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Rantnetwork, Inc. v. Troy R. Underwood and Christina A. Underwood

March 26, 2012

RANTNETWORK, INC.
PLAINTIFF
v.
TROY R. UNDERWOOD AND CHRISTINA A. UNDERWOOD, DEFENDANTS



The opinion of the court was delivered by: Judge Conner

MEMORANDUM

This civil action is about an email. According to the complaint (Doc. 1-4), plaintiff Rantnetwork, Inc., suffered over $5 million in damages as the result of an email that defendants Troy R. and Christina A. Underwood ("Mr. Underwood" and "Mrs. Underwood," respectively) sent near the end of 2009 to Rantnetwork's CEO and several of the company's investors. (Id. ¶¶ 18, 24.) This email allegedly caused one of the company's investors, Dr. Angelo Mancuso, to withhold further investment in the company, despite his previously expressed willingness to invest up to $500,000. (Id. ¶¶ 22, 17.) The complaint describes an avalanche of negative consequences that flowed from Dr. Mancuso's cessation of further investment, ultimately causing Rantnetwork losses that it values at $5,478,166.00. (Id. ¶ 24.)

Rantnetwork's complaint contains two counts against Mr. and Mrs. Underwood: Count I alleges that the Underwoods' sending of that fateful email constituted intentional interference with prospective contractual relations between Rantnetwork and Dr. Mancuso, for which they seek a judgment in their favor in the above-mentioned sum; Count II seeks an injunction against the Underwoods to prohibit them from meddling with Rantnetwork's future business affairs.

Presently before the court is the Underwoods' motion (Doc. 3) to dismiss the complaint (either for this court's lack of personal jurisdiction over them or for Rantnetwork's failure to state a claim) or alternatively to stay this action pending the outcome of an action previously filed in California state court. For the reasons that follow, the court will grant the motion.

I. Background*fn1

The Pennsylvania-based Rantnetwork is a corporation that develops various kinds of software, including network translation software for the mobile-phone industry. (Doc. 1-4, ¶¶ 1, 4.) The Underwoods are both residents of California. (Id. ¶ 3.) Although the complaint was originally filed on June 16, 2001, in the Pennsylvania Court of Common Pleas, Columbia County, the Underwoods removed the action to federal court on the basis of complete diversity between the parties and an excess of $75,000 in controversy, giving this court subject-matter jurisdiction under 28 U.S.C. § 1332(a).

The founder and CEO of Rantnetwork, William Grandizio, spent part of his time raising capital for the company, seeking funds for the development of the translation software. (Id. ¶ 5--6.) It was in this capacity and pursuit that Mr. Grandiozo "was placed in contact" with the Underwoods, who, following some preliminary communications, sent their agent to Bloomsburg, Pennsylvania to perform due diligence on Rantnetwork as an investment. (Id. ¶ 7.)

When the Underwoods' agent completed his investigation and, evidently, recommended investing, the Underwoods "forwarded to Rantnetwork, Inc. a Convertible Note" for $300,000, simple interest payable at 20% annually, with accrued and unpaid interest payable at the end of each calendar month. (Id. ¶ 8.) The note, dated November 19, 2007, in Elk Grove, California, required Rantnetwork to commence making payments on the interest on December 31, 2008, with the final payment of the principal and any remaining accrued interest due on November 15, 2010. (Id.; see also Doc. 1-4, at 11 (reproducing the note).) The note contained a clause that allowed the Underwoods to "convert all or any part" of the then-outstanding principal and interest "into that number of shares" of Rantnetwork's common stock. (Doc. 1-4, at 11 cl. 2.)

With the Underwoods' investment in hand, Mr. Grandizio continued working on the translation software, establishing business partnerships, and seeking further capital to finance the software's development and marketing. (Doc. 1-4, ¶ 9.) However, Mr. Grandizio died on August 26, 2008, at which point Rantnetwork's software was yet incomplete. Although the company had accrued investment capital of at least $475,000-$300,000 from the Underwoods and $175,000 from Dr. Mancuso-"additional capital was needed to bring the product to mass market." (Id. ¶¶ 10, 11.)

After Mr. Grandizio's death, his widow, Elisa, took the company's reins and sought to determine the company's financial standings and the barriers yet in place to market entry. (Id. ¶ 12.) Elisa hired a new CEO for Rantnetwork, Kenneth Volet, whose primary tasks were to complete the software's development, bring it to market, and avoid taking the company into bankruptcy. (Id. ¶ 13.) He became Rantnetwork's CEO on October 15, 2008. (Doc. 9, at 18 ¶ 1.)

