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HomeMy WebLinkAbout96-2344 CivilJASON J. GEHMAN, Plaintiff V® JAMES E. GALLAGHER, PETER A. O'SHEA and RELIABLE FOUNDATION WATER PROOFING AND RESTORATION, INC., and AMERICAN BASEMENT SYSTEMS, INC., Defendants IN THE COURT OF COMMON PLEAS OF CUMBERLAND COUNTY, PENNSYLVANIA CIVIL ACTION - LAW NO. 96-2344 CIVIL TERM IN RE: DEFENDANTS' PRELIMINARY OBJECTIONS BEFORE HOFFER and OLER, JJ. ORDER OF COURT AND NOW, this ~ day of November, 1996, after careful consideration of Defendants' preliminary objections to Plaintiff's complaint, and for the reasons stated in the accompanying opinion, the preliminary objections (a) are SUSTAINED as to Count 14 of Plaintiff's complaint (seeking an accounting by Defendant Reliable Foundation Water Proofing and Restoration, Inc.), and Count 14 is DISMISSED, and (b) are otherwise DENIED. BY THE COURT, Luther E. Milspaw, Jr., Esq. Helene Eichenwald Loux, Esq. MILSPAW & BESHORE 130 State Street P.O. Box 946 Harrisburg, PA 17108-0946 Attorneys for Plaintiff Randall G. Gale, Esq. Brooks R. Foland, Esq. THOMAS, THOMAS & HAFER Sixth Floor 305 North Front Street P.O. Box 999 Harrisburg, PA 17108-0999 Attorneys for Defendants : rc JASON J. GEHMAN, Plaintiff Vo JAMES E. GALLAGHER, PETER A. O'SHEA and RELIABLE FOUNDATION WATER PROOFING AND RESTORATION, .INC., and AMERICAN BASEMENT SYSTEMS, INC., Defendants IN THE COURT OF COMMON PLEAS OF CUMBERLAND COUNTY, PENNSYLVANIA CIVIL ACTION - LAW NO. 96-2344 CIVIL TERM IN RE: Oler, J. DEFENDANTS' PRELIMINARY OBJECTIONS BEFORE HOFFER and OLER, JJ. OPINION and ORDER OF COURT This civil action, involving corporations and shareholders, arises out of an alleged effort by two shareholders of one corporation to exclude a third shareholder from various benefits of corporate ownership, and to divert business to a second corporation, which they owned alone. For disposition at this time are Defendants' preliminary objections in the form of (a) a demurrer to a claim for an accounting, (b) a demurrer to claims for civil conspiracy, and (c) a motion for a more specific pleading. For the reasons stated in this opinion, the demurrer to the claim for an accounting will be sustained and the preliminary objections will be otherwise denied. STATEMENT OF FACTS The allegations of Plaintiff's complaint may be summarized as follows: Plaintiff Jason J. Gehman and Defendants James E. Gallagher and Peter A. O'Shea formed Defendant American Basement NO. 96-2344 CIVIL TERM Systems, Inc., in 1993.~ The company engaged in the business of waterproofing basements.2 Each individual owned a third of the corporate stock.3 Defendants Gallagher and O'Shea undertook to exclude Plaintiff from the business.4 Paragraph 9 of Plaintiff's complaint states as follows: 9. Shortly after the commencement of business operations, Defendants O'Shea and Gallagher engaged in a course of unlawful conduct whose purpose and affect was to squeeze Plaintiff out of the business and to enrich and advantage themselves at the expense of Plaintiff individually, and to the detriment of ABS, including, inter alia, as follows: a. The individual Defendants acting in concert with each other coerced Plaintiff Gehman into permitting them to establish a separate corporation, [Defendant] Reliable [Foundation Water Proofing and Restoration, Inc.], for the purpose of performing installation services for [Defendant American Basement Systems, Inc.] b. The individual Defendants then began a pattern of directing more and more of the installation work of ABS to Reliable. Plaintiff's complaint, paragraphs 1-6. Id., paragraph 6. Id. Id., paragraph 9. NO. 96-2344 CIVIL TERM c. The individual Defendants began performing less and less services for ABS while continuing to draw salaries from both ABS as well as their own corporation Reliable. Reliable has as its only two shareholders the individual Defendants. d. The individual Defendants engaged in a pattern of conduct which Plaintiff believed constituted tax fraud, including taking payment in kind from customers, and diverting funds from ABS, without properly reporting the income on all relevant income tax returns. e. The individual Defendants directed leads away from Plaintiff and kept him from information essential to the operations of the business. f. The individual Defendants removed and converted assets of ABS to their own use including income, equipment, receivables, customer lists and prospects, and have paid personal expenses and obligations out of corporate assets.5 Paragraph 10 of Plaintiff's complaint asserts the following: 10. The Plaintiff voiced his concern and objection regarding the Defendants' conduct to the individual Defendants but they failed and refused to alter their behavior in any manner whatsoever.6 Paragraphs 11 and 12 of Plaintiff's complaint allege that Defendants agreed to buy Plaintiff's stock and permit him to Id. Id., paragraph 10. 