The Sullivan Corporation v. Exchangebase, Llc et al

MOTION to Dismiss for Lack of Jurisdiction

E.D. Pa.September 29, 2016

UNITED STATES DISTRICT COURT EASTERN DISTRICT OF PENNSYLVANIA THE SULLIVAN CORPORATION Plaintiff, v. EXCHANGEBASE, LLC., et al. Defendants. : : : : : : : : : CASE NO. 2:16-CV-05080 JUDGE EDUARDO C. ROBRENO DEFENDANTS’ MOTION TO DISMISS FOR LACK OF PERSONAL JURISDICTION PURSUANT TO FED. R. CIV. P. 12(B)(2) OR, ALTERNATIVELY, MOTION TO DISMISS CERTAIN CLAIMS PURSUANT TO FED. R. CIV. P. 12(b)(6) Defendants ExchangeBase, LLC, Brian Donahue, Peter Kowalski, and Thomas Sheridan (collectively “Defendants”) hereby move the Court for an Order dismissing this action for lack of personal jurisdiction over the Defendants pursuant to Fed. R. Civ. P. 12(b)(2). Alternatively, Defendants request dismissal of Count I (RICO), Count II (Fraud), Count III (Fraudulent Inducement), Count VI (Negligent Misrepresentation), Count VII (Alter Ego/Piercing the Corporate Veil), Count VIII (Action for Accounting), and Count IX (Action for Injunctive Relief). Plaintiff’s allegations as to each of these causes of action fail to state a claim as a matter of law and should be dismissed pursuant to Fed. R. Civ. P. 12(b)(6). A Memorandum in Support of this Motion is attached hereto and incorporated herein. Dated: September 29, 2016 Respectfully submitted, /s/ Claudia D. McCarron Claudia D. McCarron, Esq. LEWIS BRISBOIS BISGAARD & SMITH, LLP 550 E. Swedesford Road, Suite 270 Wayne, PA 19087 T: (215) 977-4062 F: (215) 977-4101 claudia.mccarron@lewisbrisbois.com Attorney for Defendants ExchangeBase, LLC, Brian Donahue, Peter Kowalski, and Thomas Sheridan Case 2:16-cv-05080-ER Document 5 Filed 09/29/16 Page 1 of 1 UNITED STATES DISTRICT COURT EASTERN DISTRICT OF PENNSYLVANIA THE SULLIVAN CORPORATION Plaintiff, v. EXCHANGEBASE, LLC., et al. Defendants. : : : : : : : : : : CASE NO. 2:16-CV-05080 JUDGE EDUARDO C. ROBRENO ORDER Now, this _______ day of ________________, 2016, upon consideration of the Motion to Dismiss filed by Defendants ExchangeBase, LLC, Brian Donahue, Peter Kowalski, and Thomas Sheridan pursuant to Federal Rule of Civil Procedure 12(b)(2), and any response thereto, it is hereby ORDERED that Defendants’ Motion is GRANTED and Plaintiff’s Complaint is DISMISSED without prejudice for lack of personal jurisdiction over the Defendants. SO ORDERED: THE HONORABLE EDUARDO C. ROBRENO UNITED STATES DISTRICT JUDGE Case 2:16-cv-05080-ER Document 5-1 Filed 09/29/16 Page 1 of 2 UNITED STATES DISTRICT COURT EASTERN DISTRICT OF PENNSYLVANIA THE SULLIVAN CORPORATION Plaintiff, v. EXCHANGEBASE, LLC., et al. Defendants. : : : : : : : : : : CASE NO. 2:16-CV-05080 JUDGE EDUARDO C. ROBRENO ORDER Now, this _______ day of ________________, 2016, upon consideration of the Motion to Dismiss filed by Defendants ExchangeBase, LLC, Brian Donahue, Peter Kowalski, and Thomas Sheridan pursuant to Federal Rule of Civil Procedure 12(b)(6), and any response thereto, it is hereby ORDERED that Defendants’ Motion is GRANTED and Count I (RICO), Count II (Fraud), Count III (Fraudulent Inducement), Count VI (Negligent Misrepresentation), Count VII (Alter Ego/Piercing the Corporate Veil), Count VIII (Action for Accounting), and Count IX (Action for Injunctive Relief) of Plaintiff’s Complaint are hereby DISMISSED WITH PREJUDICE for failure to state a claim. SO ORDERED: THE HONORABLE EDUARDO C. ROBRENO UNITED STATES DISTRICT JUDGE Case 2:16-cv-05080-ER Document 5-1 Filed 09/29/16 Page 2 of 2 UNITED STATES DISTRICT COURT EASTERN DISTRICT OF PENNSYLVANIA THE SULLIVAN CORPORATION Plaintiff, v. EXCHANGEBASE, LLC., et al. Defendants. : : : : : : : : : : CASE NO. 2:16-CV-05080 JUDGE EDUARDO C. ROBRENO MEMORANDUM IN SUPPORT OF DEFENDANTS’ MOTION TO DISMISS FOR LACK OF PERSONAL JURISDICTION PURSUANT TO FED. R. CIV. P. 12(b)(2) OR, ALTERNATIVELY, MOTION TO DISMISS CERTAIN CLAIMS PURSUANT TO FED. R. CIV. P. 12(b)(6) Defendants ExchangeBase, LLC (“ExchangeBase”), Brian Donahue, Peter Kowalski, and Thomas Sheridan (the “Individual Defendants”) (ExchangeBase and the Individual Defendants are collectively referred to as “Defendants”) submit the following Memorandum in Support of their Motion to Dismiss pursuant to Fed. R. Civ. P. 12(b)(2) and/or pursuant to Fed. R. Civ. P. 12(b)(6). I. SUMMARY OF ARGUMENT Plaintiff Sullivan Corp. (“Sullivan”) has filed a nine (9) count, 225 paragraph complaint over what amounts to a commercial breach of contract action. Rather than pursue the lone cause of action - breach of contract - that truly underlies this dispute, Sullivan interjects allegations from unrelated business disputes to which ExchangeBase is (or has been) a party in an attempt to convert this action into one containing claims for violation of the Racketeer Influenced and Corrupt Organizations Act (“RICO”), fraud, and negligent misrepresentation, among others. Because Sullivan is asserting these very serious claims against a small business such as ExchangeBase and its individual members/employees, its allegations merit close scrutiny. Case 2:16-cv-05080-ER Document 5-2 Filed 09/29/16 Page 1 of 33 2 First, Sullivan has filed its action in the wrong forum, as Pennsylvania lacks jurisdiction over the Defendants. Further, Sullivan’s efforts are misguided, as its tort and tort-related claims fail as a matter of law for a multitude of reasons. Sullivan’s RICO claim (Count I) fails because the complaint does not adequately allege facts to support multiple elements of the RICO cause of action. Sullivan’s fraud (Counts II and III) and negligent misrepresentation (Count VI) claims are precluded by the very same contractual relationship upon which Count IV of its complaint is based. Further, Sullivan’s fraud and negligent misrepresentation claims are precluded by the economic loss doctrine and a lack of justifiable reliance on Sullivan’s part. Sullivan’s negligent misrepresentation claim fails for additional reasons. Finally, many of Sullivan’s remaining claims, such as its alter ego “claim,” (Count VII), its claim for an accounting (Count VIII), and its request for injunctive relief (Count IX) fail for reasons related to the failure of its tort claims. Accordingly, Defendants request an Order from this Court dismissing this action pursuant to Fed. R. Civ. P. 12(b)(2) based upon a lack of personal jurisdiction over them. Alternatively, Defendants request the dismissal of Counts I, II, III, VI, VII, VIII, and IX with prejudice pursuant to Fed. R. Civ. P.12(b)(6) for failure to state a claim upon relief can be granted. II. STATEMENT OF SULLIVAN’S ALLEGATIONS The following is a statement of the allegations contained in Sullivan’s complaint that relate to the legal arguments set forth below. While Sullivan’s allegations must be taken as true for purposes of this Motion, many of these allegations will be disproved by Defendants should Sullivan’s complaint survive this Motion. Sullivan alleges that it is a Pennsylvania corporation whose business includes the “purchase of overstock metallic pipe in large scale industrial projects” that Sullivan then resells to its clients. (Compl. at ¶¶ 1, 9). In May 2016, Sullivan claims it was contacted by Mr. Case 2:16-cv-05080-ER Document 5-2 Filed 09/29/16 Page 2 of 33 3 Sheridan, of ExchangeBase, who presented the opportunity for Sullivan to purchase a quantity of surplus tubing and casing. (Compl. at ¶14). Sullivan then conducted its own due diligence of the materials at each of the locations, and only after conducting this due diligence, advised Sheridan that it was interested in purchasing the materials. (Compl. at ¶16). Sullivan alleges that Sheridan stated that ExchangeBase had the right to sell this material to Sullivan, and that Sheridan and Donahue, also of ExchangeBase, provided Sullivan’s agent with specific inventory, lot numbers, and locations for the material. (Compl. at ¶¶18-20). Sullivan then claims that it made arrangements with its own buyer, and that Sullivan and its buyer conducted a second site inspection of the material. (Compl. at ¶¶ 22-23). Following this inspection, Sullivan entered into an agreement with its Buyer. While Sullivan claims ignorance of the material’s original owner, Sullivan’s buyer knew the material it was purchasing was owned by Chevron, not ExchangeBase. (Compl. at ¶¶ 25, 39). Sullivan alleges that, on May 16, 2016, after conducting two rounds of due diligence, it entered into two separate contracts with ExchangeBase for the purchase of this material. (Compl. at ¶ 26 and Exhibits B and C thereto). Notably, Section 8 of both agreements states, in relevant part: Neither Seller nor Buyer shall be liable for its failure to perform hereunder due to any contingency beyond its reasonable control, including acts of God, fires, floods, wars, sabotage, accidents, labor disputes or shortages, governmental laws, ordinances, rules and regulations, whether valid or invalid (including, but not limited to, priorities, requisitions, allocations, and price adjustment restrictions), inability to obtain material, equipment