Mitchell v. CJkant Res. Grp.

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JEFF R. MITCHELL, Plaintiff, v. CJKANT RESOURCE GROUP, LLC, et al., Defendants.

No. 5:21-cv-2465

United States District Court, E.D. Pennsylvania

December 17, 2021

OPINION PARTIAL MOTION FOR JUDGMENT ON THE PLEADINGS ECF NO. 32 - GRANTED

Joseph F. Leeson, Jr. United States District Judge

I. INTRODUCTION

After several years of effort, Jeffrey L. Kantner convinced Jeff R Mitchell to act as Executive Vice President for Kantner's staffing Companies.^[1] Mitchell's employment with the Companies did not last long; he was terminated the same year he started.

In response to his termination, Mitchell brought this lawsuit against Kantner and the Companies (collectively the “Defendants”). Among the ten counts Mitchell alleges in his Complaint is an independent cause of action against the Companies for breach of the covenant of good faith and fair dealing and an independent cause of action for alter ego liability against Kantner personally.

Defendants now move the Court to dismiss those two counts, asserting that they are not independent causes of action under Pennsylvania law. Mitchell consents to the dismissal of his cause of action against the Companies for breach of the covenant of good faith and fair dealing but asserts that his cause of action for alter ego liability against Kantner is recognized by Pennsylvania law and should therefore not be dismissed. Since Kantner consents to the dismissal of one count, and because the Court determines that the other is not recognized by Pennsylvania law, it dismisses both with prejudice.

II.BACKGROUND^[2]

Mitchell has “over 30 years of professional experience” in the staffing industry and is “recognized as one of the leading CFOs in the . . . industry.” Comp. ¶¶ 14, 17 ECF No. 1. For those reasons, Kantner, the owner of the Companies, heavily recruited Mitchell for several years to work for the Companies. See Id. ¶¶ 18-20. Eventually, Kantner made Mitchell “an offer he couldn't refuse” and Mitchell entered into a written employment agreement with the Companies. See Id. ¶¶ 20, 22.

After starting his employment, Mitchell learned that Kantner had lied about the Companies' financial strength and withheld documents from him that would have revealed the Companies' true financial status. See Id. ¶ 40. Mitchell also became increasingly concerned when Kantner showed a habit of spending company funds “on personal luxuries for himself and his family, including vacations and exotic cars.” Id. ¶ 41.

Mitchell brought his concerns to Kantner and “Kantner acknowledged that the Companies were not performing as well as he had represented.” Id. ¶ 46. Nevertheless, Mitchell continued in his position and “worked extra hard . . . to reduce costs and save money for the Companies.” Id. ¶ 48. Despite Mitchell's efforts, Kantner continued to indulge himself at the expense of the Companies. See Id. ¶ 52.

Kantner loaned the Companies' money to friends and “bought himself increasingly expensive cars” using company funds. See Id. He even maintained a bank account to which he alone had control over and funneled client deposits into the account in order to “squander the Companies' limited cash resources for his personal benefit.” Id. ¶ 53. At the same time that Kantner drained the coffers, Mitchell took counter “actions to protect the Companies.” Id. ¶ 54.

The relationship between Kantner and Mitchell rapidly deteriorated. See Id. ¶ 55. Then, “without any formal prior warning, ” Mitchell's employment with the Companies was terminated. See Id. ¶ 57.

In response to his termination, Mitchell brought suit against Defendants, alleging ten separate counts. See generally Id. The essence of Mitchell's Complaint is that Defendants breached the employment agreement. Count IV of the Complaint is an independent cause of action against the Companies for breach of the covenant of good faith and fair dealing (Good Faith Claim). See Id. at 21. Count X of the Complaint is an independent cause of action for “alter ego liability against Kantner.” (Alter Ego Claim) Id. at 28.

Defendants filed with the Court a partial motion for judgment on the pleadings. See Mot., ECF No. 32. In that Motion, Defendants move the Court to dismiss Mitchell's Good Faith Claim and Alter Ego Claim. See generally Id. Defendants assert that Pennsylvania law does not recognize either claim as an independent cause of action. See Id. at 3.

In his response to the Motion, Mitchell “does not oppose the relief requested by Defendants with respect to [the Good Faith Claim].” Resp. at 3, ECF No. 33. Mitchell does, however, contest dismissal of his Alter Ego Claim. See generally Id. He argues that a claim for alter ego liability can be an independent cause of action under Pennsylvania law. See generally id.