3 NO. 96-2344 CIVIL TERM establish his own business, but reneged on the agreement after he had resigned as an employee of Defendant American Basement. Paragraph 13 of Plaintiff's complaint alleges as follows: 13. From July 1994 to the present, the individual Defendants have failed and refused to enter into negotiations for the purchase of Plaintiff's interest; have diverted income due to ABS to themselves personally have diverted monies from ABS to their own corporation Reliable, ostensibly for installation fees but which fees are grossly inflated and thus serves to divert income from [Defendant American Basement Systems, Inc.]7 At various points in the complaint, Defendants' actions are characterized as "illegal, oppressive, and/or fraudulent." See Plaintiff's complaint, paragraphs 17, 21, 45-47, 52. Among the fourteen counts in Plaintiff's complaint are a claim for an accounting by Defendant Reliable (the second corporation) (count 14), and claims for civil conspiracy against Defendant Gallagher (Count 9) and Defendant O'Shea (Count 10). Other claims by Plaintiff are for an accounting by, and dissolution of, Defendant American Basement (the first corporation),8 appointment of a custodian of Defendant American Basement,9 breaches of Id., paragraph 13. Id., Count 1. Id., Count 2. 4 NO. 96-2344 CIVIL TERM fiduciary duty,~° usurpations of corporate opportunities,~ conversion~2 and unjust enrichment.~3 Defendant's preliminary objections are in the form of (a) a demurrer to the claim for an accounting by Defendant Reliable (Count 14), (b) a demurrer to the claims for civil conspiracy against Defendant Gallagher (Count 9) and Defendant O'Shea (Count 10), and (c) a motion for a more specific pleading with respect to the aspect of fraud contained in the complaint. With regard to the first demurrer, Plaintiff's counsel indicated at oral argument and in Plaintiff's briefTM that he did not intend to pursue the claim for an accounting by Defendant Reliable, and Defendants' rationale for this preliminary objection need not be examined further. With regard to the second demurrer, Defendants maintain that the claims for civil conspiracy against Defendants Gallagher and ~o Id., Counts 3 (Defendant Gallagher) and 4 (Defendant O'Shea). ~ Id., Counts 5 (Defendant Gallagher) and 6 (Defendant O'Shea). ~2 Id., Counts 7 (Defendant Gallagher) and 8 (Defendant O'Shea). ~ Id., Counts 11 (Defendant Gallagher), O'Shea), and 13 (Defendant Reliable). 12 (Defendant In reciting the facts alleged in Plaintiff's complaint, the court is not expressing an opinion as to the accuracy of the allegations. ~4 Plaintiff's Brief in Opposition to Defendants' Preliminary Objections at 7 n.1. NO. 96-2344 CIVIL TERM O'Shea are based upon "the collective judgment of two individuals within the same entity .... ..15 It is contended that such "conduct, if challenged, becomes that of the single, corporate entity,"16 and that, consequently, such activity will not support a cause of action for a conspiracy - a combination of persons.17 With regard to the motion for a more specific pleading, Defendants maintain that the allegations of fraudulent conduct contained in the complaint are merely general.18 It is suggested that the pleading is therefore violative of Pennsylvania Rule of Civil Procedure 1019(b), which requires that "averments of fraud ... be pleaded with particularity.-19 DISCUSSION Demurrer to Claim for Accounting by Defendant Reliable Plaintiff's counsel has indicated that Plaintiff does not intend to pursue his claim for an accounting by Defendant Reliable. Accordingly, Count 14 of Plaintiff's complaint will be dismissed. 15 Defendant's Brief in Support of Preliminary Objections at Id. Id. at 4-5. Id. at 6-9· Id. NO. 96-2344 CIVIL TERM Demurrer to Claims for Civil Conspiracy against Defendants Gallaqher and O'Shea "In order to sustain a [contested] demurrer, it is essential that an opponent's pleading indicate on its face that his claim ... cannot be sustained. The question to be decided is ... whether, upon the facts averred, it shows with certainty that the law will not uphold the pleading." 