Nicholas Malfitano Dec. 31, 2015, 9:22am


PHILADELPHIA – Per the U.S. Court of Appeals for the Third Circuit, a communications firm’s bid to overturn a trial court’s dismissal of fraud, misrepresentation and civil conspiracy claims against an employee group of its former client has failed.

Judges Julio M. Fuentes, Kent A. Jordan and Thomas I. Vanaskie opted to uphold the earlier dismissal from the U.S. District Court for the Eastern District of Pennsylvania, in a Dec. 8 decision Jordan authored.

The suit says KBZ Communications, a Doylestown-based firm that sells video conferencing equipment, contracted with CBE Technologies for the latter to purchase its products in April 2008. Though KBZ delivered the goods as promised, it alleges CBE failed to pay for them and for the time period spanning September 2012 to February 2013 alone, racked up a bill of $996,103.67.

Subsequently, KBZ filed suit in April 2013, alleging contract and unjust enrichment claims against CBE alone; claims for fraud and misrepresentation against both CBE and employees/individual defendants John Mann, Brenda Barrowclough, Thomas A. Waldman, Diane Stemm, David Rembus, George Mellor and various John Doe members of the company; and a lone claim for civil conspiracy against these same individual defendants.

KBZ claimed the CBE employees named in the suit conspired to misrepresent the company’s solvency and allow for the continued sale of goods and services; in effect, working towards a breach of contract between KBZ and CBE. In its complaint, KBZ desired the district court to “pierce the corporate veil and hold the individual defendants personally liable in this action.”

CBE motioned to dismiss the fraud and negligent misrepresentation claims against it, and the individual defendants moved to dismiss all claims against them personally – arguing they were barred by the “gist of the action” doctrine, which generally “precludes plaintiffs from re-casting ordinary breach of contract claims into tort claims.”

The district court dismissed the civil conspiracy count because it decided the remaining claims for breach of contract and unjust enrichment could not support a cause of action for conspiracy against the individual defendants.

Thus, the individual defendants of Mann, Barrowclough, Waldman and Stemm were also dismissed from the suit. Eventually, KBZ accepted a settlement offer from CBE in the contested amount of $996,103.67 for the remaining counts, but still elected to appeal the dismissal of the individual defendants.

However, the Third Circuit concurred with the trial court on the issue of the “gist of the action” doctrine, feeling KBZ improperly used its contract with CBE as the basis for its tort claims aimed at the individual defendants.

“KBZ’s tort claims against the individual defendants are prohibited by the ‘gist of the action’ doctrine, as they arise solely from the alleged underlying breach of contract. There is no broader social duty that CBE or the Individual Defendants owed to KBZ that they supposedly violated. Instead, CBE entered into a contract and failed to fulfill its end of the deal,” Jordan said.

“Essentially, KBZ is alleging that the formation of the contract was, itself, the original problem insofar as it represented a promise of payment that has not been fulfilled, and any subsequent ‘lies; were mere reiterations of the promise that the contract created.”

The Third Circuit upheld the trial court’s ruling as it relates to the dismissal of the individual defendants and the tort claims originally filed against them.

“KBZ has not…identified a single action by any of the individual defendants that induced them – fraudulently or otherwise – to enter into the dealer agreement. Accordingly, the ‘gist of the action’ doctrine was properly applied by the District Court,” Jordan added.

The plaintiffs are represented by Michael J. Torchia, Alfredo M. Sergio and Stephen C. Goldblum of Semanoff Ormsby Greenberg & Torchia, in Huntingdon Valley.

The defendants are represented by Julie D. Goldstein and Michael Eidel of Fox Rothschild, in Warrington.

U.S. Court of Appeals for the Third Circuit case 14-3526

U.S. District Court for the Eastern District of Pennsylvania case 2:13-cv-02011

From the Pennsylvania Record: Reach Courts Reporter Nicholas Malfitano at nickpennrecord@gmail.com

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