or transportation, and any other similar or different contingency. (Compl. at Exs. B and C at Section 8 thereof) (emphasis added). Thus, the agreements upon which Sullivan bases its case acknowledge that ExchangeBase may not be able to deliver the Case 2:16-cv-05080-ER Document 5-2 Filed 09/29/16 Page 3 of 33 4 material, directly contradicting the alleged representation that ExchangeBase currently had the ability to deliver the material to Sullivan. Sullivan alleges that it wired $257,000 in purchase money to ExchangeBase, but did not receive the releases from ExchangeBase that it needed in order to obtain the material. (Compl. at ¶33). Importantly, the only pre-contractual and pre-wire transfer “representations” alleged by Sullivan consist of representations that ExchangeBase was ready, willing and able to provide the material being purchased by Sullivan (which is contradicted by the written contract), the provision of an inventory list, and the provision of a sales agreement. (Compl. at ¶ 28). There are only vague allegations of representations made by Donahue and Sheridan, and no allegations whatsoever that Mr. Kowalski, the remaining ExchangeBase employee named as a defendant, made any pre-contractual representations to Sullivan or its agents. Because these bare-bones allegations hardly amount to a fraud, and could not conceivably support the RICO claim Sullivan wishes to pursue, Sullivan’s complaint then devolves into a series of spurious allegations relating to: (a) post-transactional communications between representatives of ExchangeBase and Sullivan (Compl. at ¶¶ 34-57, 63-71); (b) other third-party allegations made against ExchangeBase in completely-unrelated civil litigation (Compl. at ¶¶ 81-98); and (c) a procedural history of the litigation between the parties (Compl. at ¶¶ 72-80, 99-113). All of these allegations are extraneous to the actual claims at issue that amount to little more than trumped-up accusations intended to distract from Sullivan’s lack of factual support for most of the claims asserted in its complaint. Accordingly, because the relevant factual allegations do not establish a claim for relief, this Court should dismiss each of Sullivan’s tort and tort-related claims. Case 2:16-cv-05080-ER Document 5-2 Filed 09/29/16 Page 4 of 33 5 III. LEGAL ARGUMENT A. Defendants are not subject to jurisdiction in Pennsylvania. It is undisputed that none of the Defendants are residents of Pennsylvania. (Compl. at ¶¶2-5). In its complaint, Sullivan alleges that jurisdiction is proper in this state based upon 42 Pa. C.S. § 5301, but does not allege any particular aspect of that law that confers jurisdiction over the Defendants. (Compl. at ¶7). “[O]nce the defendant raises the question of personal jurisdiction, the plaintiff bears the burden to prove, by a preponderance of the evidence, facts sufficient to establish personal jurisdiction.” Carteret Sav. Bank, FA v. Shushan, 954 F.2d 141, 146 (3d Cir. 1992). The allegations in Sullivan’s complaint implicate only specific personal jurisdiction over Defendants, as the allegations relate to only a single transaction. In addition to the deficient allegations in the complaint, the declarations of Brian Donahue, Peter Kowalski, and Thomas Sheridan are attached as Exhibit A and incorporated herein. This evidence demonstrates that Defendants lack minimum contacts with Pennsylvania sufficient to subject them to jurisdiction in this state. Furthermore, because the exercise of jurisdiction over ExchangeBase is alleged to arise solely from the conduct of these three individuals, these declarations also establish that jurisdiction does not exist over ExchangeBase either. For the following reasons, all of Sullivan’s claims in its complaint should be dismissed for lack of personal jurisdiction over Defendants. 1. The Court lacks personal jurisdiction over ExchangeBase in relation to Sullivan’s breach of contract claim. Sullivan has alleged its breach of contract claim against only ExchangeBase. “In determining jurisdiction over a breach of contract claim, we must consider the totality of the circumstances, including the location and character of the contract negotiations, the terms of the Case 2:16-cv-05080-ER Document 5-2 Filed 09/29/16 Page 5 of 33 6 contract, and the parties’ actual course of dealing.” Remick v. Manfredy, 238 F.3d 248, 256 (3d Cir. 2001). Sullivan’s complaint alleges essentially only that ExchangeBase communicated to Sullivan from Ohio regarding the availability of certain industrial pipe; ExchangeBase and Sullivan communicated telephonically and in writing regarding that opportunity; ExchangeBase and Sullivan entered into two contracts related to the industrial pipe; and ExchangeBase and Sullivan communicated telephonically and in writing regarding performance of those contracts. (See generally Compl.). The industrial pipe was located in Louisiana, not Pennsylvania. (Compl. at ¶ 21; see also Compl. at Exs. B and C, Invoice Nos. 20059 and 20060). Sullivan does not allege that ExchangeBase or any of its representatives ever physically visited Pennsylvania. (Id.). Sullivan’s wire transfer of funds was directed to ExchangeBase’s bank account in Ohio, not Pennsylvania. (See Compl. at ¶¶ 26-28 and Exs. B and C, Invoice Nos. 20059 and 20060). The contracts that Sullivan agreed to contain choice of law clauses that require the application of Ohio law to the validity, interpretation, and performance of those contracts. (Compl. at Exs. B and C, Terms and Conditions § 17). The allegations of the Complaint do not support the exercise of personal jurisdiction over ExchangeBase in Pennsylvania. It is well settled that “a nonresident’s contracting with a forum resident, without more, is insufficient to establish the requisite ‘minimum contacts’ required for an exercise of personal jurisdiction over the nonresident.” Sunbelt Corp. v. Noble, Denton & Assocs., 5 F.3d 28, 32 (3d Cir. 1993). In addition, “informational communications in furtherance of that contract do not establish the purposeful activity necessary for a valid assertion of personal jurisdiction.” Id. Sullivan’s activities in Pennsylvania are irrelevant for purposes of determining whether there is personal jurisdiction over ExchangeBase. See Roetenberg v. King & Everhard, Case 2:16-cv-05080-ER Document 5-2 Filed 09/29/16 Page 6 of 33 7 P.C., No. 00-1452, 2000 U.S. Dist. LEXIS 16430, at *19 (E.D. Pa. Nov. 6, 2000). Finally, the fact that the parties agreed that Ohio law would apply to the contracts supports the conclusion that ExchangeBase did not purposely avail itself of the privileges and protections of doing business in Pennsylvania. See Burger King Corp. v. Rudzewicz, 471 U.S. 462, 481-82 (1985). Because Sullivan has essentially alleged only that ExchangeBase entered into a contract with Sullivan and participated in informational communications related to the contract without ever actually physically visiting Pennsylvania, Sullivan fails to establish that there is personal jurisdiction over ExchangeBase with respect to Sullivan’s breach of contract claim. Therefore, Sullivan’s claim for breach of contract against ExchangeBase should be dismissed for lack of personal jurisdiction. 2. The Court lacks personal jurisdiction over Defendants in relation to Sullivan’s negligent misrepresentation claim. Sullivan alleges that Defendants negligently misrepresented material information to Sullivan through verbal and written communications. (See generally Compl.). Defendants’ alleged communications, however, were made from Ohio, and they are insufficient to establish personal jurisdiction over Defendants in Pennsylvania. See Archway Ins. Servs., LLC v. Harris, No. 10-5867, 2011 WL 2415168, at *7 (E.D. Pa. June 15, 2011) (citing Bolus v. Morrison Homes, Inc., No. 07-1978, 2008 WL 4452658, at *4 (M.D. Pa. Sept.30, 2008)) (“[M]isrepresentations occurring over the phone occur in forum in which they are made, not where plaintiff hears them.”); Poole v. Sasson, 122 F. Supp. 2d 556, 559 (E.D. Pa. 2000) (“[T]elephone calls and letters to the forum, even if transmitting negligent advice, do not suffice to confer jurisdiction over [a] Defendant.”). Accordingly, Sullivan’s negligent misrepresentation claim should be dismissed for lack of personal jurisdiction. Case 2:16-cv-05080-ER Document 5-2 Filed 09/29/16 Page 7 of 33 8 3. The Court lacks personal jurisdiction over Defendants in relation to Sullivan’s intentional tort claims for fraud and fraudulent inducement. Sullivan alleges two intentional tort claims against all Defendants: fraud and fraudulent inducement. These claims should be dismissed for lack of personal jurisdiction. “To establish specific jurisdiction over an intentional tort claim, courts apply the ‘effects test.’” Mendelsohn, Drucker & Assocs. v. Titan Atlas Mfg., Inc., 885 F. Supp. 2d 767, 775 (E.D. Pa. 2012) (citing IMO Indus., Inc. v. Kiekert AG, 155 F.3d 254, 265-66 (3d Cir. 1998)). “The effects test requires that: ‘(1) [t]he defendant committed an intentional tort; (2) [t]he