2 Goodrich-Amram 2d S1017(b):27, at 271 (1991). In Pennsylvania, "[t]o prove a civil conspiracy, it must be shown that two or more persons combined or agreed with intent to do an unlawful act or to do an otherwise lawful act by unlawful means." Thompson Coal Co. v. Pike Coal Co., 488 Pa. 198, 211, 412 A.2d 466, 472 (1979). As a general rule a corporation can not conspire with its sole owner,2° and an exercise of judgment on behalf of an entity such as a state university by a committee will not support a claim of civil conspiracy. Keddie v. Pennsylvania State University, 412 F. Supp. 1264 (M.D. Pa. 1976). In this case, Plaintiff has alleged that the individual defendants conspired with each other to deprive him of his rights as a part-owner of one corporate defendant, and to divert business to a second corporate defendant in which he had no interest. The rule that a corporation can not conspire with its owners does not 2o Thompson Coal Co. v. Pike Coal Co., 488 Pa. 198, 412 A.2d 466 (1979). NO. 96-2344 CIVIL TERM preclude the possibility of recovery on the part of Plaintiff. Nor does the rule that an exercise of judgment by a committee of an educational institution is not a conspiracy preclude such a possibility. Motion for a More Specific Pleadinq Under Pennsylvania Rule of Civil Procedure 1019, "[t]he material facts on which a cause of action ... is based [must] be stated in a concise and summary form,''2~ and "[a]verments of fraud ... [must] be averred with particularity."22 On the other hand, "[e]vidence from which material facts may be inferred not only need not but should not be alleged in a pleading." 2 Goodrich-Amram 2d S1019(a):6, at 321 (1991). "Generally speaking, a pleading should be sufficiently specific so as to enable an opposing party to prepare his or her response." Id. S1019:4, at 313. In determining whether fraud has been pleaded with the required particularity, a court must examine a complaint as a whole. Rule 1019(b) requires only that the facts constituting fraud be alleged and that fraud not be pleaded as a legal conclusion, not that the allegations of fact be drawn with pleading skill and be arranged in logical and proper sequence. Id. §1019(b):l, at 330. Pa. R.C.P. 1019(a). Pa. R.C.P. 1019(b). 8 NO. 96-2344 CIVIL TERM In addition, "[i]t has been held that [a] preliminary objection in the nature of a motion for a more specific pleading will be denied ... where the objecting party may be presumed to have at least as much knowledge of the information sought as does the pleader .... " Kromer v. Goodling, No. 94-2988 Equity Term, 'slip. op. at 5 (Cumberland Co., June 12, 1996); Stone v. Dauphin Deposit Bank, No. 3933 Civil 1991, slip. op. at 4 (Cumberland Co. February 24, 1992); see 2 Goodrich-Amram 2d S1019:5, at 314 (1991). Finally, "when a party states a case in a manner that fully advises an opponent of the nature of the case and of the matters with which the opponent will be confronted at trial, there is no need for a motion for a more specific pleading; the opponent should seek discovery if he or she needs more information .... " Id. §1017(b):24, at 268. In this case, Plaintiff's complaint does not contain a count for fraud. Although at various points the complaint characterizes Defendants' activities as illegal, oppressive and/or "fraudulent," these terms must be read in the context of the allegations preceding them. In this context, in the court's view, the pleading as it relates to allegedly fraudulent conduct (a) is sufficiently specific to apprise Defendants of the nature of the case against them and to enable them to prepare responses, (b) deals with matters which are presumably as much within Defendant's knowledge 9 NO, 96-2344 CIVIL TERM as Plaintiff's, and (c) lends itself to amplification through the discovery process. For the foregoing reasons, the following order will be entered: ORDER OF COURT AND NOW, this 4th day of November, 1996, after careful consideration of Defendants' preliminary objections to Plaintiff's complaint, and for the reasons stated in the accompanying opinion, the preliminary objections (a) are SUSTAINED as to Count 14 of Plaintiff's complaint (seeking an accounting by Defendant Reliable Foundation Water Proofing and Restoration, Inc.), and Count 14 is DISMISSED, and (b) are otherwise DENIED. BY THE COURT, Luther E. Milspaw, Jr., Esq. Helene Eichenwald Loux, Esq. MILSPAW & BESHORE 130 State Street P.O. Box 946 Harrisburg, PA 17108-0946 Attorneys for Plaintiff Randall G. Gale, Esq. Brooks R. Foland, Esq. THOMAS, THOMAS & HAFER Sixth Floor 305 North Front Street P.O. Box 999 Harrisburg, PA 17108-0999 Attorneys for Defendants s/ J. Wesley Oler, Jr. J. Wesley Oler, Jr., J. 10