry notice of defendants' possible Page 9 involvement in the alleged fraudulent scheme at the time he filed his first ...

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