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White v. Race

United States District Court, E.D. Pennsylvania

April 17, 2014

BRIAN WHITE, Plaintiff,
v.
SCOTT RACE, et al., Defendants.

OPINION

JOEL H. SLOMSKY, District Judge.

I. INTRODUCTION

From 2007 to 2013, Plaintiff Brian White ("Plaintiff') worked as a financial planner for Simon Financial Group ("Simon Financial") pursuant to an employment contract (the "Employment Contract"). Scott Race ("Defendant Race") is the Chief Executive Officer of Simon Financial. Defendant Race is married to Joanne Race and is the son of Elaine and Stephan Race, all of whom are named as Defendants in this case.

On September 18, 2002, Plaintiff and Defendant Race executed a contract regarding certain individual clients who had purchased 401(k) plans from Simon Financial (the "September 18, 2002 Contract"). Under the September 18, 2002 Contract, Plaintiff agreed to pay $40, 000 to Defendants in exchange for 95% of the profits generated by sixteen 401(k) and individual client accounts. In June 2013, after a dispute arose between Plaintiff and Defendant Race, Plaintiff was terminated from Simon Financial. On October 11, 2013, Plaintiff instituted this action against Defendants based on allegations that Defendant Race did not allow him to take the accounts he purchased.

Defendants filed an Answer and Counterclaim, in which they allege three counterclaims against Plaintiff. In Count I, they allege breach of contract; in Count II, they allege fraud; and in Count III, they allege conversion of intangible property. On December 23, 2013, Plaintiff filed a Motion to Dismiss the counterclaims for breach of contract and fraud. (Doc. No. 4.) This Motion is now ripe for disposition.[1] For reasons that follow, the Court will dismiss Defendants' counterclaim for fraud. Defendants' counterclaim for breach of contract will not be dismissed.

II. BACKGROUND

In order to fully understand the nature of this case, it is necessary to set forth the factual allegations in both the Complaint and the Answer and Counterclaims. (Doc. Nos. 1, 4.) As noted, from July 2007 to June 2013, Plaintiff worked as a financial planner for Simon Financial. (Doc. No. 1 at ¶¶ 11, 14, 37.) During his term of employment, Scott Race was the Chief Executive Officer of Simon Financial. ( Id. at ¶ 12.) Plaintiff and Defendant Race worked to expand the financial products offered by Simon Financial by offering 401(k) plans to clients. ( Id. at ¶ 16.) As a result of these efforts, numerous individual clients purchased 401(k) plans from Simon Financial. ( Id. at ¶ 17.) Each 401(k) account generated revenue based on a percentage of total assets. ( Id. at ¶ 18.) Defendant Race agreed to split the profits equally with Plaintiff from these accounts. ( Id. at ¶ 19.)

According to the Complaint, in the summer of 2012, Defendant Race told Plaintiff that he no longer wanted to work on the 401(k) accounts or be involved in the 401(k) business. ( Id. at ¶ 21.) Defendant Race proposed that Plaintiff purchase part of Defendant Race's interest in certain 401(k) accounts. ( Id. at ¶ 22-23.) Plaintiff agreed and executed the September 18, 2002 Contract, in which he agreed to pay Defendant Race $40, 000 for 95% of the total future profits derived from the sixteen specified 401(k) and individual client accounts.[2] (See Doc. No. 7, Ex. A.) Defendant Race agreed to take 5% of the future profits from these accounts "in order to ensure that there was a liability buffer between Plaintiff White and both the individual clients and owners of the 401(k) accounts." (Doc. No. 1 at ¶ 23.) Defendant Race also promised to assist with transitioning the sixteen accounts to Plaintiff. ( Id. at ¶ 25.) Plaintiff fulfilled his terms of the September 18, 2002 Contract by paying $15, 000 to Defendant Race, $15, 000 to Defendant Joanne Race, $5, 000 to Defendant Elaine Race, and $5, 000 to Defendant Stephen Race, for total payment of $40, 000. ( Id. at ¶¶ 30-33.)

On June 5, 2013, Defendant Race terminated Plaintiff from Simon Financial. ( Id. at ¶¶ 37-38.) Shortly thereafter, Plaintiff co-founded the financial firm, Vermillion and White. ( Id. at ¶ 39.) According to the Complaint, Defendant Race again assured Plaintiff that he would help transition the sixteen specified accounts to Plaintiff's new firm. ( Id. at ¶ 42.) Plaintiff scheduled meetings with these clients to discuss the transition. ( Id. at ¶ 43.) However, fourteen of the sixteen clients declined to transfer their accounts. According to Plaintiff, these clients told him that Defendant Race had encouraged them to keep their accounts with Simon Financial. ( Id. at ¶¶ 47, 50.)

According to Defendants, the September 18, 2002 Contract between Defendant Race and Plaintiff was "simply a new pay structure for the accounts itemized." (Doc. No. 2 at ¶ 104.) Defendants allege that Plaintiff was permitted to take the sixteen accounts only so long as he fulfilled his other requirements under his Employment Contract with Simon Financial. ( Id. at ¶ 105.) Once Plaintiff's employment with Simon Financial ended, Defendants were no longer obligated to share with Plaintiff any profits from clients who refused to join Plaintiff's new firm. (Id.) Whichever clients chose to join Plaintiff's new firm were required to have their accounts transferred by September 10, 2013, when the employment relationship would end. ( Id. at ¶ 111.)

Defendants allege that Plaintiff engaged in wrongdoing that breached his Employment Contract with Simon Financial and rendered the September 18, 2002 Contract for the sixteen 401(k) and individual client accounts void. Defendants do not specify the exact timing of this misconduct. First, Defendants allege that Plaintiff used the Central Registration Depository ("CRD") number of Simon Financial without authorization and misrepresented himself as the administrator of certain Simon Financial accounts. ( Id. at ¶ 115-116.) He also failed to comply with regulatory procedures, policies, and laws ( Id. at ¶ 95); used client traffic software and client tracking software without authorization ( Id. at ¶¶ 97-99); used unauthorized technology to store data provided by Simon Financial ( Id. at ¶ 101); corresponded with clients without authorization ( Id. at ¶ 100); disclosed information pertaining to securities solicitations without authorization ( Id. at ¶ 102); and, finally, disseminated and took proprietary information after his employment with Simon Financial ended. ( Id. at ¶ 103.)

As noted above, Plaintiff has filed a Motion to Dismiss the counterclaims against him for breach of contract and fraud.[3] (Doc. No. 4.) For reasons that follow, the Court will dismiss Defendants' counterclaim for fraud. Defendants' counterclaim for breach of contract will proceed.

III. STANDARD OF REVIEW

The motion to dismiss standard under Federal Rule of Civil Procedure 12(b)(6) is set forth in Ashcroft v. Iqbal , 556 U.S. 662 (2009). After Iqbal it is clear that "threadbare recitals of the elements of a cause of action, supported by mere conclusory statements do not suffice" to defeat a Rule 12(b)(6) motion to dismiss. Id. at 663; see also Bell Atl. Corp. v. Twombly , 550 U.S. 544 (2007). "To survive a motion to dismiss, a complaint must contain sufficient factual matter, accepted as true, to state a claim to relief that is plausible on its face." Ethypharm S.A. France v. Abbott Labs. , 707 F.3d 223, n.14 (3d Cir. 2013) (citing Sheridan v. NGK Metals Corp. , 609 F.3d 239, n.27 (3d Cir. 2010)). "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." Id . Applying the principles of Iqbal and Twombly, the ...


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