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Siemens Industry, Inc. v. Nagel

United States District Court, W.D. Pennsylvania

September 15, 2017

HARRY C. NAGEL, Defendant.


          ROBERT C. MITCHELL United States Magistrate Judge.

         Plaintiff, Siemens Industry, Inc. (“Siemens”), brings this action under Pennsylvania law against Defendant, Harry C. Nagel (“Nagel”), alleging claims of breach of contract, fraudulent inducement/ misrepresentation and breach of loyalty arising out of a Settlement Agreement previously reached between the parties.

         Presently submitted for disposition is a motion to dismiss, filed by the Defendant. In response, Plaintiff agrees to withdraw Count II of the Amended Complaint, the claim for fraudulent inducement/misrepresentation, but opposes the motion in all other respects. For the reasons that follow, the motion will be granted with respect to Counts II and III of the Amended Complaint and denied with respect to Count I.


         Prior to May 9, 2012, Nagel was one of two co-owners of PHW, Inc. (“PHW”). (Am. Compl. ¶ 7.)[1] On May 9, 2012, Invensys Rail Corporation (“Invensys”) purchased all of the shares of PHW from Nagel and John Harrison (“Harrison”) pursuant to a Stock Purchase Agreement (“SPA”). (Id. ¶ 8 & Ex. B.) As consideration for the sale of PHW, Invensys paid Nagel and Harrison $17, 000, 000. (Id. ¶ 9.) Under the terms of the SPA, Nagel and Harrison were also eligible to receive additional “Contingent Consideration” if certain conditions were met during the relevant Measurement Periods. (Id. ¶ 10.)

         In connection with the SPA, Nagel entered into an Employment Agreement with Invensys pursuant to which he agreed to be employed as Senior General Manager of the PHW business unit. (Id. ¶ 12.) On May 2, 2013, Siemens acquired Invensys and assumed the SPA and Nagel's Employment Agreement. (Id. ¶ 13.) On April 3, 2015, Nagel resigned from his employment with Siemens. (Id. ¶ 14.)

         Between April 2015 and December 2015, Siemens and Nagel had communications regarding both the calculation and payment of Contingent Consideration to Nagel for the final Measurement Period. (Id. ¶ 15.) Nagel and Siemens did not agree on the terms and conditions for the Contingent Consideration to be paid to Nagel, and Nagel threatened suit. (Id. ¶ 16.) Ultimately, Siemens and Nagel agreed to resolve their dispute, with Siemens agreeing to pay Nagel a final Contingent Consideration payment in the amount of $950, 000, in exchange for Nagel agreeing, among other things, to release any and all rights and claims under the SPA. (Id. ¶ 17.)

         During the course of these negotiations, Nagel represented to Siemens that he had not removed or retained any information or documents belonging to Siemens, other than some older, duplicate files that predated the sale of PHW to Invensys. (Id. ¶ 19.) This was a material term of the parties' agreement to resolve their dispute, and was a term that Siemens insisted be included in the Settlement Agreement. (Id. ¶ 20.) On December 9, 2015, Nagel executed the Settlement Agreement, agreeing to its terms. (Id. ¶ 21 & Ex. A.) By the terms of the Settlement Agreement, Nagel represented and agreed that he had not “removed from [Siemens] or Invensys Rail Corporation or retained in any form, including electronic form, any original or duplicated confidential information of [Siemens] or Invensys Rail Corporation or any modified or extracted version thereof.” (Id. ¶ 22 & Ex. A ¶ 4.) Siemens agreed that: “in consideration of [Nagel] signing and not revoking this Agreement and the satisfaction of [his] other commitments provided herein, [Siemens] will provide [Nagel] with certain benefits…specifically a lump sum amount of $950, 000.” (Id. ¶ 23 & Ex. A ¶ 5.)