Plaintiff felt the brunt of the harm in the forum such that the forum can be said to be the focal point of the harm suffered . . . ; [and] (3) [t]he defendant expressly aimed his tortious conduct at the forum.’” Id. (quoting IMO Indus., 155 F.3d at 265-66). If the third prong is not met, the test cannot be met and there will not be personal jurisdiction. Marten v. Godwin, 499 F.3d 290, 297 (3d Cir. 2007); Wolstenholme v. Bartels, 511 Fed. Appx. 215, 219 (3d Cir. 2013). “To satisfy the third prong of the test, the plaintiff must ‘point to contacts which demonstrate that the defendant expressly aimed its tortious conduct at the forum, and thereby made the forum the focal point of the tortious activity.’” Mendelsohn, Drucker & Assocs., 885 F. Supp. 2d at 775 (quoting IMO Indus., 155 F.3d at 265). “Even if a defendant’s conduct could cause foreseeable harm in a given state, such conduct does not necessarily give rise to personal jurisdiction in that state.” Marten, 499 F.3d at 297. A defendant expressly aims his conduct at the forum when the defendant somehow benefits from the fact that the plaintiff is in that forum or the defendant receives some protection from that forum’s laws. Wolstenholme, 511 F. App’x at 220. Case 2:16-cv-05080-ER Document 5-2 Filed 09/29/16 Page 8 of 33 9 There are no allegations in Sullivan’s complaint that indicate that Defendants sought or obtained any benefit from the fact that Sullivan is located in Pennsylvania or that Defendants sought or obtained any protection from the laws of Pennsylvania. On the contrary, the contracts between ExchangeBase and Sullivan-which are the sole basis for Defendants’ communications with Sullivan as alleged in the complaint-expressly provide that Ohio law governs the validity, interpretation, and performance of the contracts. (See Compl. at Exs. B and C, Terms and Conditions § 17). Therefore, Sullivan fails to establish that the third prong of the effects test is satisfied. In addition, the only bases for Sullivan’s intentional tort claims are allegations that Defendants made misrepresentations in their oral and written communications to Sullivan. (See, e.g.,Compl. at ¶¶ 160-162, 164-166, 176, 195). Even assuming that those allegations were true (which Defendants contend they are not), such communications would not have occurred in Pennsylvania but in Ohio where Defendants were located. See Archway Ins. Servs., 2011 WL 2415168 at *7 (citing Bolus, 2008 WL 4452658 at *4) (“[M]isrepresentations occurring over the phone occur in forum in which they are made, not where plaintiff hears them.”). The fact that Defendants did not engage in any allegedly intentional tortious activity in Pennsylvania further supports the conclusion that there is no personal jurisdiction over Defendants in Pennsylvania. Cf. Poole, 122 F. Supp. 2d at 559 (“[T]elephone calls and letters to the forum, even if transmitting negligent advice, do not suffice to confer jurisdiction over [a] Defendant.”). In summary, in addition to the reasons why there is no personal jurisdiction over ExchangeBase in relation to Sullivan’s breach of contract claim, there is no personal jurisdiction over Defendants on Sullivan’s intentional tort claims because the alleged fraudulent conduct occurred in Ohio, not Pennsylvania, and the third prong of the effects test is not satisfied. Case 2:16-cv-05080-ER Document 5-2 Filed 09/29/16 Page 9 of 33 10 Therefore, Sullivan’s claims for fraud and fraudulent inducement should be dismissed for lack of personal jurisdiction. 4. The Court lacks personal jurisdiction over Defendants in relation to Sullivan’s remaining claims-unjust enrichment, RICO, alter ego, action for accounting, and injunctive relief. Sullivan alleges its unjust enrichment / quantum meruit claim against only ExchangeBase; and asserts its RICO, Alter Ego, Action for Accounting, and Injunctive Relief claims against all Defendants. These claims, however, are all based on the same operative facts surrounding Sullivan’s breach of contract and tort claims. Because “the operative facts surrounding the parties’ business contacts and relationship are the same regardless whether the legal cause of action being asserted is based on a contract or not . . . the analysis and conclusion would remain the same.” Randall v. Davin, No. 13-703, 2013 WL 6191344, at *6 (W.D. Pa. Nov. 26, 2013). Therefore, because there is no personal jurisdiction over Defendants with respect to Sullivan’s breach of contract claim and tort claims, there is no personal jurisdiction over ExchangeBase with respect to Sullivan’s unjust enrichment / quantum meruit claim and no personal jurisdiction over Defendants with respect to Sullivan’s RICO, alter ego, action for accounting, and injunctive relief claims. Therefore, these claims should be dismissed for lack of personal jurisdiction. Accordingly, based upon the foregoing, each of the defendants requests a dismissal of all claims asserted against them in the complaint pursuant to Fed. R. Civ. P. 12(b)(2) for lack of personal jurisdiction over them. B. Sullivan’s complaint fails to satisfy Fed. R. Civ. P. 12(b)(6) or 9(b). Even if jurisdiction is found to be proper, each of Sullivan’s tort and tort-related claims fail to state a claim upon which relief can be granted. To survive a motion to dismiss made under Fed. R. Civ. P. 12(b)(6), “factual allegations must be enough to raise the right to relief Case 2:16-cv-05080-ER Document 5-2 Filed 09/29/16 Page 10 of 33 11 above the speculative level.” Hassell v. Budd Co., No. 2:09-cv-90863-ER, 2014 WL 3955061, at *1 n.1 (E.D. Pa. Feb. 27, 2014) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007)). Accordingly, complaints must set forth “sufficient factual matter … to ‘state a claim to relief that is plausible on its face.’” Shamir v. Agilent Technologies, Inc., No. 08-76816, 2010 WL 1425536, at *2 (E.D. Pa. Apr. 5, 2010) (quoting Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009)). Moreover, although the Court must accept as true all well-pled allegations of the complaint, it is under no duty to “credit bald assertions” that are not supported by the record or accept as true legal conclusions couched as factual allegations. See Shamir, 2010 WL 1425536 at *2; see also Richelson v. Yost, 738 F. Supp. 2d 589, 596 (E.D. Pa. 2010) (citing Papasan v. Allain, 478 U.S. 265, 286 (1986)). Generally, Rule 8(a) only requires the pleading set forth a ‘short and plain statement” of the claims showing why the pleader is entitled to relief. FRCP 8(a). For claims of fraud, however, Rule 9 sets forth a significantly higher pleading standard which requires the party to “state with particularity the circumstances constituting fraud or mistake.” FRCP 9(b). These claims must be pled with “sufficient particularity to place the defendant on notice of the precise misconduct with which it is charged.” Gill v. Ford Motor Co., No. 13-7254, 2014 WL 2805250, at *4 n.2 (E.D. Pa. June 20, 2014) (quoting Frederico v. Home Depot, 507 F.3d 188, 200 (3d Cir. 2007)). To satisfy this standard, the plaintiff must not only plead or allege the date, time, and place of the alleged fraudulent conduct but must also identify the specific individual engaging therein. See Frederico, 507 F.3d at 200; see also Kee v. Zimmer, Inc., 871 F. Supp. 2d 405, 413 (E.D. Pa. 2012). Here, Sullivan has failed to satisfy either standard. As set forth more fully below, Sullivan has failed to set forth a plausible claim upon which relief may be granted in regards to Case 2:16-cv-05080-ER Document 5-2 Filed 09/29/16 Page 11 of 33 12 Count I (RICO), Count II (Fraud), Count III (Fraudulent Inducement), Count VI (Negligent Misrepresentation), Count VII (Alter Ego/Piercing the Corporate Veil), Count VIII (Action for Accounting), and Count IX (Action for Injunctive Relief) and, where applicable, has also failed to plead its claims with sufficient particularity. Accordingly, Counts I, II, III, VI, VII, VIII and IX should be dismissed. C. Sullivan’s RICO claim (Count I) fails as a matter of law. Sullivan’s cause of action for violation of RICO is fatally deficient in multiple respects and should be dismissed. Sullivan alleges that Defendants violated § 1962(c) and (d). To show a violation of § 1962(c), Sullivan must demonstrate “(1) conduct (2) of an enterprise (3) through a pattern (4) of racketeering activity.” Sedima, S.P.R.L. v. Imrex Co., Inc., 473 U.S. 479, 496 (1985); In re Ins. Brokerage Antitrust Litig., 618 F.3d 300, 362 (3d Cir. 2010). A violation of § 1962(d) requires a showing that Defendants conspired to violate § 1962(a)-(c). 18 U.S.C. § 1962(d). As argued below, Sullivan’s complaint fails to adequately allege facts to support multiple elements of a § 1962(c) violation. Furthermore, since Sullivan fails to adequately allege a violation of § 1962(c), Sullivan’s claim for violation of § 1962(d) likewise fails. Accordingly, Sullivan’s RICO cause of action should be dismissed. 