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Spina v. Refrigeration, Service and Engineering, Inc.

United States District Court, E.D. Pennsylvania

December 22, 2014

THOMAS SPINA, Plaintiff,


ROBERT F. KELLY, Senior District Judge.

Presently before this Court is Defendant, Refrigeration, Service and Engineering, Inc.'s, Motion to Dismiss the Amended Complaint[1], Plaintiff, Thomas Spina's, Response in Opposition, and Defendant's Reply thereto. For the reasons set forth below, Defendant's Motion is granted.


A. The Parties

Plaintiff, Thomas Spina ("Plaintiff"), is a resident of the Commonwealth of Pennsylvania. Am. Compl ¶ 1. Plaintiff is a partial owner of Refrigerator, Service and Engineering, Inc. ("RSE").

Defendant, RSE, is a Pennsylvania corporation with its principal place of business in Pottstown, Pennsylvania. Id. at 2. RSE is the surviving company following a merger with Industrial Refrigeration and Engineering, Inc. (IRE). Id. at ¶ 11. Defendants, Robert Hepp ("Robert Hepp") and Cynthia Hepp ("Cynthia Hepp") (collectively, the "Hepps") are adult residents of Lansdale, Pennsylvania. Id. at ¶¶ 3-4. Defendant, Kenneth Philo ("Philo"), is an adult resident of Phoenixville, Pennsylvania. Id. at ¶ 5. Robert Hepp, Cynthia Hepp and Philo (collectively the, "Individual Defendants") own the remaining shares of RSE not possessed by Plaintiff. Id. at ¶ 12.

B. Plaintiffs Claims Against Defendants

On August 11, 2014, Plaintiff filed an Amended Complaint consisting of eighteen (18) counts for alleged breaches of statutory and common law. In the Amended Complaint, Plaintiff divides the claims into four separate categories: (1) the purchase and sale of securities resulting in the merger of IRE and RSE, (2) shareholder derivative claims, (3) the alleged looting of RSE, and (4) an additional claim for civil conspiracy.

Plaintiff alleges the following claims related to his purchase of RSE securities: Securities Fraud[2]; Control Person Liability[3]; Fraud and Intentional Misrepresentation; and Negligent Misrepresentation. Id. at ¶¶ 122-170. In addition, Plaintiff raises the following shareholder derivative claims against the Individual Defendants: Breach of Fiduciary Duties; Corporate Waste; Diversion and Usurpation of Corporate Opportunity; Self-Dealing; Breach of Duty of Loyalty; Conflicts of Interest; Interested Director Transactions; Unjust Enrichment; and Conversion. Id. at ¶¶ 171-218. Furthermore, Plaintiff's claims against the Individual Defendants arising from the alleged looting of RSE's going concern value include: Breach of Fiduciary Duty; Interested Shareholder Transactions; Minority Shareholder Oppression; and Anticipatory Breach and/or Repudiation of Contract. Id. at ¶¶ 219-254. Finally, Plaintiff raises a claim for civil conspiracy against the Individual Defendants. Id. at ¶¶ 255-261.

C. The Merger

Prior to the merger, RSE and IRE were managed and operated under the direction of Robert Hepp. Id. at ¶ 11. Robert Hepp was the controlling shareholder of RSE while Plaintiff owned a one-third stake in IRE. Id. at ¶¶ 13-14. Although, RSE billed IRE for overhead, rent and administrative expenses, Plaintiff contends that IRE contributed most of the expertise and customer relationships on which the combined enterprise depended. Id. at ¶¶ 13, 15. At some point before December of 2011, Plaintiff and Defendants began to discuss the possibility of a merger between RSE and IRE. Id. at ¶ 17. The Hepps and RSE believed that a merger was necessary to eliminate redundancies and create economies of scale, and that RSE should be the surviving company. Id. at ¶¶ 16, 21.

In the weeks leading up to the merger, Robert Hepp acknowledged to Plaintiff that he would receive his interest in RSE by means of a simple exchange of his shares in IRE. Id. at ¶ 19. However, at a later meeting between the Hepps, Plaintiff and Kathleen P. Distefano, C.P.A., Plaintiff was informed by the Hepps that he would be obliged to pay cash along with his shares in IRE for the new shares of RSE. Id. at ¶ 20. No cash amount was discussed at this meeting. Id.

The merger was completed on December 29, 2011, with IRE being dissolved into RSE. Id. at ¶ 11. Prior to the signing of the merger agreement, Plaintiff was presented with a document labeled "Business Valuations" (the "Haas Report"), which was prepared by Victor Haas Jr. of Haas Business Valuation Services, Inc.[4] Id. at ¶ 22; see also Id. at Ex. A. This report valued RSE at $1, 507, 000 and IRE at $672, 000. Id. at ¶ 33. In light of these figures, the Hepps and RSE required Plaintiff to provide his thirty three and one-third percent (33-1/3%) stake in IRE plus $294, 000 to obtain a thirty percent (30%) stake in RSE. Id. at ¶¶ 23-24. The Hepps instructed Plaintiff that he was expected to sign the merger agreement on this same date. Id . Plaintiff subsequently signed the agreement.

Plaintiff now states that "[t]he Hepp Defendants, by misstatement and omission, misrepresented the value of RSE by failing to disclose that, before the Merger, RSE had grossly overbilled IRE for overhead, rent, and administration, thereby inflating RSE's earnings and depressing IRE's earnings." Id. at 27. Consequently, Plaintiff argues that he paid far more for his interest in RSE than he ...

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