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Rogers v. Gentex Corp.

United States District Court, M.D. Pennsylvania

March 6, 2017

DAVID ROGERS and OPTION-X, LLC Plaintiffs,
v.
GENTEX CORPORATION, Defendant.

          MEMORANDUM OPINION

          Robert D. Mariani United States District Judge

         Presently before the Court is Defendant Gentex Corporation's Motion to Dismiss. (Doc. 34). For the reasons that follow, Defendant's Motion will be granted in part and denied in part.

         I. INTRODUCTION AND PROCEDURAL HISTORY

         On January 26, 2016, Plaintiffs filed a Complaint against Defendant Gentex Corporation. (Doc. 1). In the Complaint, Plaintiffs asserted the following causes of action: (1) Breach of Contract/Stock Purchase Agreement (Count I); (2) Breach of Contract/Employment Agreement (Count II); (3) Declaratory Judgment (Count III); and (4) Violation of Pennsylvania Wage Payment & Collection Law (Count IV). (Id.). Defendant moved to dismiss the Complaint on March 4, 2016. (Doc. 23). Thereafter, Plaintiffs filed an Amended Complaint, asserting three additional causes of action: (1) fraudulent misrepresentation (Count V); (2) negligent misrepresentation (Count VI); and (3) fraud (Count VII). (Doc. 32). On April 18, 2016, Defendant moved to dismiss the Amended Complaint.[1] (Doc. 34).

         II. STATEMENT OF FACTS

         A. Factual Background

         In December 2011, Plaintiff David Rogers "sold the assets of his company, Artisent, Inc. and the stock of his company Ops-Core, Inc. to Gentex." (Doc. 32, at ¶ 1). "Among other things, the parties' agreement required Gentex to pay to a company owned by Mr. Rogers, Option-X LLC, a royalty based upon its sale of a particular product." (Id.). As part of the transaction, Mr. Rogers also entered into an Employment Agreement with Gentex, "through which Mr. Rogers would receive a salary and the opportunity to earn a bonus for a defined period of time." (Id.). Each of the three contracts (the Asset Purchase Agreement ("APA"), the Stock Purchase Agreement, (the "SPA"), and the Employment Agreement) contain non-competition clauses, as well as various terms which Plaintiffs allege that the Gentex has breached.[2] In the instant action, Plaintiffs request "money damages arising from Gentex's failure to pay sums due and owing under the parties' various agreements, as well as arising from Gentex's fraudulent misconduct associated with same." (Id.).

         B. The Stock Purchase Agreement

         On December 19, 2011, Gentex entered into the SPA "through which it agreed to purchase the stock of Ops-Core, Inc. from the shareholders of Ops-Core, Inc., including Mr. Rogers."[3] (Id. at ¶ 7). Section 2.3 of the SPA is entitled "Products Revenue Earn-Out and Chinstrap Fee." (Doc. 32-1, at 20). According to the Amended Complaint, "[t]he parties have collectively acknowledged that Section 2.3 of the SPA provides for a royalty to Option-X arising from the operating profits received by Gentex arising from all orders, contracts, royalties, revenue, and profits resulting from sale of the IHRS chinstrap and any amendment, extension, renewal, assignment, or successor contract thereto." (Doc. 32, at ¶ 12). "Section 2.4 of the SPA provides that neither Buyer nor its Affiliates shall breach or cause a default under the Chinstrap Contract." (Id. at ¶ 13).

         "The SPA also includes references to two escrow arrangements, designed to hold a portion of the purchase price in escrow pending certain contingencies." (Id. at ¶ 14). "The terms by which the escrow funds would be held and administered contain identical terms relating to the payments by the parties to PNC Bank, as escrow agent." (Id. at ¶ 15). Specifically, "Section 2.2(b)(1) of the SPA, which incorporates by reference, Exhibit 2.2(b)(1) entitled 'Escrow Agreement, ' states within Section 3.04" the following provision:

The Escrow Agent shall be entitled to compensation for its services as stated in the fee schedule attached hereto as Exhibit C, which compensation shall be paid one-half by each of (i) Purchaser and (ii) Artisent, David Rogers and Viktoria Rogers, jointly and severally. The fee agreed upon for the services rendered hereunder is intended as full compensation for the Escrow Agent's services as contemplated by this escrow agreement... If any amount due to the Escrow Agent hereunder is not paid within thirty (30) days of the date due, the Escrow Agent in its sole discretion may charge interest on any unpaid amount up to the highest rate permitted by the applicable law. The Escrow Agent shall have, and is hereby granted, a prior lien upon the Escrow Property with respect to its unpaid fees, non-reimbursed expenses and unsatisfied indemnification rights, superior to the interests of any other persons or entities and is hereby granted the right to set off and deduct any unpaid fees, non-reimbursed expenses and unsatisfied indemnification rights from the Escrow Property.

(Id.).

         According to the Plaintiffs, "Gentex has breached the SPA agreement by not providing Option-X and David Rogers an accurate and complete accounting of Gentex's IHRS chinstrap sales, profits, or any royalty payment as required by the SPA, despite written demand." (Id. at ¶ 26). Moreover, "Gentex has breached the SPA agreement 2.3(b)(iv) by not adhering to the accounting terms specified therein and changing its calculation of Chinstrap 'operating profits' to result in zero or negative profits in a deliberate effort to avoid paying the chinstrap royalty, " (Id. at ¶ 29), as well as "by not adhering to the terms specified therein and replacing the Corporation's SAP accounting software including the chart of accounts used in profit and loss calculations with a totally different accounting software with a different chart of accounts." (Id. at ¶ 30). Gentex is further alleged to have breached "and/or caused some degree of default under the Chinstrap Contract by failing to provide on-time product deliveries, timely information to customers when requested, products and components that meet agreed upon quality standards, sales and business development support of this product, and production of this product." (Id. at ¶ 31), Plaintiffs further allege that "Gentex has actively defrauded the Plaintiffs by concealing information from Plaintiffs which would allow them to calculate their royalty. When information and anecdotal information has been provided by Gentex, Gentex has fraudulently mischaracterized expenses and revenues in order to artificially and improperly reduce chinstrap profits so as to avoid paying any royalty." (Id. at ¶ 28).