1. Sullivan fails to adequately allege predicate acts of mail fraud or wire fraud. Sullivan’s RICO claim fails, at the most basic level, because the complaint does not allege any instances of the type of “racketeering activity” which RICO is intended to address. Rather, as set forth in greater detail below, Sullivan is attempting to recast garden-variety breach of contract claims into fraud claims and then attempting to bootstrap a RICO claim onto the back of those invalid fraud claims. Sullivan’s RICO claim should be dismissed because, as the Third Circuit has previously recognized, the Court should not “read language into [the RICO statute] to Case 2:16-cv-05080-ER Document 5-2 Filed 09/29/16 Page 12 of 33 13 federalize every state tort, contract, and criminal law action.” Sunlight Elec. Contracting Co., Inc. v. Turchi, 918 F. Supp. 2d 392, 404-05 (E.D. Pa. 2013), citing Annulli v. Panikkar, 200 F.3d 189, 200 (3d Cir. 1999); see also Kolar v. Preferred Real Estate Invs., Inc., 361 Fed. Appx. 354, 363 (3d Cir. 2010) (“RICO claims premised on mail or wire fraud must be particularly scrutinized because of the relative ease with which a plaintiff may mold a RICO pattern from allegations that, upon closer scrutiny, do not support it.”) (citing cases). As argued in greater detail in Section III.D.1, below, Sullivan’s second and third causes of action for fraud and fraudulent inducement are barred by the gist-of-the-action doctrine which precludes a party from “re-casting ordinary breach of contract claims into torts claims.” eToll, Inc. v. Elias/Savion Advertising, Inc., 811 A.2d 10, 14 (Pa. Super. 2002). In the same manner that Sullivan’s purported fraud claim is invalid and must be recast as a breach of contract claim, Sullivan’s allegations do not support a claim for mail or wire fraud and are instead merely an attempt to embellish a breach of contract claim. 2. Sullivan fails to adequately allege a “pattern” of racketeering activity. In addition to failing to adequately allege predicate acts of mail or wire fraud, Sullivan’s RICO claim should be dismissed because it fails to adequately allege how the alleged acts of mail or wire fraud constitute a “pattern” of racketeering activity. Therefore there can be no violation of § 1962(c), and consequently no violation of § 1962(d). The Supreme Court has held that establishing a “pattern” of racketeering activity requires more than merely reciting multiple instances of alleged racketeering activity: rather, the plaintiff must show a “relationship” between “continuing” instances of alleged racketeering activity. See H.J. Inc. v. Nw. Bell Tel. Co., 492 U.S. 229, 239 (1989). The “continuity” requirement may be met by showing “closed-ended” continuity, “a series of related predicates extending over a Case 2:16-cv-05080-ER Document 5-2 Filed 09/29/16 Page 13 of 33 14 substantial period of time,” or “open-ended” continuity, where the predicate acts “involve a distinct threat of long-term racketeering activity” or “are part of an ongoing entity’s regular way of doing business.” Id. at 242 (emphasis added). Furthermore, RICO claims alleging mail or wire fraud must be pled with heightened particularity pursuant to Fed. R. Civ. P. 9(b). See, e.g., Hlista v. Safeguard Props., LLC, --- Fed. Appx. ---, 2016 WL 2587986, *3 (3d Cir. May 5, 2016). Here, Sullivan claims that “ExchangeBase has perpetuated a massive ‘ponzi scheme’” which consisted of “tak[ing] the money received from bogus transactions to pay existing debt obligations … with the Individual Defendants pocketing large portions of the cash[.]” (Compl. ¶¶ 125-26.) However, Sullivan concedes that these allegations are based only on information and belief. (Id. at ¶ 125.) Sullivan does not cite any factual basis to support the “ponzi scheme” allegations, thereby failing to satisfy the heightened pleading standards applicable to RICO claims. See, e.g., Hollander v. Etymotic Research, Inc., 726 F. Supp. 2d 543, 556 (E.D. Pa. 2010) (“Rule 9(b) permits allegations based on ‘information and belief’ … only if the pleading sets forth sufficient facts upon which the belief is reasonably based.”); Tatung Co., Ltd. v. Hsu, No. SA CV 13-1743, 2015 WL 11072178, *32 (C.D. Cal. Apr. 23, 2015) (noting that RICO allegations in previous complaint “did not satisfy the Rule 9(b)’s heightened pleading standards because they … failed to allege the factual basis for allegations made on ‘information and belief’”). Sullivan’s allegations regarding the transaction between ExchangeBase and Sullivan are not sufficient, on their own, to demonstrate a pattern of racketeering activity. Alleging that Sheridan and Donahue communicated with Sullivan a few times over the course of two weeks during the parties’ transaction, thereby engaging in a RICO “pattern of racketeering activity,” is Case 2:16-cv-05080-ER Document 5-2 Filed 09/29/16 Page 14 of 33 15 exactly the type of over-zealous RICO pleading that courts have criticized. See, e.g., Kolar, 361 Fed. Appx. at 363 (“RICO claims premised on mail or wire fraud must be particularly scrutinized because of the relative ease with which a plaintiff may mold a RICO pattern from allegations that, upon closer scrutiny, do not support it.”). Repeated communications in the course of a single transaction are also not sufficient to demonstrate a threat of continued or continuing illegal activity, as required to demonstrate a pattern of racketeering activity. See H.J. Inc., 492 U.S. at 239 (noting requirement for continuing activity); Kolar at 365 (holding that even if the complaint sufficiently alleged fraudulent activity regarding a single transaction, “that single, finite transaction cannot by itself underpin a pattern of racketeering activity”) (citing cases); Crawford v. Franklin Credit Mgmt. Corp., 758 F.3d 473, 488-89 (2d Cir. 2014) (holding that multiple acts of fraud “in furtherance of a single episode of fraud involving one victim and relating to one basic transaction cannot constitute the necessary pattern” of racketeering activity needed for RICO claim) (citing cases). The alleged communications by Sheridan and Donahue also do not demonstrate closed-ended or open-ended continuity. See H.J. Inc. at 242 (“Predicate acts extending over a few weeks or months and threatening no future criminal conduct do not satisfy this [continuity] requirement: Congress was concerned in RICO with long-term criminal conduct.”). Sullivan’s attempt to establish a “pattern” of racketeering activity by reciting unsubstantiated allegations from other lawsuits also fails to save Sullivan’s RICO claim. These allegations do not provide any factual basis to support Sullivan’s claim of a “ponzi scheme” pattern of racketeering activity. For instance, none of the allegations claim that Defendants took money received from one customer and used it to pay debts owed to another customer. (See Compl. ¶ 129(a)-(g).). The allegations in paragraph 129(g), regarding mail and wire fraud Case 2:16-cv-05080-ER Document 5-2 Filed 09/29/16 Page 15 of 33 16 allegedly perpetrated against Clayton Williams, also fail to plead sufficient facts to overcome the heightened pleading standard applicable to RICO claims because they do not “allege the date, time and place of the alleged fraud or otherwise inject precision or some measure of substantiation[.]” Hlista at *3. Because Sullivan’s complaint fails to allege sufficient facts to show a “pattern of racketeering activity,” Sullivan fails to state a claim for violation of § 1962(c) and consequently a violation of § 1962(d). 3. ExchangeBase and the Individual Defendants cannot comprise an “association-in-fact” enterprise. Sullivan’s RICO claims should be dismissed in part because Sullivan’s argument that ExchangeBase and the Individual Defendants comprise an “association-in-fact” enterprise is incorrect as a matter of law. Among the requirements to establish a violation of § 1962(c) are that the plaintiff must demonstrate the existence of a “person employed by or associated with any enterprise engaged in, or the activities of which affect, interstate or foreign commerce[.]” 18 U.S.C. § 1962(c) (emphasis added). The RICO statute defines an “enterprise” as “any individual, partnership, corporation, association, or other legal entity, and any union or group of individuals associated in fact although not a legal entity.” 