United States District Court, M.D. Pennsylvania
D. MARIANI UNITED STATES DISTRICT JUDGE.
before the Court is a motion to dismiss Counts IV-VII of
Plaintiffs Second Amended Complaint. Doc. 71. After the Court
issued its motion to dismiss opinion relating to the First
Amended Complaint, dismissing the fraudulent
misrepresentation, negligent misrepresentation, and fraud
claims without prejudice, Plaintiff filed a Second Amended
Complaint, re-pleading the previously dismissed claims with
additional allegations, and adding a conversion claim.
Defendant then moved to dismiss Counts IV-VII of the Second
Amended Complaint. For the reasons that follow,
Defendant's Motion will be granted in part and denied in
Factual Allegations and Procedural History
January 26, 2016, Plaintiffs filed a Complaint against
Defendant Gentex Corporation. Doc. 1. Defendant moved to
dismiss the Complaint on March 4, 2016. Doc. 23. Thereafter,
Plaintiffs filed the First Amended Complaint, asserting seven
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);
(4) Violation of Pennsylvania Wage Payment & Collection
Law (Count IV); (5) Fraudulent Misrepresentation (Count V);
(6) Negligent Misrepresentation (Count VI); and (7) Fraud
(Count VII). Doc. 32. Defendant moved to dismiss all claims
in the First Amended Complaint. Doc. 34. On March 6, 2017,
the Court denied the motion to dismiss Counts I, II, IV,
granted the motion to dismiss Count III as moot, and granted
the motion to dismiss Counts V, VI, and VII, i.e. the
fraudulent misrepresentation, negligent misrepresentation,
and fraud claims. Doc. 67. Plaintiffs were granted leave to
file a Second Amended Complaint. They did so on March 27,
2017, repeating the claims that survived the previous motion
to dismiss, rehashing the dismissed claims with supplemental
allegations, and adding a new claim for conversion. Doc. 70.
Defendants then filed the motion at issue here, seeking to
dismiss Counts IV-VII of the Second Amended Complaint. For
purposes of resolving this motion, this Court accepts the
Second Amended Complaint's allegations as true.
December 2011, Plaintiff David Rogers "sold the assets
of his company, Artisent, Inc. and the stock of his company
Ops-Core, Inc. to Gentex" through a Stock Purchase
Agreement ("SPA"). Doc. 70, at ¶¶ 1, 7.
The 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. ¶¶ 1, 10.
As part of the transaction, Rogers also entered into an
Employment Agreement with Gentex, which provided that he
would receive a salary and the opportunity to earn a bonus.
Id. ¶ 1. Also in December 2011, Gentex, along
with GC Boston Acquisition, LLC, entered into an Asset
Purchase Agreement ("APA") with Rogers.
Id. ¶ 14. Plaintiffs' claims are primarily
based on "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.¶ 1.
particular, Plaintiffs allege breach of contract and fraud
arising from Gentex's obligations to pay Rogers royalties
under the SPA. "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..." Id. at ¶ 10. In the
summer of 2013, Rogers contacted Gentex's CFO, Heather
Acker, to complain about "delinquent" royalty
payments and requesting a "chinstrap profit accounting
for 2012." Id. ¶ 23. He also stated that
"and it is important that we change the precedent for
reporting / payments going forward." Id. After
back and forth discussions, Gentex provided Mr. Rogers
"a revised and official chinstrap profit
calculation" showing a profit of $4.72 per unit, which
allegedly entitled Rogers to royalty payments under Section
2.3 of the SPA. Id. ¶ 28. However, "no
royalty payment was ever made" by Gentex. Id.
Second Amended Complaint further alleges that "[t]hrough
the exercise of diligence, and well-after being presented
with the fraudulent accountings, Mr. Rogers discovered that
the calculation prepared by Gentex was inaccurate."
Id. ¶ 29. Plaintiffs allege that Gentex has
precluded Plaintiffs "from accessing Gentex's
financial information necessary to Q calculate properly those
royalty payments owed, " but that they have been able to
identify at least "several financial improprieties which
contributed to Gentex's position that no royalties are
owed (or that the royalties which are owed are less than the
actual amount which should be paid (but never were))."
