United States District Court, W.D. Pennsylvania
before the Court is the Motion to Dismiss Amended
Counterclaims filed by Third-Party Defendants North American
Communications, Inc. ("NAC"), Robert Herman, and
Nicholas Robinson (ECF No. 59). The motion has been fully
briefed (see ECF Nos. 60, 61) and is ripe for
disposition. For the reasons that follow, the Court will
GRANT in PART and DENY in
PART Third-Party Defendants' motion.
Factual History 
Herman founded NAC over forty years ago. (ECF No. 55 at
¶ 8.) Two families jointly owned NAC -the Hermans and
the Paltrows. (Id. at ¶ 9.) The Hermans'
half of NAC was technically owned by a limited partnership.
(Id. at ¶ 10.) But Michael Herman managed and
effectively controlled the partnership. (Id.)
Michael Herman also received compensation from this entity in
the form of dividends. (Id. at ¶ 12.)
Herman left NAC in 2013. (Id. at ¶ 11.) Michael
Herman and NAC entered into a retirement agreement, under
which Michael Herman would transfer control and
decisionmaking authority of the limited partnership to his
son, Robert Herman, who became the 50% owner of NAC.
(Id. at ¶ 12.) Michael Herman also gave up his
right to receive dividends from the limited partnership.
(Id.) In exchange for transferring ownership and
control to his son, NAC promised to pay Michael Herman a
$130, 000 retirement benefit each month for ten years.
(Id. at ¶ 13.)
first ten months after Michael Herman retired, NAC paid him
the full amount due under the retirement agreement.
(Id. at ¶ 14.) For the next four months, NAC
paid half of its monthly obligation. (Id.) And after
making partial payments for four months, NAC stopped paying
Michael Herman entirely. (Id.) Michael Herman has
not received a payment from NAC since September 2014.
NAC stopped paying Michael Herman, Robert Herman -NAC's
president and Michael Herman's son
-"represented" to Michael Herman that NAC lacked
sufficient funds to make its payments. (Id. at
¶ 15.) Robert Herman "repeated the substance of
that representation to his father on numerous occasions,
" and falsely assured Michael Herman that NAC would
resume payments once it achieved the requisite financial
stability. (Id.) Contrary to Robert Herman's
representations, NAC never intended to fulfill its
obligations to Michael Herman. (Id.)
Herman makes three allegations to support his claim that NAC
never intended to honor the retirement agreement. First, NAC
did not list Michael Herman's retirement benefits as
"liabilities" on financial documents.
(Id.) Second, despite claiming that it lacked the
funds to pay the retirement benefits, NAC continued to pay
Robert Herman and Nicholas Robinson (NAC's CEO)
"exorbitant" compensation that far exceeded market
standards; between 2014 and 2017, Robert Herman and Nicholas
Robinson paid themselves $6, 400, 000-approximately $3, 600,
000 more than the industry standard for executives of
comparable companies. (Id. at ¶¶ 16, 28.)
Third, despite representing to Michael Herman that it lacked
sufficient funds to pay his retirement benefits, NAC remained
current on payments for bank debt and trade payables.
(Id. at ¶ 17.) In other words, while NAC
claimed it possessed inadequate funds to pay Michael Herman,
it simultaneously continued to service its other debts and
pay its president and CEO unreasonably high
Michael Herman claims that Robert Herman and Nicholas
Robinson knew that NAC lacked the ability to fulfill its
obligations when Michael Herman entered into the retirement
agreement. (Id. at ¶ 20.) If Michael Herman had
known that NAC lacked the ability or the intention to make
all of the required retirement payments, Michael Herman would
not have entered into the retirement agreement. (Id.
at ¶ 21.)
filed a Complaint against Michael Herman (ECF No. 1), which
it subsequently amended. (ECF No. 12.) NAC asks that this
Court enter a declaratory judgment that Michael Herman
breached the retirement agreement by violating its
non-compete and non-solicitation clauses and that, as a
result of Michael Herman's breach, NAC is released from
any future obligations. (Id. at 1.)