18 U.S.C. § 1961(4). The “enterprise” is “the instrumentality through which the person performs the predicate acts.” Curtin v. Tilley Fire Equip. Co., No. Civ.A. 99-2373, 1999 WL 1211502, *3 (E.D. Pa. Dec. 14, 1999) (citing Baglio v. Baska, 940 F.Supp. 819, 832 (W.D. Pa. 1996)). The “person(s)” and the “enterprise” must be distinct; the “enterprise” cannot be “simply the same ‘person’ referred to by a different name.” Coletta v. Ocwen Fin. Corp., No. 14-CV-6745, 2015 WL 5584663, *2 (E.D. Pa. Sept. 21, 2015) (citing Cedric Kushner Promotions, Ltd. v. King, 533 U.S. 158, 162 (2001)). Case 2:16-cv-05080-ER Document 5-2 Filed 09/29/16 Page 16 of 33 17 Sullivan’s complaint alleges that ExchangeBase and the Individual Defendants constitute an “association-in-fact” enterprise under § 1961(4). (Compl. ¶ 133.) Sullivan’s claims are incorrect as a matter of law because “an association-in-fact enterprise must consist of more than a combination of a corporation and its officers, employees, agents or affiliates.” Curtin, 1999 WL 1211502 at *3 (citing Creative Dimensions in Management, Inc. v. Thomas Group, Inc., No. Civ.A. 96-6318, 1997 WL 633684, *3 (E.D. Pa. Sept. 30, 1997)). Therefore ExchangeBase and the Individual Defendants cannot comprise an association-in-fact enterprise under RICO as a matter of law. Furthermore, Sullivan’s alleged association-in-fact enterprise, which it terms the “Association,” is a figment of Sullivan’s imagination--not an “instrumentality through which” the alleged predicate acts were performed by Defendants. Because Sullivan’s complaint fails to adequately allege the existence of an association-in- fact enterprise, Sullivan’s RICO claims should be dismissed. In the alternative, Sullivan’s RICO claims should be limited to the argument that ExchangeBase itself is the RICO “enterprise,” not the fictitious “Association.” 4. Sullivan’s § 1962(d) claim fails because the complaint does not adequately allege violations of § 1962(c). Sullivan’s § 1962(d) claim should be dismissed because Sullivan’s complaint fails to adequately allege a RICO violation by Defendants, and therefore Defendants could not have conspired to commit a RICO violation. § 1962(d) makes it illegal to “conspire to violate any of the provisions of” § 1962(a)-(c). As argued above, Sullivan’s complaint fails to adequately allege a violation of § 1962(c). Defendants could not have “conspired” to commit a RICO violation, as required by § 1962(d), because there was no RICO violation in the first instance. See, e.g., Lightning Lube, Inc. v. Witco Corp., 4 F.3d 1153, 1191 (3d Cir. 1993) (“Any claim Case 2:16-cv-05080-ER Document 5-2 Filed 09/29/16 Page 17 of 33 18 under section 1962(d) based on a conspiracy to violate the other subsections of section 1962 necessarily must fail if the substantive claims are themselves deficient.”). Sullivan’s § 1962(d) claim also fails because the intracorporate conspiracy doctrine precludes any argument that ExchangeBase could have conspired with the Individual Defendants. According to the intracorporate conspiracy doctrine, “employees of a corporation, while acting in the course and scope of their employment, cannot conspire with each other.” Pioneer Contracting, Inc. v. E. Exterior Wall Sys., Inc., No. Civ.A. 04CV01437, 2005 WL 747221, *8 (E.D. Pa. Mar. 29, 2005) (citing United Natl. Ins. Co. v. Equip. Ins. Managers, Nos. Civ.A. 95-0116, 95-2892, 1995 WL 631709, *6 (E.D. Pa. Oct. 27, 1995)). The intracorporate conspiracy doctrine applies to § 1962(d) cases alleging a “vertical” conspiracy between a corporate entity and its own employees, such as that alleged by Sullivan between ExchangeBase and the Individual Defendants. See Pioneer Contracting, 2005 WL 747221 at *8-9; Equip. Ins. Managers, 1995 WL 631709 *5-6; Greenberg v. Tomlin, 816 F. Supp. 1039, 1050 (E.D. Pa. 1993); cf. State Farm Mut. Auto. Ins. Co. v. Lincow, 715 F. Supp.2d 617, 640 (E.D. Pa. 2010) (distinguishing “vertical” conspiracies, to which intracorporate conspiracy doctrine applies, from conspiracies “between several distinct corporate entities and their employees,” to which intracorporate conspiracy doctrine does not apply) (Robreno, J.). Accordingly, the Individual Defendants could not have conspired with ExchangeBase because their actions in furtherance of the transaction with Sullivan were undertaken within the course and scope of their employment with ExchangeBase. Sullivan’s § 1962(d) claim should therefore be dismissed. Case 2:16-cv-05080-ER Document 5-2 Filed 09/29/16 Page 18 of 33 19 D. Sullivan’s fraud (Counts II and III) and negligent misrepresentation (Count VI) claims fail as a matter of law for multiple reasons. 1. Sullivan’s fraud and negligent misrepresentation claims are barred by the Sales Agreement. Sullivan’s claims for fraud, fraudulent inducement, and negligent misrepresentation must be dismissed because those claims arise solely out of duties allegedly created by the parties’ contractual relationship, thereby precluding recovery for such conduct in tort. Both Pennsylvania and Ohio law are clear: the existence of a contract precludes the assertion of a tort claim based on an alleged breach of that agreement. See, e.g., Horizon Unlimited, Inc. v. Silva, No. 97-7430, 1998 WL 88391, at *5 (E.D. Pa. Feb. 26, 1998) (“[W]hen the tort involves actions arising from a contractual relationship, the plaintiff is limited to an action under the contract.”); eToll, Inc., 811 A.2d at 14-21 (Pa. Super. 2002) (applying the “gist of the action doctrine” to preclude tort claims arising out of a breach of duties created by contract); Infocision Mgmt. Corp. v. Found. For Moral Law, Inc., No. 5:08CV1342, 2009 WL 2244166, at *4 (N.D. Ohio July 27, 2009) (“[T]he existence of a contract action generally excludes the opportunity to present the same case as a tort claim.”); Kott v. Gleneagles Professional Builders & Remodelers, Inc., 968 N.E.2d 593, 596 (Ohio Ct. App. 2012).1 In other words, a breach of contract cannot give rise to claims sounding in tort simply because the plaintiff alleges the defendant acted intentionally, willfully or fraudulently. Redevelopment Auth. of Cambria County v. International Ins. Co., 685 A.2d 581, 590 (Pa. Super. 1996) (“[A] contract action may not be converted into a tort action simply by alleging that the conduct in question was done wantonly.”); see also Infocision Mgmt. Corp., 2009 WL 2244166 at *4 (“If the gravamen of the complaint is for breach of contract, the cause of action will not be 1 Defendants’ Motion cites and applies both Pennsylvania and Ohio law in requesting dismissal of Sullivan’s claims. While the contracts attached to Sullivan’s complaint include an Ohio choice-of-law clause, Defendants will not burden the Court with a choice-of-law analysis, as the outcome would be the same under either state’s law. Case 2:16-cv-05080-ER Document 5-2 Filed 09/29/16 Page 19 of 33 20 transformed into one sounding in tort by the charge of tortious conduct or the addition of the adverbs ‘intentionally,’ ‘willfully,’ and ‘fraudulently.’”). Rather, in order to assert simultaneous claims for contract and tort, Sullivan must demonstrate Defendants’ breach of a duty that was owed to Sullivan separately from those created by the contract-i.e., “a duty owed [to Sullivan] even if no contract resulted.” 425 Beecher, L.L.C. v. Unizan Bank, NA, 927 N.E.2d 46, 58 (Ohio Ct. App. 2010) (quoting Textron Fin. Corp. v. Nationwide Mut. Ins. Co., 684 N.E.2d 1261, 1270 (Ohio Ct. App. 1996)); see also Caudill Seed and Warehouse Co., Inc. v. Prophet 21, Inc., 123 F. Supp. 2d 826, 833 (E.D. Pa. 2000) (recognizing that a claim is only tort-based under Pennsylvania’s “gist of the action” doctrine if it arises out of duties imposed upon by the parties by law rather than by contract).2 In the context of claims for fraud and negligent misrepresentation, a separate tort duty arises only if the misrepresentation and contract were collateral to each other-i.e., related to matters outside and distinct from each other. See, e.g., Thornton v. Cangialosi, No. 2:09-CV-585, 2010 WL 2162905, at *2 (S.D. Ohio May 26, 2010) (fraudulent inducement claim could only be maintained simultaneous with tort claim where the misrepresentations were “collateral” to the contract-i.e., where they related to “facts outside the contract”) (citing ABM Farms, Inc. v. Woods, 692 N.E.2d 574, 578 (Ohio 1998)); Caudill Seed and Warehouse Co., Inc., 123 F. Supp. 2d at 833 (“A tort claim is maintainable only if the contract is ‘collateral’ to conduct that is primarily tortious.”). Misrepresentations regarding a party’s ability, intent, or willingness to perform its contractual obligations relate directly to the subject of a contract and, therefore, are insufficient to establish a separate duty in tort. See, e.g., Thornton, 2010 WL 2162905 at *3-4 2 As explained more fully in Reardon v. Allegheny College, the “gist of the action doctrine acts to foreclose tort claims: 1) arising solely from the contractual relationship between the parties; 2) when the alleged duties breached were grounded in the contract itself; 3) where any liability stems from the contract; and 4) when the tort claim essentially duplicates the breach of contract claim or where the success of the tort claim is dependent on the success of the breach of contract claim.” 926 A.2d 477, 486 (Pa. Super. 