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Michael v. GLD Foremost Holdings, LLC

United States District Court, M.D. Pennsylvania

March 9, 2017



          Kane Judge

         This matter is presently before the Court on a motion to dismiss Counts II and III of Plaintiff Ralph C. Michael's complaint pursuant to Rules 9(b) and 12(b)(6) of the Federal Rules of Civil Procedure, filed by Defendants GLD Foremost Holdings, LLC (“Defendant GLD”), and Daniel Gordon (“Defendant Gordon”), on January 22, 2016. (Doc. No. 8.) Having considered the arguments raised by the parties in their respective briefs and the applicable law governing this breach-of-contract action, for the reasons provided herein, the Court will grant Defendants' motion for partial dismissal of Plaintiff's complaint.

         I. BACKGROUND[1]

         Plaintiff Ralph C. Michael, co-founder and exclusive stockholder of Foremost Industries, Inc., a modular home manufacturing company headquartered in Franklin County, Pennsylvania (the “Company”), resolved in 2012 to retire and sell his Company. (Doc. No. 1 ¶¶ 6-9.) Plaintiff advertised the sale of the Company in the Wall Street Journal as an “asset sale” to potential buyers. (Id. at ¶ 10.) In December of 2014, Defendant Daniel Gordon (“Gordon”), responded to Plaintiff's advertisement, expressing an interest in acquiring the Company. (Id. at ¶ 12.) In January of 2015, Plaintiff and Gordon arranged for Gordon to visit the Company's corporate headquarters in Franklin County and tour its facilities. (Id. at ¶ 13.) At that visit, Plaintiff furnished Gordon with the Company's financial statements for the years 2012 and 2013. (Id. at ¶ 15.) Shortly thereafter, in February of 2015, Plaintiff and Gordon entered into exclusive negotiations for the purchase of Plaintiff's interest in the Company. (Id. at ¶ 16.) Following two additional visits to Company's facilities, Gordon made an initial offer to acquire the assets of the Company in a letter and an accompanying indicative term sheet dated February 4, 2015. (Id. at ¶¶ 17-20.) Specifically, Gordon's offer consisted of a $4 million cash payment and a charitable donation totaling 35 % of the Company's net income to an organization specified by Plaintiff. (Id. at ¶ 21.) On March 30, 2015, Gordon presented Plaintiff with a draft Stock Purchase Agreement that outlined the terms and conditions of the anticipated purchase of all issued and outstanding shares of capital stock of the Company from Plaintiff. (Id. at ¶ 23.)

         According to the complaint, throughout April and May of 2015, Gordon exhibited conduct that was perceived by Plaintiff as demonstrating a commitment to consummating the agreement to purchase the Company. Specifically, on or about May 4, 2015, in anticipation of closing, Gordon incorporated Defendant GLD (“GLD”), as a Delaware limited liability company to purchase, own, and operate the Company. (Id. at ¶¶ 31.) During his recurrent visits to the Company's facilities in April and again in May of 2015, Gordon: represented to the Company's employees the type of health insurance plan he was going to offer upon obtaining possession of the Company; scheduled the auction of personal property belonging to the Company; and strategized the eventual engineering changes he would make to the Company. (Id. at ¶¶ 28-29.)

         Throughout this period, Gordon also repeatedly inquired into, and directed the disclosure of, certain financial information concerning the Company's operations as contemplated by the draft Stock Purchase Agreement, pursuant to which Plaintiff was required to prepare and submit schedules detailing, inter alia, the Company's operations, debts, liabilities, and income prior to closing. (Id. at ¶ 30.) Significantly, on April 2, 2015, Gordon questioned Laurie Myers (“Myers”), Plaintiff's daughter and the Company's treasurer and controller, regarding the consideration given for an anticipated sale of real property from the Company to her and her husband. (Id. at ¶ 25.) Myers informed Gordon that the purchase price for the real property totaled $100, 000.00. (Id. at ¶ 26.) On April 10, 2015, Myers and her husband purchased the real property from the Company by deed, a copy of which was subsequently forwarded to Gordon via e-mail. (Id. at ¶ 27.)