As CEO, Volet assessed Rantnetwork's financial condition and "found it to be grossly undercapitalized" to the point that the company's "very existence" was "tenuous." (Id. ¶ 14.) Volet then contacted Rantnetwork's shareholders, lienholders, creditors, and suppliers, providing them with his assessment of the company's precarious condition and asking them to be patient while he tried to "salvage" the company, its translation-software product, and the investments that the company had received. (Id. ¶ 15.) The financial condition of the company prevented Rantnetwork from making the monthly payments on the Underwoods' note. (Id. ¶ 16.) "Over the following year," Dr. Mancuso, brother to Elisa Grandizio, "made it known to Mr. Volet that he was able and willing" to invest another $500,000 in Rantnetwork if such funds were needed. (Id. ¶ 17.)

Enter the fateful email. On December 29, 2009, Mr. Underwood, purportedly acting on behalf of both himself and Mrs. Underwood, sent the following email "to the shareholders, officers and representative of Rantnetwork," including Dr. Mancuso:

I thought you all should know of recent communications between Ken Volet and myself. Please read below. As you must understand not one single promise made by Rant [sic] to me has ever been kept. I will seek aggressive collection efforts if I do not receive some payment.

Ken, Your answers are not sufficient. I must demand some form of payment even if it is minimal. Also, you have not been proactive in keeping investors updated. I have to regularly ask for updates.

Please let me know when a payment will arrive. I will be forced to seek legal action if I do not receive a check soon. (Id. ¶ 18; see also Doc. 1-4, at 22 (reproducing the email).)

Dr. Mancuso made no further investments in Rantnetwork after this email was sent.

Rantnetwork alleges that Dr. Mancuso's decision not to invest further funds in Rantnetwork was the "result of" the Underwoods' email. (Doc. 1-4, ¶ 19.) It asserts that the Underwoods' sending of that email "served no legitimate purpose and was intentionally and improperly done to place Rantnetwork, Inc. in a bad light to pressure it into paying the Underwood debt when, because of the untimely death of William Grandizio, it did not have the means to do so." (Id. ¶ 20.) This email, insists Rantnetwork, caused Dr. Mancuso to refrain from further investment in the company. Count I of the complaint maintains on this basis that the Underwoods intentionally interfered with prospective contractual relations between the company and its potential investors-namely, for present purposes, Dr. Mancuso. (Id. ¶¶ 21, 22.)

As a result of the Underwoods' email-scaring off potential investors (especially Dr. Mancuso)-Rantnetwork was unable to complete its contract for development of the translation software; the inability to complete the contract caused Rantnetwork to "forfeit" its "preliminary payment" and lose "all rights and access to the software application developed." (Id. ¶ 24). Consequently, Rantnetwork was forced to shut down its demonstration system and customer-trials program, which brought an end to sales and marketing activities, as well as the loss of customers and revenues. (Id.) Lost, too, were another software-distribution contract, sales opportunities, and market traction with eleven other international telephone carriers. (Id.) Ultimately, Rantnetwork "was forced to end all sales and marketing campaigns while it was required to redevelop the application with a new technology partner as a result of the loss of the rights under the software development contract previously entered into which were forfeited as set forth above." (Id.) The damages: $5,478,166.00. (Id.)

Count II of the complaint requests that the Underwoods be enjoined "from intentionally interfering with" Rantnetwork's prospective contractual relations, because without such an injunction, says Rantnetwork, the company will suffer irreparable harm, and it has no adequate remedy at law. (Id. ¶¶ 26--27.)

One week after removing this action to federal court on July 8, 2011, the Underwoods filed the pending motion (Doc. 3) to dismiss the complaint, wherein they set forth two separate grounds for dismissal. First, they contend that this court lacks personal jurisdiction over them, making dismissal appropriate under Federal Rule of Civil Procedure 12(b)(2). (Doc. 3, ¶¶ 17--34.) Second, the Underwoods argue for dismissal under Rule 12(b)(6) based on the the complaint's failure to adequately state a claim of intentional interference with prospective contractual relations against them. The Underwoods' motion alternatively seeks a stay of this action pending resolution of a purported related action currently under way in California state court. (Id. ¶¶ 51--60.)