2007). Case 2:16-cv-05080-ER Document 5-2 Filed 09/29/16 Page 20 of 33 21 (defendant’s representations regarding intent and ability to perform contractual obligations were insufficient to sustain fraudulent inducement claim even if defendant “had no intention of keeping the promises as the time he made them”); Caudill Seed and Warehouse Co., Inc., 123 F. Supp. 2d at 833-34 (fraud claim based upon misrepresentations that “the [product] would work and that [defendant] would fulfill its end of the bargain under the agreement” were claims “created and grounded” in the parties’ agreement and thus insufficient to support claim for fraud). Here, Sullivan’s allegations of fraud and misrepresentation relate solely to alleged statements from the Defendants regarding ExchangeBase’s authority to sell and provide the contracted-for pipe to Sullivan. (Compl. at ¶¶ 160-162, 169-170, 190-192). These statements, therefore, were not collateral to the parties’ agreement, nor was the contract itself collateral to this conduct. Rather, these statements are the specific promises upon which the parties’ contractual relationship is allegedly premised. (See Compl. at ¶¶ 23, 26). See also Yocca v. Pittsburgh Steelers Sports, Inc., 806 A.2d 936, 944-45 (Pa. Super. 2002), reversed on other grounds, 854 A.2d 425 (Pa. 2004) (gist of the action doctrine mandated dismissal of fraud and negligent misrepresentation claims which were “based on precisely the same conduct that Plaintiffs assert is a breach of the contract…”); Telxon Corp. v. Smart Media of Delaware, Nos. 22098 and 22099, 2005 WL 2292800, at *13 n.10 (Ohio Ct. App. Sept. 21, 2005) (tort claim may not be maintained where the misrepresentations constitute the “promise upon which the purported breach of contract is premised”). Indeed, the allegations giving rise to the two claims are identical. (See generally Compl.). See also Issac v. Ebix, Inc., No. 2:11-cv-00450, 2012 WL 1020296, at *5 (S.D. Ohio Mar. 26, 2012) (dismissing fraudulent inducement claim where allegations were “identical to the allegations made in the breach of contract claims.”). Case 2:16-cv-05080-ER Document 5-2 Filed 09/29/16 Page 21 of 33 22 Accordingly, Sullivan’s tort claims and contract claims are based on allegations that are so “factually [and fundamentally] intertwined that the two cannot be separated” thereby mandating dismissal of the tort claims in favor of the contract claims. See Thornton, 2010 WL 2162905 at *2-3; see also Horizon Unlimited, Inc., 1998 WL 88391 at *5 (dismissing negligent misrepresentation claim that was “fundamentally intertwined” with breach of warranty claim). This Court, therefore, should dismiss these claims. The relationship between Sullivan’s tort and contract claims is further underscored by Sullivan’s failure to set forth any damages-apart from those claimed for the alleged breach of contract-that were caused by Defendants’ alleged misrepresentations. Specifically, Sullivan seeks compensatory damages arising from its contractual payments to ExchangeBase as well as consequential damages arising from Defendants’ alleged failure to perform the contract: WHEREFORE, the Sullivan Corp. respectfully requests that this Court enter judgment in its favor and against Defendants and enter the following relief in favor of Sullivan Corp.: a. Compensatory damages in an amount of $257,040; b. Compensatory and incidental damages for the opportunity lost as a result of Sullivan Corp.’s inability to complete the sale of industrial piping to the Buyer, as well as damages for any reputational harm and/or harm to Sullivan Corp.’s goodwill; (Compl. at p. 40; see also Compl. at ¶¶ 162, 173-174, 183-184, 195). These damages are purely contractual damages; therefore, they are not separately attributable to Defendants’ allegedly tortious misconduct. See, e.g., Med. Billing, Inc. v. Med. Mgmt. Sci., Inc., 212 F.3d 332, 338 (6th Cir. 2000) (“Ohio law goes further by requiring that fraud damages be limited to the injury actually arising from the fraud. The tort injury must be unique and separate from any injury resulting from a breach of contract.”) (emphasis added); eToll, Inc., 811 A.2d at 20-21 (applying gist of the action doctrine to preclude tort claims where the damages sought “are the type of damages which would be compensable in an ordinary Case 2:16-cv-05080-ER Document 5-2 Filed 09/29/16 Page 22 of 33 23 contract action” and would thus “essentially duplicate [the] breach of contract action); Kott, 968 N.E.2d at 596 (“[T]he plaintiff must show damages separate from those attributable to a breach of contract.”) (emphasis added). Accordingly, Sullivan’s failure to set forth tort damages separate from its breach of contract damages underscores the relation between the two claims and is, of its own accord, fatal to Sullivan’s claims sounding in tort. This Court, therefore, should dismiss Sullivan’s claims for fraud, fraudulent inducement, and negligent misrepresentation. 2. Sullivan’s fraud and negligent misrepresentation claims are barred by the economic loss doctrine. Sullivan’s claims for fraud, fraudulent inducement, and negligent misrepresentation must be dismissed because the damages for those claims are purely economic losses that cannot be recovered in tort. Pursuant to the “economic loss rule” a party may not recover its purely economic losses through a tort action. See Palco Linings, Inc. v. Pavex, Inc., 755 F. Supp. 1278, 1280 (M.D. Pa. 1990) (“[A]bsent actual injury to person or property, one may not recover in tort for economic losses…”); 425 Beecher, L.L.C., 927 N.E.2d at 58 (“[T]he economic-loss rule generally prevents recovery in tort of damages for purely economic losses.”). This is especially true where the claimed damages arise only out of an alleged failure to perform duties solely assumed through contract: Tort law is not designed to compensate parties for losses suffered as a result of a breach of duties assumed only by agreement. That type of compensation necessitates an analysis of the damages which were within the contemplation of the parties when framing their agreement. It remains the particular province of the law of contracts. Corporex Dev. & Constr. Mgmt., Inc. v. Shook, Inc., 835 N.E.2d 701, 704 (Ohio 2005); see also Factory Market, Inc. v. Schuller International, Inc., 987 F. Supp. 387, 395 (E.D. Pa. 1997) (“The rationale of the economic loss rule is that tort law is not intended to compensate parties for losses suffered as a result of a breach of duties assumed only by agreement.”). In other words, where Case 2:16-cv-05080-ER Document 5-2 Filed 09/29/16 Page 23 of 33 24 the damages sought are duplicative of contractual damages, the economic loss rule will bar recovery in tort. See Universal Contracting Corp. v. Aug, Nos. C-030719 and A-0103486, 2004 WL 3015325, *6 (Ohio App. 2004) (affirming dismissal of negligent misrepresentation where damages sought were “economic loss[es]” arising out of defendant’s breach of contract). Here, Sullivan seeks to recover in tort its “compensatory” damages comprised of the amounts it paid to ExchangeBase under the Sales Agreement and consequential damages allegedly incurred as a result of ExchangeBase’s failure to deliver the pipe as promised. (See Compl. at p. 40). As is clear from Sullivan’s complaint, these damages arise solely from ExchangeBase’s alleged breach of the duties it assumed in the parties’ agreement. (See Compl. at ¶¶ 183-184). Thus, they are economic losses which “remain[] the particular province of the law of contracts”-not damages arising under or recoverable in tort. See Corporex Dev. & Constr. Mgmt, Inc., 835 N.E.2d at 704; Factory Market, Inc., 987 F. Supp. at 396 (holding “compensation for losses suffered as a result of a breached agreement” requires a damages analysis which is “within the sole purview of contract law.”). Accordingly, the economic loss rule precludes Sullivan’s claims for fraud, fraudulent inducement, and negligent misrepresentation, and this Court, therefore, should dismiss those claims. 3. Sullivan’s fraud and negligent misrepresentation claims fail because the complaint shows a lack of reliance. Sullivan’s claims for fraud, fraudulent inducement, and negligent misrepresentation must be dismissed because even assuming misrepresentations were made, Sullivan could not justifiably rely on those representations. To sustain its tort claims, Sullivan must demonstrate not only that it relied on Defendants’ alleged representations, but that such reliance was “justified” under the circumstances. M&M Realty Co. v. Eberton Terminal Corp., 977 F. Supp. 683, 688 (M.D. Pa. 1997) (“Justifiable reliance is an essential element of a claim for either fraudulent or Case 2:16-cv-05080-ER Document 5-2 Filed 09/29/16 Page 24 of 33 25 negligent misrepresentation.”); Johnson v. Church of the Open Door, 902 N.E.2d 1002, 1007 (Ohio Ct. App. 2008) (recognizing justifiable reliance as an essential element of both fraud and negligent misrepresentation). In determining whether reliance was justifiable, the court must consider several factors, including: “the nature of the transaction, the form and materiality of the representation, the relationship of the parties and their respective means and knowledge, as well as other circumstances.” Thompson v. TransAm Trucking, Inc., No. 2:08-cv-927, 2011 WL 2293281, at *7 (S.D. Ohio June 8, 2011) (citing Farris Disposal Inc. v. Leipply’s Gasthaus, Inc., No. 22569, 2005 WL 3483580 (Ohio Ct. App. Dec. 21, 2005)). However, Pennsylvania and Ohio law also require a party exercise