         On May 11, 2015, Myers sent Gordon a draft of the completed schedules required by the draft Stock Purchase Agreement. (Id. at ¶ 32.) The finalized schedules were e-mailed to Gordon on May 14, 2015. (Id. at ¶ 33.) Plaintiff alleges that Gordon “made no objection concerning the adequacy of the information set forth on the schedules to [him] or to Myers” upon receipt. (Id. at ¶ 34.) As alleged by Plaintiff, while “[t]he parties tentatively agreed to close on the transaction on Monday May 18, 2015, ” the closing date was subsequently delayed due to Gordon proposing a series of changes to the draft Stock Purchase Agreement and demanding additional supporting documentation on May 15, and 26, 2015. (Id. at ¶¶ 36-40.) In his e-mail correspondence with Myers the morning of May 26, 2015, Gordon indicated his intention to execute the Stock Purchase Agreement upon reviewing and finalizing the schedules and confirmed that he would be returning to the Company's corporate office the following day to “perhaps sign everything.” (Id. at ¶¶ 38, 40.) That afternoon, however, Gordon informed Myers via e-mail that he would not be able to close on the transaction as previously suggested because he was reviewing the schedules, awaiting additional information to be submitted by Plaintiff, and requiring an appraisal of real property owned by the Company. (Id. at ¶ 41.)

         On May 27, 2015, Gordon sent Myers an “Execution Version” of the Stock Purchase Agreement and notified Myers that he was prepared to proceed with the closing. (Id. at ¶ 44.) On May 29, 2015, Gordon sent Myers finalized schedules for Plaintiff to review and initial. (Id. at ¶ 46.) The Stock Purchase Agreement and incorporated schedules were executed by Plaintiff that same day and mailed to Gordon via overnight courier. (Id. at ¶ 47.) Consequently, by Plaintiff's execution of the Stock Purchase Agreement, GLD received all of Plaintiff's rights, titles, and interests in the Company. (Id. at ¶ 48.)

         Plaintiff alleges that while the parties agreed to date the Stock Purchase Agreement as of May 29, 2015, Gordon did not counter-execute the Stock Purchase Agreement on behalf of GLD and return a copy to Plaintiff until August 19, 2015. (Id. at ¶¶ 49, 57.) According to Plaintiff, in that intervening period, Gordon, operating as GLD, took possession of the Company on or about June 7, 2015, and began dismantling it through an auction sale of the Company's assets scheduled for July 11, 2014. (Id. at ¶¶ 53, 54.) Moreover, Plaintiff avers that Gordon wired $1 million of the purchase price to Plaintiff on June 30, 2015 in contravention to the Stock Purchase Agreement, which stipulated that the purchase price of $3 million was to be remitted at closing. (Id. at ¶¶ 56, 58.)

         On August 26, 2015, approximately one week after Gordon forwarded Plaintiff a copy of the executed Stock Purchase Agreement, Plaintiff received a letter from Gordon demanding rescission of the Stock Purchase Agreement on the basis that Plaintiff misrepresented the Company's financial position to Gordon. (Id. at ¶¶ 59, 61.) By Plaintiff's assessment, the letter addressed numerous matters “well-known to Gordon prior to taking possession of the Company and executing the Stock Purchase Agreement, including but not limited to the sale of certain real estate to Myers and her husband.” (Id. at ¶ 60.) On September 15, 2015, Plaintiff, through his counsel, responded to Gordon's letter and demanded payment of the remainder of the agreed-upon purchase price for the Company. (Id. at ¶ 63.) To date, Plaintiff has not received the remaining sums due to him pursuant to the Stock Purchase Agreement. (Id. at ¶ 64.)

         On November 20, 2015, Plaintiff initiated the above-captioned action by filing a three-count complaint against both Gordon and GLD to recover the difference in the purchase price memorialized in the Stock Purchase Agreement and the amount Plaintiff actually received as consideration. (Doc. No. 1.) Count I advances a breach of contract claim against GLD for failure to remit the remaining $2 million balance of the purchase price due to Plaintiff at closing. (Id. at 11.) Count II sets forth a “fraud” claim against Gordon arising out of his involvement in negotiations on behalf of GLD that culminated in the execution of the Stock Purchase Agreement. (Id. at 12.) Count III asserts an alternative claim of unjust enrichment against both GLD and Gordon, premised on Defendants' retention of the Company and the remaining $2 million owed to Plaintiff. (Id. at 15.) Defendants have moved for dismissal of Counts II and III of the complaint pursuant to Rules 9(b) and 12(b)(6) of the Federal Rules of Civil Procedure. (Doc. No. 8.) This motion has been fully briefed and is now ripe for disposition.


