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Specialty Graphite Services, Inc A Pennsylvania Corporation v. Rodney J. Chiodo An Individual

January 19, 2012

SPECIALTY GRAPHITE SERVICES, INC A PENNSYLVANIA CORPORATION, PLAINTIFF,
v.
RODNEY J. CHIODO AN INDIVIDUAL,
DEFENDANT.



The opinion of the court was delivered by: McVerry, J.

MEMORANDUM OPINION AND ORDER OF COURT

Pending now before the Court is Defendant Rodney J. Chiodo's MOTION TO DISMISS PURSUANT TO RULES 12(b)(1) AND 12(b)(6) OF THE FEDERAL RULES OF CIVIL PROCEDURE (Doc. No. 6), with memorandum of law in support (Doc. No. 7). Plaintiff responded in opposition to Defendant's motion to dismiss (Doc. No. 8), to which Defendant, in turn, replied (Doc. No. 11). The issue has been fully briefed and is ripe for disposition.

Statement of the Case

Plaintiff Specialty Graphite Services, Inc. ("Plaintiff SGS" or "Plaintiff corporation") initiated the above captioned action with the filing of a five count complaint on November 10, 2011. Doc. No. 1, Complaint. Plaintiff SGS is a Pennsylvania corporation that is engaged in the business of warehousing and selling graphite electrodes and specialty graphite. Id. at ¶¶ 1 & 2. Pennsylvania resident Defendant Chiodo was employed by Plaintiff SGS as its President, Secretary, and a director until his resignation on May 13, 2011. Id. at ¶ 4. A brief explanation of how Plaintiff corporation came into being is appropriate for an understanding of Plaintiff's claims.

Keith Kearney is the President and owner of Graphite Electrode Sales, Inc., ("GES"), a business corporation headquartered in Birmingham, Alabama. Id. at ¶ 7. In and before 2007, Mr. Kearney was interested in establishing a warehouse in Pennsylvania and a distribution capability there for GES' products and for specialty graphite. Id. at ¶ 8. In and before 2007, Defendant Chiodo was employed in a sales management capacity by a competitor of GES, Graphite Sales, Inc., a corporation with offices in Ohio that sold graphite electrodes, specialty graphite, and machined graphite. Id. at ¶ 9. At some point, contact was made between Defendant and Kearney, wherein Defendant represented that he had no legal impediments to his engaging with Kearney in a graphite business, and that he had resigned his position with Graphite Sales, Inc. Id. at ¶ 10. An agreement was reached between the two wherein Defendant took steps to incorporate Plaintiff SGS as a Pennsylvania corporation, and would serve as the President and Secretary of the corporation, as well as being appointed as a director. Id. at ¶ 11. Defendant also signed a Nondisclosure, Non-competition and Nonsolicitation agreement (a copy of which was attached to the Complaint as exhibit "A"), and a stock purchase agreement with Plaintiff (attached to Complaint at exhibit "B"), and proceeded to operate Plaintiff corporation for several years without ever disclosing that he had, all the while, also not actually resigned from Graphite Sales, and continued to be employed there in his sales management position. Doc. No. 1, Complaint at ¶¶ 12 -- 18. On May 13, 2011, Defendant sent a letter to Kearney, attached to Complaint as exhibit "C", wherein he informed Plaintiff SGS and Kearney (who was the majority shareholder of SGS) of his "unfaithfulness only after . Graphite Sales, Inc., his other employer discovered it and confronted him, thus making it certain that SGS and its majority shareholder would have learned of it from Graphite Sales, Inc." Id. at ¶ 19.

It is upon this factual predicate that Plaintiff now brings five counts against Defendant. Plaintiff pleads subject matter jurisdiction pursuant to 28 U.S.C. § 1331 as an action founded, in part, on the laws of the United States, and 15 U.S.C. §§ 78aa, and brought under § 10(b) of the Securities and Exchange Act of 1934, 15 U.S.C. §§ 78j(b), as well as supplemental jurisdiction over the remaining claims pursuant to 28 U.S.C. § 1367(a). More specifically, Count I alleges the § 10(b) violation; Count II alleges common law fraud; Count III alleges a violation of the Pennsylvania Securities Act; Count IV alleges a breach of the nonsolicitation contract; and Count V alleges a breach of fiduciary duty. Defendant has moved for the dismissal of Counts I, II, and III either for a failure to state a claim upon which relief can be granted or because those claims are now moot, and for the Court to further decline to exercise supplemental jurisdiction over the common law and state law claims. See Doc. No. 7. The Court begins with Count I, the federal law claim, which alleged:

21. The terms and conditions of the Stock Purchase Agreement were negotiated using the telephone, mail and interstate electronic communications between the representatives of Mr. Kearny and SGS, who were in Birmingham, Alabama, and defendant in Pennsylvania.

22. The facts that defendant was, at the time the Stock Purchase Agreement was negotiated and signed, still an employee of Graphite Sales, Inc., a competitor of SGS and GES, and intended to continue in that role, were material facts that defendant did not disclose in purchasing the SGS stock, inasmuch as they gave rise to a severe conflict of interest. Defendant's failure to disclose these facts was done with the intent to deceive the plaintiff.

23. If defendant's conflict of interest had been disclosed, the Stock Purchase Agreement would not have been entered into by SGS.

24. Plaintiff and its majority shareholder relied upon defendant's misrepresentation that that he had left his employment with Graphite Sales, Inc. in entering into the sale and purchase of its stock.

25. Plaintiff has demanded the return of the common stock purchased by defendant, but defendant has failed and refused to return the stock, despite his fraud in acquiring it, and continues to hold the stock.

WHEREFORE, plaintiff prays for judgment in its favor on this Court, and for an order rescinding the Stock Purchase Agreement and directing that the share certificates be endorsed and delivered to the plaintiff, and for such other and further legal and equitable relief as may be warranted.

For the reasons that follow, the Court will dismiss Count I for the failure to state a claim for which relief will be granted, and will further decline to exercise supplemental jurisdiction over the remaining claims.

Standard of Review

A motion to dismiss pursuant to Fed. R. Civ. P. 12(b)(6) tests the legal sufficiency of a complaint. Conley v. Gibson, 355 U.S. 41, 45--46, 78 S.Ct. 99, 2 L.Ed.2d 80 (1957). While Rule 8 of the Federal Rules of Civil Procedure requires only "a short and plain statement of the claim showing that the pleader is entitled to relief," Fed. R. Civ. P. 8(a)(2), in order to "give the defendant fair notice of what the ... claim is and the grounds upon which it rests," Twombly, 127 S.Ct. at 1964--65 (2007) (quoting Conley, 355 U.S. at 47), the plaintiff must provide "more than labels and conclusions, and a formulaic recitation of the elements of a cause of action will not do." Id. (citations omitted). Specifically, "[f]actual allegations must be enough to raise a right to relief above the speculative level ...." Id. at 1965 (citations omitted). To survive a motion to dismiss, a civil complaint must allege "factual content [that] allows ...


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