II. Standard of Review

Rule 12(b)(6) of the Federal Rules of Civil Procedure provides for the dismissal of complaints that fail to state a claim upon which relief can be granted. FED. R. CIV. P. 12(b)(6). When ruling on a motion to dismiss under Rule 12(b)(6), the court must "accept all factual allegations as true, construe the complaint in the light most favorable to the plaintiff, and determine whether, under any reasonable reading of the complaint, the plaintiff may be entitled to relief." Gelman v. State Farm Mut. Auto. Ins. Co., 583 F.3d 187, 190 (3d Cir. 2009) (quoting Phillips v. County of Allegheny, 515 F.3d 224, 233 (3d Cir. 2008)); see also Kanter v. Barella, 489 F.3d 170, 177 (3d Cir. 2007) (quoting Evancho v. Fisher, 423 F.3d 347, 350 (3d Cir. 2005)). Although the court is generally limited in its review to the facts contained in the complaint, it "may also consider matters of public record, orders, exhibits attached to the complaint and items appearing in the record of the case." Oshiver v. Levin, Fishbein, Sedran & Berman, 38 F.3d 1380, 1384 n.2 (3d Cir. 1994); see also In re Burlington Coat Factory Sec. Litig., 114 F.3d 1410, 1426 (3d Cir. 1997).

Federal notice and pleading rules require the complaint to provide "the defendant notice of what the . . . claim is and the grounds upon which it rests." Phillips, 515 F.3d at 232 (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007)). To test the sufficiency of the complaint in the face of a Rule 12(b)(6) motion, the court must conduct a three-step inquiry. See Santiago v. Warminster Twp., 629 F.3d 121, 130-31 (3d Cir. 2010). In the first step, "the court must 'tak[e] note of the elements a plaintiff must plead to state a claim.'" Id. (quoting Ashcroft v. Iqbal, 556 U.S. 662, 129 S. Ct. 1937, 1947 (2009)). Next, the factual and legal elements of a claim should be separated; well-pleaded facts must be accepted as true, while mere legal conclusions may be disregarded. Id.; see also Fowler v. UPMC Shadyside, 578 F.3d 203, 210--11 (3d Cir. 2009). Once the well-pleaded factual allegations have been isolated, the court must determine whether they are sufficient to show a "plausible claim for relief." Ashcroft v. Iqbal, 556U.S. 662, 129 S. Ct. at 1950 (citing Twombly, 550 U.S. at 556); Twombly, 550 U.S. at 555 (requiring plaintiffs to allege facts sufficient to "raise a right to relief above the speculative level"). A claim "has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged." Iqbal, 556 U.S. 662, 129 S. Ct. at 1949. When the complaint fails to present a prima facie case of liability, however, courts should generally grant leave to amend before dismissing a complaint. See Grayson v. Mayview State Hosp., 293 F.3d 103, 108 (3d Cir. 2002); Shane v. Fauver, 213 F.3d 113, 116--17 (3d Cir. 2000).

III. Discussion*fn2

Among the issues contested at this juncture is this court's exercise of personal jurisdiction over the Underwoods. Complicating the resolution of this contest is Rantnetwork's allegation that Mr. Underwood was acting as his wife's agent, the theory being that, although the vast majority of acts that Rantnetwork claims to support the exercise of personal jurisdiction were allegedly undertaken by Mr. Underwood (particularly the sending of the December 29, 2009, email), those acts can be imputed to Mrs. Underwood if she were Mr. Underwood's principal---and thus this court would have personal jurisdiction over her as well. Essentially, Rantnetwork argues that the court has personal jurisdiction over Mrs. Underwood via her role as principal to her husband.

Because the alleged principal--agent relationship between Mrs. and Mr. Underwood not only creates a threshold question affecting the jurisdictional analysis but is intertwined with the question of jurisdiction itself, the determination of whether Rantnetwork has sufficiently established its claim of agency must precede the personal-jurisdiction inquiry.

A. Existence of an Agency Relationship

Under Pennsylvania law, all agency relationships have three basic features in common: (1) "the manifestation by the principal that the agent shall act for him"; (2) "the agent's acceptance of the undertaking"; and (3) "the understanding of the parties that the principal is to be in control of the undertaking." Scott v. Purcell, 415 A.2d 56, 61 (Pa. 1980) (quoting Restatement (Second) of Agency § 1, cmt. b (1958)). Although Pennsylvania recognizes four kinds of agency-actual (or express)*fn3 authority, apparent authority, implied authority, and agency by estoppel-agency relationships typically arise through the granting of either actual or apparent authority.*fn4 These two kinds receive focus here.

Express or actual authority is directly granted by the principal to the agent, whereas apparent authority arises from representations that the principal makes to those third parties with whom the agent acts on the principal's behalf. Reifsnyder v. Doughterty, 158 A. 98, 100 (Pa. 1930). In the case of apparent authority, the answer to a question essentially appealing to common sense determines whether such authority is legitimate: "The test . . . is whether a man of ordinary prudence, diligence and discretion would have a right to believe and would actually believe that the agent possessed the authority he ...


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