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Rogers v. Gentex Corp.

United States District Court, M.D. Pennsylvania

March 16, 2018

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

          MEMORANDUM OPINION

          ROBERT D. MARIANI UNITED STATES DISTRICT JUDGE.

         I. Introduction

         Pending 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 part.

         II. Factual Allegations and Procedural History

         On 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.

         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" 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.

         In 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.

         The 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.

         Plaintiffs 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, " provides:

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.

         Around 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.

         Plaintiffs 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 claims.

         Finally, 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. ΒΆ 67. Instead, he put them on ...


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