reasonable care and caution in its transactions and preclude a party from relying on misrepresentations when the true facts are equally available to him. See, e.g., Lucas Ford, LLC v. Ford Motor Credit Co., No. 3:09CV451, 2011 WL 1831739, at *4 (N.D. Ohio May 12, 2011) (“An individual has no right to rely on misrepresentations when the true facts are equally open to both parties.”); Forbis v. Reilly, 684 F. Supp. 1317, 1323 (W.D. Pa. 1988) (“While a buyer is not ordinary required to undertake investigation, he may not blindly rely on the representations of the seller but must exercise common diligence and ordinary prudence.”); Farris Disposal, Inc., 2005 WL 3483580 at *4 (“[A] buyer is never entitled to blindly rely upon representations…”). Indeed, under Ohio law, a party must conduct itself with “proper vigilance” which includes an affirmative duty to reasonably investigate the truth of representations before relying thereon. Dito v. Wozniak, No. 04CA008499, 2005 WL 19437, at *4 (Ohio Ct. App. Jan. 5, 2005) (citing Foust v. Valleybrook Realty Co., 446 N.E.2d 1122, 1125 (Ohio Ct. App. 1981)); Farris Disposal, Inc., 2005 WL 3483580 at *4 (“No buyer is absolved of the duty to ‘inquire and inspect’ a proposed transaction in a reasonable fashion.”). Case 2:16-cv-05080-ER Document 5-2 Filed 09/29/16 Page 25 of 33 26 Here, Sullivan’s claim of justifiable reliance is belied by its own admission that it conducted “due diligence” into the transaction-including at least two site inspections of the piping-but ostensibly failed to inquire or confirm the representations Defendants allegedly made regarding ExchangeBase’s authorization to sell the pipe. (See Compl. at ¶¶ 16, 22, 25). Indeed, although Sullivan was aware that Chevron owned the pipe subject to the Sales Agreement (a fact which came to Sullivan’s attention through the investigation of its third-party buyer, not its own) it made no effort to ascertain ExchangeBase’s right or ability to sell the pipe until several weeks after it had already executed and performed its obligations under the Sales Agreement. (See Compl. at ¶ 59-61). At no time prior to the execution of the Sales Agreement, therefore, did Sullivan engage in the reasonable investigation required by law; nor could it have justifiably relied upon Defendants’ alleged representations when the true facts were always available to it. Accordingly, Sullivan’s claims of fraud, fraudulent inducement, and negligent misrepresentation must be dismissed because Sullivan cannot, under these facts, establish justifiable reliance. Furthermore, the express terms of the parties’ contracts clearly demonstrate that Sullivan could not have reasonably relied on ExchangeBase’s “advice and assistance.” Section 11 of the contracts states that ExchangeBase “will furnish to [Sullivan] such advice and assistance as [ExchangeBase] deems necessary in reference to any Article; [Sullivan] agrees, however, that all such assistance is rendered without compensation and [ExchangeBase] assumes no obligation or liability for such advice or assistance given or results obtained.” (Compl. at Exs. B and C at Section 11 thereof) (emphasis added.) Thus, the express terms of the contract demonstrate that Sullivan could not reasonably rely on, and ExchangeBase cannot be liable for, the advice or assistance rendered to Sullivan. Case 2:16-cv-05080-ER Document 5-2 Filed 09/29/16 Page 26 of 33 27 Moreover, the majority of the representations contained in Sullivan’s complaint cannot provide the basis for a fraud or negligent misrepresentation claim as a matter of law because they occurred after the Sales Agreement was executed and partially performed, and thus could not be relied upon by Sullivan. (See Compl. at ¶¶ 25, 31-58, 63-70). Simply put, a representation is actionable only if the party justifiably relies on the representation-i.e., changes its position- and incurs damages as a result of such reliance. Petrucelli v. Bohringer and Ratzinger, 46 F.3d 1298, 1308 (3d Cir. 1995) (“In order to prevail on a claim of misrepresentation, [plaintiff] must prove: (1) justifiable or reasonable reliance; and (2) a causal connection between the representations and the alleged harm.”); Bradley v. Bessick, No. 98CA007182, 2000 WL 372322, at *2 (Ohio Ct. App. Apr. 12, 2000) (“The heart of any claim of fraud is that the injured party changed his position in reliance on the false representation and was injured by his action in reliance on the representation.”); see also Restatement (Second) of Torts § 537 (1977) (“The recipient of a fraudulent misrepresentation can recover against its maker … if, but only if, (a) he relies on the misrepresentation in acting or refraining from action…”). Here, Sullivan admits that it had already executed the Sales Agreement and provided payment to ExchangeBase before these alleged representations were ever made. (Compare Compl. at ¶¶ 26, 28 with Compl. at ¶¶ 31-58, 63-70). In other words, Sullivan had already changed its position and ostensibly incurred its alleged damages. (See Compl. at p. 40; see also Compl. at ¶¶ 162, 173-174, 195). These representations, therefore, did not affect Sullivan’s conduct. Thus, Sullivan cannot demonstrate actual reliance-let alone justifiable reliance-on these representations or any damages proximately resulting from such. Accordingly, these representations cannot form the basis for Sullivan’s claims of fraud, fraudulent inducement, and negligent misrepresentation. Case 2:16-cv-05080-ER Document 5-2 Filed 09/29/16 Page 27 of 33 28 4. As to Donahue, Sheridan, and Kowalski individually, the complaint fails to allege actionable misrepresentations. Sullivan’s fraud and negligent misrepresentation claims against the Individual Defendants also fail because Sullivan’s complaint fails to adequately allege facts supporting the alleged misrepresentations. As argued above, any allegations of fraud must meet the heightened pleading requirements of Fed. R. Civ. P. 9(b). Under this “stringent” standard, the allegations against Sheridan and Donahue do not pass muster: they are vague, non-specific, and do not provide the kind of “precision or … measure of substantiation” necessary. Frederico, 507 F.3d at 200. Furthermore, the complaint fails to allege any pre- or post-contractual misrepresentations made by Kowalski. Accordingly, Sullivan’s fraud and negligent misrepresentation claims against the Individual Defendants should be dismissed. E. Sullivan’s negligent misrepresentation claim (Count VI) fails as a matter of law for additional reasons. In addition to the reasons set forth above, Sullivan’s claim of negligent misrepresentation must also fail because Defendants are not engaged in the business of supplying information for use in other’s business transactions and cannot be liable for negligent omissions of fact. The mere act of supplying information in connection with a business transaction is not sufficient to sustain a claim of negligent misrepresentation. Premier Bus. Group, LLC v. Red Bull of North America, Inc., No. 08-CV-01453, 2009 WL 3242050, at *11 (S.D. Ohio Sept. 30, 2009). Rather, such claims are limited solely to circumstances involving both a defendant who is in the “business of supplying information” and a plaintiff who sought such information from the defendant in connection with his business transaction. Premier Bus. Group, LLC, 2009 WL 3242050 at *10 (citing Nichols v. Ryder Truck Rental, Inc., No. 65376, 1994 WL 285000, at *4 (Ohio Ct. App. June 23, 1994)); see also Church Mutual Ins. Co. v. Alliance Adjustment Group, Case 2:16-cv-05080-ER Document 5-2 Filed 09/29/16 Page 28 of 33 29 102 F. Supp. 3d 719, 725-26 (E.D. Pa. 2015) (to establish negligent misrepresentation, plaintiff must show “that the defendant is in the business of supplying information for the guidance of others…”). In other words, negligent misrepresentation is limited to claims against “professionals who [are] in the business of rendering opinions to others for their use in guiding their business” such as accountants, attorneys, surveyors, abstractors of title, inspectors of goods, and banks dealing with non-depositors’ checks. See Premier Bus. Group, LLC, 2009 WL 3242050 at *11; Nichols, 1994 WL 285000 at *4; see also Elliott-Lewis Corp. v. Skanska USA Building, Inc., No. 14-03865, 2015 WL 4545362, at *6 (E.D. Pa. July 28, 2015) (liability for negligent misrepresentation is limited to those who are “in the business of conveying information for the guidance of others in their business transactions.”). A company which merely sells goods or services cannot be subject to a claim of negligent misrepresentation. See Premier Bus. Group, LLC, 2009 WL 3242050 at *11 (dismissing negligent misrepresentation claim because “Red Bull, after all, is in the business of selling energy drinks, not in the business of supplying information…”). Here, ExchangeBase is in the business of selling and supplying pipe to its customers, not information or opinions. (See Compl. at ¶¶ 10-13). Indeed, Sullivan implicitly acknowledges this by proffering