         Federal notice and pleading rules require the complaint to provide the defendant notice of the claim and the grounds upon which it rests. Phillips v. Cnty. of Allegheny, 515 F.3d 224, 232 (3d Cir. 2008). The plaintiff must present facts that, accepted as true, demonstrate a plausible right to relief. Fed.R.Civ.P. 8(a). Although Federal Rule of Civil Procedure 8(a)(2) requires “only a short and plain statement of the claim showing that the pleader is entitled to relief, ” a complaint may nevertheless be dismissed under Federal Rule of Civil Procedure 12(b)(6) for its “failure to state a claim upon which relief can be granted.” See Fed.R.Civ.P. 12(b)(6).

         When ruling on a motion to dismiss under Rule 12(b)(6), the Court must accept as true all factual allegations in the complaint and all reasonable inferences that can be drawn from them, viewed in the light most favorable to the plaintiff. See In re Ins. Brokerage Antitrust Litig., 618 F.3d 300, 314 (3d Cir. 2010). The Court's inquiry is guided by the standards of Bell Atlantic Corp. v. Twombly, 550 U.S. 544 (2007), and Ashcroft v. Iqbal, 556 U.S. 662 (2009). Under Twombly and Iqbal, pleading requirements have shifted to a “more heightened form of pleading.” See Fowler v. UPMC Shadyside, 578 F.3d 203, 210 (3d Cir. 2009). To prevent dismissal, all civil complaints must set out “sufficient factual matter” to show that the claim is facially plausible. Id. The plausibility standard requires more than a mere possibility that the defendant is liable for the alleged misconduct. As the Supreme Court instructed in Iqbal, “where the well-pleaded facts do not permit the court to infer more than the mere possibility of misconduct, the complaint has alleged - but it has not ‘show[n]' - ‘that the pleader is entitled to relief.'” Iqbal, 556 U.S. at 679 (citing Fed.R.Civ.P. 8(a)(2)).

         Accordingly, to determine the sufficiency of a complaint under Twombly and Iqbal, the United States Court of Appeals for the Third Circuit has identified the following steps a district court must take when determining the sufficiency of a complaint under Rule 12(b)(6): (1) identify the elements a plaintiff must plead to state a claim; (2) identify any conclusory allegations contained in the complaint “not entitled” to the assumption of truth; and (3) determine whether any “well-pleaded factual allegations” contained in the complaint “plausibly give rise to an entitlement to relief.” See Santiago v. Warminster Twp., 629 F.3d 121, 130 (3d Cir. 2010) (citation and quotation marks omitted).

         In ruling on a Rule 12(b)(6) motion to dismiss for failure to state a claim, “a court must consider only the complaint, exhibits attached to the complaint, matters of public record, as well as undisputedly authentic documents if the complainant's claims are based upon these documents.” Mayer v. Belichick, 605 F.3d 223, 230 (3d Cir. 2010) (citing Pension Benefit Guar. Corp. v. White Consol. Indus., Inc., 998 F.2d 1192, 1196 (3d Cir. 1993)). A court may also consider “any ‘matters incorporated by reference or integral to the claim, items subject to judicial notice, matters of public record, orders, [and] items appearing in the record of the case.'” Buck v. Hampton Twp. Sch. Dist., 452 F.3d 256, 260 (3d Cir. 2006) (quoting 5B Charles A. Wright & Arthur R. Miller, Federal Practice & Procedure § 1357 (3d Ed. 2004)).[2]


         A. COUNT II: FRAUD [3]

         Defendants move for dismissal of Count II of Plaintiff's complaint under Federal Rule 9(b) for failure to plead the several elements comprising a claim of fraudulent inducement with requisite specificity. (Doc. No. 10 at 11-18.) Fundamentally, Defendants contend that it is unclear from the complaint what actions purportedly taken, or statements allegedly made, by Gordon in the negotiation of the Stock Purchase Agreement constitute material misrepresentations upon which Plaintiff justifiably relied to his detriment, as there exist no factual allegations concerning “times, places, or actual statements” made by Gordon in the complaint. (Id. at 13 n.2.) Defendants further remark that the difficulty in defining the contours of Plaintiff's fraud claim is compounded by the presence of non-actionable factual ...

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