Dansko Holdings, Inc. v. Benefit Trust Co., CIVIL ACTION NO. 16-324

418 F.Supp.3d 100

DANSKO HOLDINGS, INC., Plaintiff,

v.BENEFIT TRUST COMPANY, Defendant.

CIVIL ACTION NO. 16-324

United States District Court, E.D. Pennsylvania.

Filed November 8, 2019

Scott T. Schutte, Morgan Lewis & Bockius LLP, Chicago, IL, John P. Lavelle, Jr., Morgan Lewis Bockius LLP, Philadelphia, PA, for Plaintiff.

John Bradley Leitch, Richard N. Bien, Sarah E. Lintecum, Lathrop & Gage LLP, Kansas City, MO, Joshua Bachrach, Wilson Elser Moskowitz Edelman & Dicker LLP, Philadelphia, PA, for Defendant.

M E M O R A N D U M

DuBois, District Judge

I. INTRODCUTION

This case arose out of a contract dispute between Benefit Trust Company ("BTC") and Dansko Holdings, Inc. Dansko claimed, inter alia , that that BTC violated the terms of a Trust Agreement when it failed to provide trustee services for a debt refinancing transaction. Presently before the Court is Dansko's and BTC's motions for summary judgment. For the reasons that follow, BTC's motion is granted in part and denied in part. Dansko's motion is granted.

II. BACKGROUND

Dansko entered into a Trust Agreement with Reliance Trust Company in 2011, under which Reliance was named trustee for the Dansko Employee Stock Ownership Plan. Benefit Trust's Statement Uncontroverted Material Facts Supp. Mot. Summ. J. Ex. A [hereinafter Trust Agmt.]. In May 2014, Dansko sought to replace Reliance as trustee. Second Am. Compl. 19. BTC lobbied to be appointed trustee. Dansko's Add'l Statement Undisputed Material Facts Opp. Benefit Trust's Mot. Summ. J. ¶ 12 [hereinafter Dansko's UMF]. During the lobbying, BTC failed to disclose that it had been subject to a Department of Labor ("DOL") investigation. Id. at ¶¶ 13-15. Dansko appointed BTC as trustee on June 2, 2014. Id. at ¶ 33. BTC accepted the appointment as trustee pursuant to the terms of the Trust Agreement on June 17, 2014. Id. at ¶ 34.

After BTC accepted the appointment as trustee, the Dansko board of directors met three times from June 18, 2014 until December 9, 2014, at which times it discussed refinancing Dansko's debt obligations (the "Refinancing Transaction"). Dansko's UMF ¶¶ 36, 39, 46-48. Howard Kaplan represented BTC at all three meetings. Id. At the first meeting, Mr. Kaplan told the Dansko board of directors that BTC would "be able to do the Refinancing Transaction." Id. at ¶ 42. Mr. Kaplan later informed the Dansko board of directors "that the [trustee] typically required 30-60 days to complete the due diligence regarding the terms on behalf of the [trust]." Id. ¶ 49. Mr. Kaplan also told a Dansko board member that "in his role as trustee he may need to have a conversation with [two individuals] concerning the terms of the Refinancing Transaction." Id. at ¶ 45.

Despite Mr. Kaplan's statements, BTC was not obligated under the Trust Agreement to serve as trustee for the Refinancing Transaction. Dansko's Resp. Benefit Trust's Statement Uncontroverted Material Facts ¶ 7 [hereinafter BTC's UMF]. Additionally, Dansko and BTC never discussed the terms or conditions by which BTC would serve as trustee for the Refinancing Transaction. BTC's UMF ¶ 21. On December 11, 2014, BTC informed Dansko that it would not serve as trustee for the Refinancing Transaction. Id. ¶ 20.

On January 27, 2016, Dansko filed its initial Complaint. On September 27, 2016, Dansko filed its Second Amended Complaint (Document No. 29) asserting breach of contract (Count I), breach of oral contract (Count II), promissory estoppel (Count III), and fraud in the inducement (Count IV). Second Am Compl. ¶¶ 48-78. On February 2, 2017, BTC filed its Answer to Plaintiff's Second Amended Complaint (Document No. 44). In its Answer, BTC counterclaimed for breach of contract, asserting that Dansko "breached the Trust Agreement by failing to reimburse [BTC] for any of the fees and expenses it has incurred in this lawsuit." Answer 16-20. In April 2018, both parties moved for summary judgment. BTC moved for summary judgment on the four counts in the Second Amended Complaint and its Second Amended Counterclaim for breach of contract. Dansko moved for summary judgment solely on BTC's Second Amended Counterclaim for breach of contract. The motions are fully briefed,¹ and are thus ripe for decision.

III. LEGAL STANDARD

The Court will grant a motion for summary judgment if "the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law." Fed. R. Civ. P. 56(a) ; see Celotex Corp. v. Catrett , 477 U.S. 317, 322-23, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986). A fact is material when it "might affect the outcome of the suit under the governing law." Anderson v. Liberty Lobby, Inc. , 477 U.S. 242, 248, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986). A dispute is genuine "if the evidence is such that a reasonable jury could return a verdict for the nonmoving party." Id.