Herman filed a motion to dismiss for improver venue (ECF No.
15), which this Court denied. (See ECF No. 30.)
this Court denied Michael Herman's motion to dismiss, he
filed an answer and counterclaims (ECF No. 35), which he
subsequently amended (ECF No. 55). Michael Herman asserts
twelve counterclaims: breach of contract against NAC (Count
I); in the alternative, quantum meruit/unjust enrichment
against NAC (Count II); in the alternative, promissory
estoppel against NAC (Count III); fraud in the inducement
against all Counterclaim-Defendants (Count IV); negligent
misrepresentation against all Counterclaim-Defendants (Count
V); fraud, against NAC (Count VI); fraud, against Robert
Herman and Nicholas Robinson (Count VII); fraudulent and
voidable transfer under 12 Pa. C.S. § 5104, against all
Counterclaim-Defendants (Count VIII); fraudulent and voidable
transfer under 12 Pa. C.S. § 5105, against all
Counterclaim- Defendants (Count IX); conspiracy against
Robert Herman and Nicholas Robinson (Count X); unlawful,
unfair and fraudulent business practices under the California
Business and Professions Code against all
Counterclaim-Defendants (Count XI); and declaratory judgment
(Count XII). (See ECF No. 55.)
move to dismiss all of Michael Herman's amended
counterclaims, except for breach of contract and declaratory
judgment. (See ECF No. 59.)
Standard of Review
complaint may be dismissed under Federal Rule of Civil Rule
12(b)(6) for "failure to state a claim upon which relief
can be granted." Connelly v. Lane Const. Corp.,
809 F.3d 780, 786 (3d Cir. 2016). But detailed pleading is
not generally required. Id. The Rules demand only
"a short and plain statement of the claim showing that
the pleader is entitled to relief" to give the defendant
fair notice of what the claim is and the grounds upon which
it rests. Bell Atlantic Corp. v. Tivombly, 550 U.S.
544, 555 (2007) (quoting Fed. R. Civ. R 8(a)(2)).
the pleading regime established by Twombly and
Ashcroft v. Iqbal, 556 U.S. 662 (2009), a court
reviewing the sufficiency of a complaint must take three
steps. First, the court must "tak[e] note of
the elements [the] plaintiff must plead to state a
claim." Iqbal, 556 U.S. at 675. Second, the
court should identify allegations that, "because they
are no more than conclusions, are not entitled to the
assumption of truth." Id. at 679; see also
Burtch v. Milberg Factors, Inc., 662 F.3d 212, 224 (3d
Cir. 2011) ("Mere restatements of the elements of a
claim are not entitled to the assumption of truth.")
(citation omitted). Finally, "[w]hen there are
well-pleaded factual allegations, [the] court should assume
their veracity and then determine whether they plausibly give
rise to an entitlement to relief." Iqbal, 556
U.S. at 679. "A claim has facial plausibility when the
plaintiff pleads factual content that allows the court to
draw the reasonable inference that the defendant is liable
for the misconduct alleged." Id.; see also
Connelly, 809 F.3d at 786. Ultimately, the plausibility
determination is "a context-specific task that requires
the reviewing court to draw on its judicial experience and
common sense." Iqbal, 556 U.S. at 679.
The Gist of the Action Doctrine Bars Michael Herman's
Fraud in the Inducement, Negligent Misrepresentation, and
Fraud Claims Against NAC (Counts IV, V, and VI)
Herman bases his tort claims on the allegation that NAC never
intended to honor his retirement agreement. Counterclaim
Defendants argue that the gist of the action doctrine bars
these claims. (ECF No. 60 at 4-11.) In response, Michael
Herman contends that the gist of the action doctrine does not
apply because these claims allege violations of duties
imposed by society rather than duties imposed by the
retirement agreement itself.