         On November 17, 2015, Nagel filed a complaint against Siemens in the Court of Common Pleas of Allegheny County, Pennsylvania. In that complaint, Nagel alleged claims for breach of his Employment Agreement by Siemens and for violation of the Pennsylvania Wage Payment and Collection Law (“WPCL”). On December 17, 2015, Siemens removed that case to this Court. (See Civil Action No. 2:15-cv-1669 (the “Nagel Action, ” ECF No. 1)). On December 23, 2015, Siemens timely filed its Answer to Nagel's Complaint and Affirmative and Additional Defenses (“Answer”). (Nagel Action, ECF No. 3.)

         On July 22, 2016, during discovery, Nagel's counsel informed Siemens that Nagel was in possession of flash drives and other electronic devices containing, inter alia, a .PST file with “over 30, 000 emails” dating from 2011 to 2015, including files converted to Siemens Exchange server from the legacy PHW and Invensys systems” as well an unspecified number of “documents from the Microsoft Office suite (.doc, .xls, .ppt, etc.)” and PDFs.” (Am. Compl. ¶ 29 & Ex. C.)

         On August 15, 2016, Siemens filed a Motion for Leave to File an Amended Answer (“Motion to Amend”) to include the affirmative defense of after-acquired evidence. (Nagel Action, ECF No. 19). The Court subsequently entered an Order granting Siemens' Motion to Amend and Siemens filed its Amended Answer on September 6, 2016. (Nagel Action, ECF Nos. 44, 45.) The Amended Answer does not contain counterclaims.

         On August 19, 2016, Siemens filed an Emergency Motion seeking, inter alia, a court order directing Nagel to return Siemens' property, preserve Nagel's electronic data sources, and produce Nagel's data sources to a forensic examiner. (Am. Compl. ¶ 30; Nagel Action, ECF No. 28.) On August 26, 2016, Nagel served his response on Siemens and the Court via email, per the Court's instruction. The parties engaged in further meet and confer discussions on August 29, 2016. Siemens indicates that, during those discussions, the parties agreed that all matters addressed in the Emergency Motion would be resolved amicably and notified the Court regarding same. Accordingly, on that same date, the Court entered an Order dismissing, without prejudice, Siemens' Emergency Motion. (Nagel Action, ECF No. 35.) The parties engaged in further meet and confer discussions and developed a mutually agreeable protocol for the forensic examination of Nagel's data sources. On November 8, 2016, the parties filed their agreed-upon Stipulated Protocol for Forensic Inspection of Nagel's Electronic Data Sources (“Forensic Protocol”). (Nagel Action, ECF No. 49.) On November 9, 2016, the Court issued an Order approving the Forensic Protocol. (Nagel Action, ECF No. 50.) (Am. Compl. ¶¶ 30-33.)

         On March 10, 2017, Siemens deposed Nagel. (Am. Compl. ¶ 37.) During his deposition, Nagel admitted that he had: (1) entered into a Settlement Agreement with Siemens which contained the clause cited above; (2) taken and retained confidential documents and information belonging to Siemens, including documents containing bids, pricing, and other financial information; and (3) knowingly retained this confidential information in breach of the Settlement Agreement until November 2016, when he was forced to turn them over pursuant to the Forensic Protocol. (Am. Compl. ¶¶ 38-39 & Ex. D at 48-49, 51-54, 118-19.)

         Procedural History

         On April 3, 2017, Plaintiff filed this action (ECF No. 1) and on April 24, 2017, it filed an Amended Complaint (ECF No. 6). Jurisdiction is based upon diversity of citizenship in that: Plaintiff is a Delaware corporation with its principal place of business in Alpharetta, Georgia; Defendant is a citizen of Pennsylvania; and the amount in controversy exceeds the sum of $75, 000.00, excluding interest and costs. (Am. Compl. ¶¶ 3-5.)

         Count I alleges a claim of breach of contract. Count II alleges a claim of fraudulent inducement/misrepresentation. Count III alleges a claim of breach of the duty of loyalty.