allegations regarding the information ExchangeBase provided about its own products and services-not opinions which were intended to guide Sullivan in its independent business transactions. (See Compl. at ¶¶ 190-192). And, while ExchangeBase may provide its customers certain information regarding its products and services in the course of negotiating those transactions, the provision of such information does not elevate ExchangeBase to a “professional who is in the business of rendering opinions to others.” See Premier Bus. Group, Case 2:16-cv-05080-ER Document 5-2 Filed 09/29/16 Page 29 of 33 30 LLC, 2009 WL 3242050 at *11 (“[T]he mere act of supplying information in itself is not sufficient to give rise to a negligent misrepresentation claim. Indeed, countless companies supply information in the ordinary course of business.”). Further, as argued above, the express terms of the parties’ contracts state that ExchangeBase will furnish “advice and assistance” to customers only as it “deems necessary,” and in any event ExchangeBase cannot be liable for providing such advice or assistance. (Compl. at Exs. B and C at Section 11 thereof.) Accordingly, neither ExchangeBase-nor any of the individual Defendants which it employees-fall within the very limited class of defendants (e.g., attorneys, accountants, etc.) to which a claim of negligent misrepresentation can apply and Sullivan’s claims for such must be dismissed as a matter of law. Moreover, Sullivan’s allegation that Defendants “further omitted key information” from the parties’ negotiations is insufficient to establish a negligent misrepresentation claim. (See Compl. at ¶ 192, 195). A claim of negligent misrepresentation can be based only on affirmative false representations, not omissions of fact, unless there is an affirmative duty to disclose the information. Bundy v. Harrison, No. 19080, 2002 WL 506423, at *5 (Ohio Ct. App. Apr. 5, 2002) (“In a negligent misrepresentation claim, one must prove that they were ‘supplied false information’ via an affirmative false statement, and thus it cannot be predicated upon an omission.”); Fulton Bank, N.A. v. UBS Securities, LLC, No. 10-1093, 2011 WL 5386376, at *13 (E.D. Pa. Nov. 7, 2011) (“An omission or nondisclosure is only actionable under the theory of negligent misrepresentation if there is a duty to speak.”). Here, other than conclusory assertions, Sullivan has not demonstrated any duty to disclose the “key information” it alleges Defendant omitted and any claims that Defendants failed to provide “key information” must fail as a matter of law. Accordingly, this Court should dismiss Sullivan’s negligent misrepresentation claim. Case 2:16-cv-05080-ER Document 5-2 Filed 09/29/16 Page 30 of 33 31 F. Sullivan’s alter ego/piercing the corporate veil claim (Count VII) is improper and fails as a matter of law. Sullivan’s attempt to pierce the corporate veil fails as a matter of law, whether analyzed under Pennsylvania or Ohio law. See Lumax Indus., Inc. v. Aultman, 669 A.2d 893, 895 (Pa. 1995) (“We note at the outset that there is a strong presumption in Pennsylvania against piercing the corporate veil.”) (emphasis added). In order to prevail on its alter ego/piercing the corporate veil theory, Sullivan must prove that the individual Defendants exercised control over ExchangeBase in such a manner as to commit a fraud or other illegal/unlawful act. See, e.g., Fletcher-Harlee Corp. v. Szymanski, 936 A.2d 87, 95 (Pa. Super. 2007) (quoting Lumax Indus., Inc., 669 A.2d at 895) (setting forth the factors for determining whether the corporate veil should be pierced including “undercapitalization, failure to adhere to corporate formalities, substantial intermingling of corporate and personal affairs, and use of the corporate form to perpetrate a fraud.”) (emphasis added); Dombroski v. WellPoint, Inc., 895 N.E.2d 538, 545 (Ohio 2008) (“[W]e hold that to fulfill the second prong of the Belvedere test for piercing the corporate veil, the plaintiff must demonstrate that the defendant shareholder exercised control over the corporate in such a manner as to commit fraud, an illegal act, or a similarly unlawful act.”). In the present case, the complaint does not sufficiently allege that the Individual Defendants used the corporate form as a vehicle to commit the alleged fraud, and instead, merely makes vague and conclusory allegations that a fraud occurred. Further, as discussed at length above, Sullivan’s tort claims and related RICO claims fail as a matter of law. Accordingly, it cannot satisfy the Lumax or Belvedere factors which would justify piercing the corporate veil under Pennsylvania or Ohio law. Case 2:16-cv-05080-ER Document 5-2 Filed 09/29/16 Page 31 of 33 32 G. Dismissal of Sullivan’s tort claims requires dismissal of its action for an accounting (Count VIII). Sullivan’s request for an accounting fails as a matter of law, whether analyzed under Pennsylvania or Ohio law. See Centrix HR, LLC v. On-Site Staff Mgt., Inc., 349 Fed.Appx. 769 (3d Cir. 2009) (affirming dismissal of action for accounting because plaintiff had adequate remedies available at law); Lebo v. Impac Funding Corp., N.D.Ohio No. 5:11CV1857, 2012 WL 630046, report and recommendation adopted 2012 WL 630049 (dismissing request for accounting pursuant to Fed.R.Civ.P 12(b)(6)); Boland v. First Winthrop Corp., 22010 WL 3037076, at *3 (S.D.Ohio Aug. 2, 2010) (“Equitable accounting actions are rare since the advent of the Federal Rules of Civil Procedure because the liberal standards of the Rules generally afford plaintiffs the opportunity to obtain discovery relevant to their asserted claim.”). Sullivan’s accounting request is even more improper given that each of its tort claims is infirm and should be dismissed. For these reasons, Defendants request that Count VIII be dismissed for failure to state a claim upon which relief can be granted. H. Sullivan’s claim for injunctive relief (Count IX) must be dismissed. The law and standard for granting injunctive relief is well-settled: the availability of monetary damages to repair the alleged harm “belies a claim of irreparable injury” and renders injunctive relief improper. See SNA, Inc. v. Array, 51 F. Supp. 2d 542, 545 (E.D. Pa. 1999) (quoting Frank’s GMC Truck Ctr., Inc. v. General Motors Corp., 847 F.2d 100, 102 (3d Cir. 1988)). Here, Sullivan’s own request for monetary damages arising from the alleged harm “demonstrate[s] that an adequate remedy at law exists, and belie[s] any assertion that equitable relief is necessary.” Cerciello v. Sebelius, No. 13-3249, 2016 WL 792505, at *6 (E.D. Pa. Mar. 1, 2016); see also Simpler Consulting, Inc. v. Wall, No. 05-452, 2008 WL 763746, at *5 (W.D. Pa. Mar. 21, 2008) (denying plaintiff’s request for injunction where plaintiff requested monetary Case 2:16-cv-05080-ER Document 5-2 Filed 09/29/16 Page 32 of 33 33 damages and thus established that it had an adequate remedy at law.). Indeed, Sullivan’s request for injunctive relief is nothing more than a request that this Court preclude Defendants’ from “transferring, encumbering, secreting, hiding, or otherwise affecting or disposing” of money that might be recoverable if Sullivan is successful on its claims. Accordingly, it is clear that an adequate remedy at law exists, and Sullivan is not entitled to the injunctive relief it seeks. IV. CONCLUSION For the reasons set forth above, Defendants respectfully request an Order from this Court dismissing this action pursuant to Fed. R. Civ. P. 12(b)(2) based upon a lack of personal jurisdiction over them. Alternatively, Defendants request the dismissal of Counts I, II, III, VI, VII, VIII, and IX with prejudice pursuant to Fed. R. Civ. P. 12(b)(6) for failure to state a claim upon relief can be granted. Dated: September 29, 2016 Respectfully submitted, /s/ Claudia D. McCarron Claudia D. McCarron, Esq. LEWIS BRISBOIS BISGAARD & SMITH, LLP 550 E. Swedesford Road, Suite 270 Wayne, PA 19087 T: (215) 977-4062 F: (215) 977-4101 claudia.mccarron@lewisbrisbois.com Attorney for Defendants ExchangeBase, LLC, Brian Donahue, Peter Kowalski, and Thomas Sheridan Case 2:16-cv-05080-ER Document 5-2 Filed 09/29/16 Page 33 of 33 CERTIFICATE OF SERVICE The undersigned hereby certifies that on this 29th day of September, 2016, a true and correct copy of the above and forgoing was filed electronically. Notice of this filing will be sent to all parties by operation of the Court’s electronic filing system. Parties may access this filing through the Court’s system. /s/ Claudia D. McCarron Counsel for Defendants Case 2:16-cv-05080-ER Document 5-3 Filed 09/29/16 Page 1 of 1 Case 2:16-cv-05080-ER Document 5-4 Filed 09/29/16 Page 1 of 7 Case 2:16-cv-05080-ER Document 5-4 Filed 09/29/16 Page 2 of 7 Case 2:16-cv-05080-ER Document 5-4 Filed 09/29/16 Page 3 of 7 Case 2:16-cv-05080-ER Document 5-4 Filed 09/29/16 Page 4 of 7 Case 2:16-cv-05080-ER Document 5-4 Filed 09/29/16 Page 5 of 7 Case 2:16-cv-05080-ER Document 5-4 Filed 09/29/16 Page 6 of 7 Case 2:16-cv-05080-ER Document 5-4 Filed 09/29/16 Page 7 of 7