Pennsylvania's gist of the action doctrine, a party
cannot "bring a tort claim for what is, in actuality, a
claim for breach of contract." Bruno v. Erie
Insurance Company, 106 A.3d 48, 60 (Pa. 2014). "If
the facts of a particular claim establish that the duty
breached is one created by the parties by the terms of their
contract-i.e., a specific promise to do something that a
party would not ordinarily have been obligated to do but for
the existence of the contract-then the claim is to be viewed
as one for breach of contract. Id. at 68. "If,
however, the facts establish that the claim involves the
defendant's violation of a broader social duty owed to
all individuals . . .then it must be regarded as a
tort." Id.; see also Downs v. Andrews, 639
Fed.Appx. 816 (3d Cir. 2016); Dommel Prop. LLC v.
Jonestown Bank and Trust Co., 626 Fed.Appx. 361 (3d Cir.
2015); Rogers v. Gentex Corp., 3:16-cv-137, 2018 WL
1370611 (M.D. Pa. Mar. 16, 2018); Telwell Inc. v.
Grandbridge Real Estate Capital, LLC, 143 A.3d 421 (Pa.
Super. Ct. 2016); B.G. Balmer & Co. v. Frank Crystal
& Company, Inc., 148 A.3d 454 (Pa. Super. Ct. 2016);
Munksjo Paper AB v. Bedford Materials Co., No.
3;16-CV-270, 2018 WL 1866086, at *5 (W.D. Pa. Apr. 18, 2018)
district courts disagree about whether the gist of the action
doctrine bars tort claims based on allegations that the
promisor lied to the promisee about his or her intention to
fulfill his or her contractual obligations. "[V]arious
district courts in this Circuit have found fraudulent
inducement claims that are 'predicated upon
misrepresentations as to a party's intent to perform
under a contract' barred by the gist of the action
doctrine." Atl. Holdings, Ltd. v. Apollo Metals,
Ltd., 263 F.Supp.3d 526, 531 (E.D. Pa. 2017) (quoting
Vives v. Rodriguez, 849 F.Supp.2d 507, 520 (E.D. Pa.
2012)) (dismissing fraudulent inducement claim at motion to
dismiss stage); see, e.g., Malone v. Weiss, No. CV
17-1694, 2018 WL 827433, at *4-5 (E.D. Pa. Feb. 12, 2018)
(dismissing fraudulent inducement claim at motion to dismiss
stage); Glob. Sourcing LLC v. DBDK Int'l, LLC,
No. CV 17-325, 2018 WL 723098, at *2 (E.D. Pa. Feb. 5, 2018)
(dismissing fraudulent inducement claim at motion to dismiss
stage); Agrotors, Inc. v. Ace Glob. Markets, No.
l;13-CV-1604, 2014 WL 690623, at *5 (M.D. Pa. Feb. 24, 2014)
(dismissing fraudulent inducement claim at motion to dismiss
stage); Aceros Recicilables de Mexico, S.A. de CV. v. ELG
Haniel Metals Corp., No. CIV.A. 02-1935, 2006 WL
1429381, at *7 (W.D. Pa. Mar. 14, 2006) (Lancaster,
J.) (dismissing negligent misrepresentation claim at the
summary judgment stage).
courts have held that the gist of the action doctrine does
not bar these tort claims. These courts conceptualize the
misrepresentation about one's intention to perform under
the contract as distinct from the breach of the contract
itself. See, e.g., Graham Packaging Co., L.P. v.
Trans-place Texas, L.P., No. 1:15-CV-01186, 2015 WL
8012970, at *4 (M.D. Pa. Dec. 7, 2015) (holding that gist of
the action doctrine does not preclude fraudulent
misrepresentation and negligent misrepresentation claims);
H Contractors, LLC v. E.J.H. Constr., Inc., No. CV
16-368, 2017 WL 658240, at *6 (W.D. Pa. Feb. 16, 2017)
(denying motion to dismiss fraudulent inducement claim based
on gist of the action doctrine); Morrison v. AccuWeather,
Inc., No. 4:14-CV-0209, 2015 WL 4357346, at *6 (M.D. Pa.