The Court's role at the summary judgment stage "is not...to weigh the evidence and determine the truth of the matter but to determine whether...there is sufficient evidence favoring the nonmoving party for a jury to return a verdict for that party." Id. at 249, 106 S.Ct. 2505. However, the existence of a "mere scintilla" of evidence in support of the nonmoving party is insufficient. Id. In making this determination, "the court is required to examine the evidence of record in the light most favorable to the party opposing summary judgment[ ] and resolve all reasonable inferences in that party's favor." Wishkin v. Potter , 476 F.3d 180, 184 (3d Cir. 2007). The party opposing summary judgment must, however, identify evidence that supports each element on which it has the burden of proof. Celotex Corp. , 477 U.S. at 322, 106 S.Ct. 2548.

IV. DISCUSSION

As discussed supra , BTC moved for summary judgment on Dansko's claims for breach of contract (Count I), breach of oral contract (Count II), promissory estoppel (Count III), and fraud in the inducement (Count IV). BTC also moved for summary judgment on its counterclaim for indemnity. Dansko moved for summary judgment solely on BTC's counterclaim for indemnity. In order to resolve both parties' motions, the Court must first conduct a choice of law analysis because jurisdiction in this case is based on diversity of citizenship. Thereafter, the Court addresses BTC's motion for summary judgment on Dansko's claims before addressing BTC's and Dansko's motions for summary judgment on BTC's counterclaim for indemnity.

A. Choice of Law

The Court must conduct a choice of law analysis to determine which state's substantive law governs the claims at issue because jurisdiction in the case is based on diversity between the parties. See Erie R. Co. v. Tompkins , 304 U.S. 64, 78, 58 S.Ct. 817, 82 L.Ed. 1188 (1938) ; see also Collins on behalf of herself v. Mary Kay, Inc. , 874 F.3d 176, 182 (3d Cir. 2017). In conducting a choice of law analysis, the Court is "required to apply the law of the forum state, including its choice of law provisions." Woessner v. Air Liquide Inc. , 242 F.3d 469, 472 (3d Cir. 2001) (citing Klaxon Co. v. Stentor Elec. Mfg. Co. , 313 U.S. 487, 496, 61 S.Ct. 1020, 85 L.Ed. 1477 (1941) ). Accordingly, the Court applies Pennsylvania choice of law rules.

The Trust Agreement contains a choice of law provision designating that the agreement is to be construed according to Georgia law. Trust Agmt § 9.11 ("This Agreement shall be construed according to the laws of the State of Georgia, except to the extent superseded by ERISA or any other federal law."). "Pennsylvania courts generally honor the intent of the contracting parties and enforce choice of law provisions in contracts executed by them." Gay v. CreditInform , 511 F.3d 369, 389 (3d Cir. 2007) (quoting Kruzits v. Okuma Mach. Tool, Inc. , 40 F.3d 52, 55 (3d Cir. 1994) ). A choice of law provision will be enforced unless "(a) the chosen state has no substantial relationship to the parties or the transaction and there is no other reasonable basis for the parties' choice, or (b) application of the law of the chosen state would be contrary to a fundamental policy of a state which has a materially greater interest than the chosen state in the determination of the particular issue." Id.

BTC argues that the Court should not enforce the choice of law provision because Georgia has no connection to the parties or to the transaction. Def. Reply Supp. Mot. Summ. J. at 2 n.1. The Court agrees. Dansko is a citizen of Pennsylvania and BTC is a citizen of Kansas. Second Am. Compl. ¶11-12. None of the events that gave rise to this suit occurred in Georgia. See generally Dansko's UMF. Georgia law was selected by Dansko and Reliance, BTC's predecessor as trustee, because Reliance was a Georgia citizen when it entered into the original Trust Agreement with Dansko. BTC's Suggestions Opp. Dansko's Mot. Partial Summ. J. 8 n.4. However, the applicability of the choice of law provision must be evaluated based on Georgia's relationship to the current parties—Dansko and BTC—not Georgia's relationship to Dansko and Reliance. Georgia has no relationship, let alone a substantial relationship, to the parties or to the Trust Agreement and there is no other reasonable basis for the parties' choice. Gay , 511 F.3d at 389. Accordingly, the Court will not enforce the choice of law provision.

Because the Court will not enforce the choice of law provision, it must conduct a choice of law analysis to determine which state's substantive law governs the claims at issue. As discussed supra , the Court applies Pennsylvania choice of law rules. Pennsylvania has a two-step framework for addressing choice of law questions. First, the "Court determines whether a real conflict exists between the respective laws" of the states with an interest in the case and second, the Court determines "which state ‘has the greater interest in the application of its law.’ " Woods Servs., Inc. v. Disability Advocates, Inc. , No. CV 18-296, 2018 WL 2134016, at *5 (E.D. Pa. May 9, 2018) (quoting Hammersmith v. TIG Ins. Co. , ...