         Plaintiffs also allege that "Gentex has breached the SPA by failing to pay its share of the Annual Administration Fees owed to the escrow agent for managing the IP Escrow Agreement, " and that the "PNC bank representative responsible for managing these escrow accountants [sic] has confirmed that no fees were paid by Gentex for years 2012, 2013, and 2014." (Id. at ¶ 32). In addition, Plaintiffs further aver that "Gentex unilaterally and without Plaintiffs' knowledge or consent, agreed to increase the escrow agent's compensation to $7, 500 per year, " (Id.), and also "failed to pay its share of the escrow agent's fee for 2015 (and possibly 2013 and 2014) years as well." (Id. at ¶ 33). "As a result of Gentex's failings in this regard, the escrow agent has taken the position in accordance with the terms of the Escrow Agreement that it may unilaterally deduct amounts due to it from the amounts being held in escrow, which amounts are payable to Plaintiffs." (Id. at ¶ 34). This conduct, according to the Plaintiffs, has "had the practical effect of reducing the amount of money payable to Plaintiffs in the escrow accounts themselves, thus causing Plaintiffs' damage." (/of. at ¶ 35).

         C. The Employment Agreement

         In addition to breaching the SPA, Plaintiffs allege that Defendant Gentex has breached the Employment Agreement. The Employment Agreement "specifically sets out the compensation Mr. Rogers could earn while acting as a Gentex employee." [Id. at¶ 22). With respect to Mr. Rogers' contemplated bonus, Section 3 of agreement, which references Exhibit B to the agreement, provides that he "shall also be eligible to participate in Company's bonus and incentive programs at same the level [sic] as employees in similar leadership positions." (/d. at¶ 23). Section 11 of the Employment Agreement addresses termination of Mr. Rogers' employment and provides that "[n]either the Company nor Rogers may terminate this Agreement prior to the expiration of the Term, except as provided below." [Id. at ¶ 24). "If the Company terminates this Agreement for Cause, or if Rogers terminates this Agreement for other than Good Reason, then the Company shall pay to Rogers, within (30) days after the date of such termination, all accrued but unpaid amounts payable under Section 3 with respect to the period ending on the date of termination, plus unreimbursed business expenses through the date of termination if properly incurred and documented, but not any unpaid bonus or other amount under this Agreement." [Id.).

         In December 2014, "Mr. Rogers informed Gentex of his intentions to leave his position in the near future; however, Mr. Rogers did not specify an exact date at that time. It was agreed with senior company management that the resignation date would be decided after a plan was developed and implemented to transition his work responsibilities to other personnel within the company, " (Id. at¶ 36). "In early January 2015, Mr. Rogers inquired about his 2014 incentive bonus, to which he was entitled based on the terms of the Employment Agreement." (Id. at ¶ 37). Mr, Rogers was told that, as happened in 2013, "the company would not be paying 2014 bonuses since the company did not meet its 2014 profit/revenue targets according to the corporate bonus structure. A bonus was paid after the 2012 calendar year as the targets had been achieved." (Id. at¶38). "Based upon the affirmative representations made by Gentex concerning the 2014 bonuses, on January 28, 2015, Mr. Rogers informed Gentex that his final date of employment would be February 2, 2015, which was then extended to February 6, 2015." (Id. at ¶ 39). According to Plaintiffs, "[h]ad Mr. Rogers been informed truthfully by Gentex that company revenue targets had been met and bonuses would be paid, Mr. Rogers would have deferred his departure until after the bonus payment was made in the early Spring of 2015." (Id.).

         In March of 2015, "Mr. Rogers discovered that Gentex's representation was inaccurate as the company, in fact, did meet its 2014 revenue targets." (Id. at ¶ 41). Plaintiffs allege, upon information and belief, that "many, if not all, employees in similar leadership positions to Mr. Rogers received their 2014 bonuses." (Id.). Thus, Gentex, "[a]ware of Mr. Rogers pending departure and intending to induce him to leave without having to pay the bonus... fraudulent and/or negligently made false representations relating to the 2014 bonus." (Id. at ¶42).

         Plaintiffs further allege that Mr. Rogers was due a bonus "in accordance with the plain language of the Employment Agreement." (Id. at ¶43). Citing Section 11 of the Employment Agreement, discussed above, Plaintiffs claim that "Mr. Rogers was entitled to the 'unpaid amounts payable under Section 3 with respect to the period ending on the date of termination.'" (Id. at ¶ 44). "Section 3 of the Employment Agreement entitled 'Compensation' refers to Exhibit B of the Employment Agreement, " [Id. at ¶ 45), which, in turn, "includes provisions for Mr. Rogers' base salary and bonus." (Id. at¶46). Thus, according to Plaintiffs "Mr. Rogers bonus was an 'accrued but unpaid amounts payable under Section 3." (Id.). Finally, Plaintiffs note that "[w]hile Section 11(c) also contains language stating that Mr. Rogers would not receive a bonus, such language is ...


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