July 14, 2015) (holding that gist of the action doctrine does
not bar fraud in the inducement claim); Stirone v.
McHutchison Inc., No. 2;17-CV-1644-JFC, 2018 WL 1256777,
at *5 (W.D. Pa. Mar. 12, 2018).
careful deliberation, the Court agrees with those district
courts that have held that the gist of the action doctrine
bars tort claims concerning the promisor's intent to
perform under the contract. As one district court aptly
noted, "[t]here can be little doubt that a
misrepresentation as to a party's intent to perform
contractual duties 'concern[s] the performance of
contractual duties.'" Vives, 849 F.Supp.2d
at 521 (quoting eToll, Inc. v. Elias/Savion Advert.,
Inc., 811 A.2d 10, 19 (2002)). And as one district court
insightfully observed, "[p]ermitting a fraudulent
inducement claim [based on the allegation that the defendant
never intended to honor the contract] would essentially
negate the entire . . . gist of the action doctrine because a
[p]laintiff would have only to allege that [d]efendants never
intended to abide by a provision in their contract in order
to escape dismissal." Malone, 2018 WL 827433,
gist of the action doctrine precludes Michael Herman's
fraud, fraudulent inducement, and negligent misrepresentation
claims. These claims allege that NAC never intended to honor
his retirement agreement. They involve duties imposed by the
retirement agreement, not by society. They properly sound in
contract, not tort. Therefore, the gist of the action
doctrine bars these claims. Bruno, 106 A.3d at 60.
Accordingly, the Court will dismiss Michael Herman's tort
claims against NAC.
The Gist of the Action Doctrine Bars Michael Herman's
Fraud Claim Against Robert Herman and
Nicholas Robinson (Count VII)
Herman argues that the gist of the action doctrine does not
apply to his claims against Robert Herman and Nicholas
Robinson because neither of them signed his retirement
contract. (ECF No. 61 at 14.) The Court disagrees.
the Pennsylvania courts have spelled out, the gist of the
action doctrine bars tort claims against an individual
defendant where the contract between the plaintiff and the
officer's company created the duties that the individual
allegedly breached." Williams v. Hilton Grp. PLC,
93 Fed.Appx. 384, 387 (3d Cir. 2004) (collecting cases).
Since Williams, numerous district courts have held
that the gist of the action doctrine bars tort claims against
non-parties to the contract if the defendants acted merely as
agents or employees of the entity that was a party to the
contract. See, e.g, Furniture Sols. & Res. v.
Symmetry Office, LLC, No. CV 15-4774, 2015 WL 9302915,
at *6 (E.D. Pa. Dec. 22, 2015) (holding that the gist of the
action doctrine precludes tort claims against agents of
corporate defendant because claims arose from corporate
defendant's underlying breach of contract);
Integrated Waste Sols., Inc. v. Goverdhanam, No.
CIV.A. 10-2155, 2010 WL 4910176, at *12 (E.D. Pa. Nov. 30,
2010) (holding that gist of the action doctrine barred
plaintiff's fraud, intentional misrepresentation, and
negligent misrepresentation claims against individual
defendant, who served as CEO of corporate defendant, despite
the lack of contractual relationship with the individual
defendant, because the CEO's misrepresentations concerned
the subject matter of the contract between the plaintiff and
the company); Velocity Int'l, Inc. v. Celerity
Healthcare Sols., Inc., No. CV 09-102, 2012 WL
12895053, at *2 (W.D. Pa. Nov. 27, 2012) (Conti, J.)