III. LEGAL STANDARDS

a. Motion for Judgment on the Pleadings - Review of Applicable Law

A party may move for judgment on the pleadings “[a]fter the pleadings are closed - but early enough not to delay trial.” Fed.R.Civ.P. 12(c). Judgment on the pleadings is appropriate when “the movant clearly establishes that no material issue of fact remains . . . and that he is entitled to judgment as a matter of law.” Rosenau v. Unifund Corp., 539 F.3d 218, 221 (3d Cir. 2008).

When deciding a motion for judgment on the pleadings, the Court considers the pleadings and exhibits attached thereto, matters of public record and “undisputedly authentic documents attached to the motion for judgment on the pleadings if plaintiffs' claims are based on the documents.” Atiyeh v. Nat'l Fire Ins. Co. of Hartford, 742 F.Supp.2d 591, 595 (E.D. Pa. 2010). A motion for judgment on the pleadings is analyzed under the same standards that apply to a Rule 12(b)(6) motion. See Zimmerman v. Corbett, 873 F.3d 414, 417 (3d Cir. 2017). Accordingly, the Court “accept[s] as true all allegations in plaintiff's complaint as well as all reasonable inferences that can be drawn from them, and [the court] construes them in a light most favorable to the non-movant.” Tatis v. Allied Interstate, LLC, 882 F.3d 422, 426 (3d Cir. 2018) (quoting Sheridan v. NGK Metals Corp., 609 F.3d 239, 262 n.27 (3d Cir. 2010)).

The motion will be granted if the plaintiff has not articulated enough facts “to raise a right to relief above the speculative level.” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007). The plaintiff must plead “sufficient factual matter, accepted as true, to ‘state a claim to relief that is plausible on its face.'” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Twombly, 550 U.S. at 570). A claim is plausible “when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.” Id. (quoting Twombly, 550 U.S. at 557).

It is not enough for a plaintiff to allege mere “labels and conclusions, and a formulaic recitation of the elements of a cause of action will not do.” Twombly, 550 U.S. at 555. “The plausibility determination is ‘a context-specific task that requires the reviewing court to draw on its judicial experience and common sense.'” Connelly v. Lane Const. Corp., 809 F.3d 780, 786-87 (3d Cir. 2016) (quoting Iqbal, 556 U.S. at 679).

b. Alter Ego Liability Theory - Review of Applicable Law

Liability under an alter ego theory is synonymous with the theory of piercing of the corporate veil. See Lieberman v. Corporacion Experienca Unica, S.A., 226 F.Supp.3d 451, 467-68 (E.D. Pa. 2016) (explaining that a plaintiff may “pierce the corporate veil through the ‘alter ego' theory”); see also Miners, Inc. v. Alpine Equip. Corp., 722 A.2d 691, 695 (Pa. Super. Ct. 1998) (same). Normally, a corporate entity shields its owners from personal liability for damages against the entity, but the protective veil of the entity may be set aside or pierced to “prevent fraud, illegality, or injustice, or when recognition of the corporate entity would defeat public policy or shield someone from liability for a crime.” Pearson v. Component Tech. Corp., 247 F.3d 471 (3d Cir. 2001).

A “party that seeks to pierce the corporate veil must show that the ‘lack of [corporate] formalities led to some misuse of the corporate form.'” Accurso v. Infra-Red Servs., Inc., 23 F.Supp.3d 494, 509-10 (E.D. Pa. 2014) (quoting Advanced Tel. Sys., Inc. v. Com-Net Pro. Mobile Radio, LLC, 846 A.2d 1264, 1279 (Pa. Super. Ct. 2004)). When considering whether the corporate veil may be pierced, courts weigh the following factors: “undercapitalization, failure to adhere to corporate formalities, substantial intermingling of corporate and personal affairs and use of the corporate form to perpetrate a fraud.” Lumax Indus., Inc. v. Aultman, 669 A.2d 893, 895 (Pa. 1995) (citing Dep't of Env't Res. v. Peggs Run Coal Co., 423 A.2d 765 (1980)).

IV. ANALYSIS

Defendants assert that Mitchell's Good Faith Claim and Alter Ego Claim should both be dismissed with prejudice because Pennsylvania law does not recognize either claim as independent causes of action. See generally Mot. Since Mitchell “consents to the entry of an order dismissing [the Good Faith Claim] with prejudice, ” Resp. at 4, the Court dismisses that claim with prejudice. As a result, the Court need only discuss the Alter Ego Claim, which it dismisses too.

a. An alter ego claim is not an independent cause of action under Pennsylvania law.

Defendants assert that an alter ego claim is not an independent cause of action and cite to case law to support their argument. See Mot. at 6-7. Mitchell asserts that Defendants misconstrue their cited case law and argues that an alter ego claim can be an independent cause of action. See Resp. at 7-11. When viewed in isolation, there is indeed case law supporting both assertions.

For example, in 2005, a federal district court in the ...