         On July 17, 2017, Defendant filed a motion to dismiss (ECF No. 12). On August 7, 2017, Plaintiff filed a brief in opposition (ECF No. 20) and August 22, 2017, Defendant filed a reply brief (ECF No. 21).

         Standard of Review

         The Supreme Court has issued two decisions that pertain to the standard of review for failure to state a claim upon which relief could be granted. The Court held that a complaint must include factual allegations that “state a claim to relief that is plausible on its face.” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (citing Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007)). “[W]ithout some factual allegation in the complaint, a claimant cannot satisfy the requirement that he or she provide not only ‘fair notice' but also the ‘grounds' on which the claim rests.” Phillips v. County of Allegheny, 515 F.3d 224, 232 (3d Cir. 2008). In determining whether a plaintiff has met this standard, a court must reject legal conclusions unsupported by factual allegations, “[t]hreadbare recitals of the elements of a cause of action, supported by mere conclusory statements;” “labels and conclusions;” and “‘naked assertion[s]' devoid of ‘further factual enhancement.'” Iqbal, 556 U.S. at 678 (citations omitted). Mere “possibilities” of misconduct are insufficient. Id. at 679. The Court of Appeals has summarized the inquiry as follows:

To determine the sufficiency of a complaint, a court must take three steps. First, the court must “tak[e] note of the elements a plaintiff must plead to state a claim.” Ashcroft v. Iqbal, 556 U.S. 662, 129 S.Ct. 1937, 1947, 173 L.Ed.2d 868 (2009). Second, the court should identify allegations that, “because they are no more than conclusions, are not entitled to the assumption of truth.” Id. at 1950. Third, “whe[n] there are well-pleaded factual allegations, a court should assume their veracity and then determine whether they plausibly give rise to an entitlement for relief.” Id. This means that our inquiry is normally broken into three parts: (1) identifying the elements of the claim, (2) reviewing the complaint to strike conclusory allegations, and then (3) looking at the well-pleaded components of the complaint and evaluating whether all of the elements identified in part one of the inquiry are sufficiently alleged.

Malleus v. George, 641 F.3d 560, 563 (3d Cir. 2011).

         The Court of Appeals has explained that: “In deciding a Rule 12(b)(6) motion, 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) (citation omitted). Therefore, the documents from the Nagel Action cited by the parties and the Settlement Agreement may be considered without converting the motion into a motion for summary judgment.

         Nagel contends that: 1) all of Siemen's claims are compulsory counterclaims that should have been filed in the Nagel Action and are now waived; 2) the parol evidence rule bars claims for fraudulent inducement and misrepresentation; 3) Siemens cannot state claims for fraudulent inducement and misrepresentation or breach of the duty of loyalty, which are torts, because of the gist of the action doctrine; and 4) Siemens has failed to plead sufficient facts to state claims for breach of contract or breach of the duty of loyalty.

         As noted above, Siemens agrees to withdraw Count II, the claim for fraudulent inducement/misrepresentation. However, it argues that: 1) counterclaims are not compulsory if they have not “matured” at the time a defendant files an answer and in this case the claim did not mature until Nagel's deposition on March 10, 2017, nor do Siemens' claims arise out of the same transaction and occurrence as Nagel's claims in the Nagel Action; 2) the gist of the action doctrine does not bar a claim for breach of the duty of loyalty which is based on a societal fiduciary duty rather than a contractual provision; and 3) it has sufficiently stated claims for breach of contract and breach of the duty of loyalty.

         In a reply brief, Nagel argues that: 1) Siemens' claims accrued before it filed its answer in the Nagel Action and it could not have filed them in a supplemental pleading; 2) the breach of contract and breach of the duty of loyalty claims are insufficient; and 3) if Nagel removed confidential information, he must have done so while employed by Siemens and therefore the breach of the duty of loyalty claim is mutually exclusive with the breach of contract claim and the duties violated were contemplated by Nagel's employment documents and thus the gist of the action doctrine does apply to bar the claim.

         Compulsory ...

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