(dismissing tortious interference claim against agent of
corporate defendant under gist of the action doctrine).
gist of the action doctrine bars Michael Herman's fraud
claim against Robert Herman and Nicholas Robinson. Michael
Herman's allegations against Robert Herman and Nicholas
Robinson concern their actions as officers and agents of NAC.
Further, Michael Herman merely alleges that these Defendants
misrepresented NAC's intentions to fulfill its promise to
pay him under the retirement agreement. As explained above,
these "tort" claims are disguised breach of
contract claims arising from NAC's failure to honor
Michael Herman's retirement agreement. Therefore, the
gist of the action doctrine bars these claims even though
Robert Herman and Nicholas Robinson were not parties to the
retirement agreement. Williams, 93 Fed.Appx. at 387.
Michael Herman Stated Plausible Claims for Unjust Enrichment
and Promissory Estoppel (Counts II and III)
Herman Properly Plead Quasi-Contract Claims in the
Alternative to His Breach of Contract Claim
argue that the Court should dismiss Michael Herman's
quasi-contract claims because Michael Herman and NAC have a
valid contract. (See ECF No. 60 at 14- 16.) In
response, Michael Herman argues that alternative pleading
permits him to raise quasi-contract claims as alternative
theories of recovery. In the alternative to his breach claim,
Michael Herman alleges that his retirement agreement is void
or voidable because of contract defenses such as fraud,
mistake, and repudiation. (ECF No. 61 at 19-20.)
doctrine of unjust enrichment is inapplicable when the
relationship between parties is founded upon a written
agreement or express contract . . . ." Wilson Area
Sch. Dist. v. Skepton, 586 Pa. 513, 520 (2006) (citing
Third National & Trust Compamj of Scranton v. Lehigh
Valley Coal Company, 353 Pa. 185 (1945)). But "if a
contract is unenforceable in whole or in part... unjust
enrichment may apply." Cosby v. Am. Media,
Inc., 197 F.Supp.3d 735, 745 (E.D. Pa. 2016) (citing
Fish Net, Inc. v. ProfitCenter Software, Inc., No.
CIV.A. 09-5466, 2011 WL 1235204, at *10 (E.D. Pa. Mar. 31,
2011)). As Judge Bissoon recently explained, "[t]he
practice of alternate pleading means that '[t]he mere
existence of a written contract between parties does not bar
an unjust enrichment claim/" Germain v.
Wisniewski, No. 15-1279, 2016 WL 4158994, at *6 (W.D.
Pa. Aug. 5, 2016) (quoting PPG Industries, Inc. v.
Generon IGS, Inc., 760 F.Supp.2d 520, 526 (W.D. Pa.
2011)). "A plaintiff is permitted to plead alternative
theories of recovery based on breach of contract and unjust
enrichment in cases where there is a 'question as to the
validity of the contract in question.'" Premier
Payments Online, Inc. v. Payment Sys. Worldwide, 848
F.Supp.2d 513, 527 (E.D. Pa. 2012) (quoting
AmerisourceBergen Drug Corp. v. Allscripts Healthcare,
LLC, Civ. A. No. 10-6087, 2011 WL 3241356, at
*3 (E.D. Pa. July 29, 2011)); In re Prudential
Ins. Co. of Am. Sales Practices Litig., 975 F.Supp. 584,
622 (D. N.J. 1996) (denying motion to dismiss unjust
enrichment claim because "if the written document is
unenforceable, the plaintiff may have an unjust enrichment
claim."); Cornell Companies, Inc. v. Borough of New
Morgan, 512 F.Supp.2d 238, 266 (E.D. Pa. 2007) (noting
that "a plaintiff can plead in the alternative and a
promissory estoppel claim is a permissible alternative cause
of action to a breach of contract claim.").
Herman alleges that Robert Herman and Nicholas Robinson
fraudulently induced him into entering into the retirement
agreement. Accordingly, a "question as to the validity
of the contract" exists. Premier Payments
Online, 848 F.Supp.2d at 527. Therefore, Michael Herman
permissibly plead ...