Id. ¶ 31. Plaintiffs allege that based on
"informal and anecdotal information  provided by
Gentex, " they have been able to find out several ways
Gentex has "fraudulently mischaracterized expenses and
accounting methods, " including improperly including
certain expenses in the calculation of the Boston
location's overhead, classifying certain expenses as
"royalty, " and using a different accounting system
than the one specified by the SPA, Id. ¶¶
32-35, 39, 41. Plaintiffs also claim that Gentex
"conceal[ed] information from Plaintiffs which would
allow them to calculate their royalty, " and that
"by withholding full and complete information from Mr.
Rogers which would have allowed him to calculate the royalty
owed with precision, Gentex has been able to perpetuate and
conceal the full scope of its fraudulent conduct and
contractual breaches." Id. ¶¶ 40, 41.
The allegations relating to the royalty calculations form the
basis of Counts I and VI of the Second Amended Complaint, for
breach of contract and fraud.
also bring fraudulent and negligent misrepresentation claims
related to Rogers' bonus payment. According to Section 3
of his Employment Agreement, Rogers was "eligible to
participate in Company's bonus and incentive programs at
same the level [sic] as employees in similar leadership
positions." Id. at ¶ 19. Section 11 of the
Employment Agreement, titled "Termination, "
Neither the Company nor Rogers may terminate this Agreement
prior to the expiration of the Term, except as provided
below...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. at ¶ 24. In December 2014, Rogers
"informed Gentex of his intentions to leave his position
in the near future; however, [he] did not specify an exact
date at that time." Id. at ¶ 50. Rogers
"agreed with senior company management that [his]
resignation date would be decided after a plan was developed
and implemented to transition his work responsibilities to
other personnel within the company." Id.
January 14 or January 15, 2015, Rogers "stopped by Adam
Adkins' office and asked if the company had hit its
revenue targets for the 2014 Bonus." Id. at
¶ 53. "Mr. Adkins, the Boston facility accountant
for Gentex, replied that he did not think the books were
officially closed, but that based on the year-end reporting
that he had seen, the company 'hadn't come close to
meeting the goal of $181 million in revenue.'"
Id. Around January 28, 2015, Rogers talked to
Heather Acker, the CFO of Gentex, commenting to her that
"it was 'too bad that [Gentex] didn't meet [its]
revenue targets this year' to which Ms. Acker replied,
confirming that Gentex did not reach its revenue targets, and
stating something to the effect [of] 'some years are
better than others - I've been doing this for a long time
and at this point I never expect or take anything for
granted.'" Id. at ¶ 54.
allege that "[b]ased upon the affirmative
representations made by Gentex concerning the 2014
bonuses...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 ¶ 55.
Plaintiffs claim that had Rogers "been informed
truthfully by Gentex that company revenue targets had been
met and bonuses would be paid, [he] would have deferred his
departure until after the bonus payment was made in the early
Spring of 2015." Id. In March of 2015, Rogers
discovered that Gentex "did meet its 2014 revenue
targets." Id. at ¶ 57. Plaintiffs claim
that "[a]ware of Mr. Rogers pending departure and
intending to induce him to leave without having to pay the
bonus, Gentex fraudulently and/or negligently made
false representations relating to the 2014 bonus."
Id. at ¶ 58. This allegation appears to be
based on Rogers' conversations with Mr. Adkins and/or Ms.
Acker, though the Complaint does not allege how or whether
either employee's representations could be equated with
Gentex's representations. The allegations relating to
conversations concerning bonus payments form the basis of
Plaintiffs' fraudulent and negligent misrepresentation
Plaintiffs adds a new "conversion" claim in their
Second Amended Complaint, alleging that Gentex "failed
and refused to return" a hard drive owned by Rogers
after he left Gentex. Id. ¶ 128. Pursuant to
the APA, Gentex assumed "all right, title and interest
in and to all of the assets of the Business as operated by
[Artisent, Inc.], other than the Excluded Assets."
Id. ¶ 64. As defined in the contract,
"Excluded Assets" included, among other things,
"all confidential or proprietary information that was
disclosed to [Artisent, Inc.] by third parties and with
respect to which written consent to disclosure has not been
obtained from the third parties listed on Schedule
2.1(a)(ii)(N)." Id. ¶ 65. In other words,
Gentex obtained rights to all assets of Rogers' previous
company, Artisent, Inc., except the "Excluded
Assets", which included confidential third party
information disclosed to Artisent pursuant to nondisclosure
agreements. After the APA was executed, Rogers "isolated
and segregated those materials which were not part of the
asset transaction and did not turn these items over to
Gentex." Id. ¶ 67. Instead, he put them on