Stein v. Matheson

539 F.Supp.3d 463

Susan STEIN, Plaintiff,

v.Neil W. MATHESON, et al., Defendants.

CIVIL ACTION NO. 19-5814-KSM

United States District Court, E.D. Pennsylvania.

Filed May 17, 2021

Maurice R. Mitts, Ross G. Currie, Mitts Law, LLC, Philadelphia, PA, for Plaintiff.

Joel Max Eads, Kathleen M. Kline, Greenberg Traurig, LLP, Philadelphia, PA, for Defendants Neil W. Matheson, Frank Galella, E4 Health Geoup, LLC.

MEMORANDUM

MARSTON, District Judge

Plaintiff Susan Stein brings claims for breach of contract, breach of fiduciary duty, tortious interference with contract and/or economic relations, and dissolution of limited liability company against her former employer, Defendant E4 Health Group, LLC, and two of the company's principals, Defendants Neil Matheson and Frank Galella.¹ (Doc. No. 1.) Defendants have moved for partial dismissal of the complaint. (Doc. No. 10.) For the reasons that follow, their motion is granted in part and denied in part.

I. Factual Background

Taking the factual allegations in the complaint as true, the relevant facts are as follows.

Plaintiff Susan Stein was the principal of Connexion Healthcare from 2000 through August 2018. (Doc. No. 1 at ¶ 12.) Connexion provided "scientific and promotional communications to pharmaceutical and biotech companies," and in her 18 years as the company's principal, Stein "built considerable goodwill in the healthcare community, especially ... in connection with pharmaceutical and other forms of products and treatments in the space of oncology and rare diseases." (Id. at ¶ 13.)

In February 2018, Defendant Neil Matheson contacted Stein because he was interested in merging his company, Kiwi Healthcare Consulting LLC, with Connexion. (Id. at ¶¶ 14–15.) Over the next few months, Stein and her husband met multiple times with Matheson and Defendant Frank Galella — Matheson's friend and financial consultant — to discuss the potential merger. (Id. at ¶¶ 17–19.) During those initial negotiations, Matheson and Galella represented that Stein would have a 50% equity stake in the merged company, and they recommended that the new company build on Connexion's current infrastructure so that it could retain Connexion's pre-existing clients without having to enter new contracts. (Id. at ¶¶ 16, 20, 22.)

After months of negotiations, however, Galella ultimately determined that a merger was not possible because of "financial issues" — specifically, Connexion's accrued pension obligations. (Id. at ¶ 26.) The Steins agreed to personally satisfy the obligations, but they were unable to save the deal. (Id. at ¶¶ 27–28.) Although Kiwi Healthcare did not enter a formal merger with Connexion, Stein now argues that there was a de facto merger because Kiwi Healthcare changed its name, becoming Defendant E4 Health Group, LLC, migrated Connexion's clients to the new business, and used Connexion's employees for E4 business and projects.² (Id. at ¶¶ 28–29.)

On August 13, 2018, Stein was offered a partner position in E4. (Id. at ¶ 31, Ex. A.) The offer letter provided that Stein would "be a partner in the business and member of the Board of Directors." (Id. at ¶ 32.) She would not have to report to anyone else, and "[a]ny decisions concerning [her] role, remuneration, incentives, and shareholding," were to "be made together" with Matheson and Galella. (Id. at ¶ 33.) The letter states that the company was finalizing an operating agreement for E4 and that Stein would "have an opportunity to review and provide comments" before the final version was signed. (Id. at ¶ 41.)

In her new role, Stein's responsibilities were "the success of E4 ... including new business development, client service, hiring great talent, resources to deliver above and beyond expectation, full P&L [profits and losses] responsibility, helping to establish the culture of the company, team work, and the success of all parts of the group." (Id. at ¶ 34.) Stein's initial compensation was set at $225,000 per year, with review and adjustments every six months based on the company's performance, "with the goal of having [her] reach a market rate salary as soon as possible." (Id. at ¶ 35.) Stein was also given a 5% membership interest in E4, which would increase to 10% when the company achieved $1 million in fee revenue, with possible additional increases based on "performance criteria." (Id. ¶ 40.) Finally, in addition to her salary and equity interest, Stein was eligible for benefits, including a car allowance, insurance benefits, and 401K contributions (id. at ¶ 38), as well as an incentive plan "that will pay [her] salary based on exceeding revenue and profit performance objectives" (id. at ¶¶ 36–37).

Shortly after beginning her new position, things began to go south for Stein. She learned for the first time that Eric Schramm was also a partner in the company, and when Stein questioned the extent of Schramm's equity interest and the terms of his position, Matheson and Galella refused to disclose them. (Id. at ¶¶ 43–44.) In addition, Defendants never provided Stein with the operating agreement for E4 or asked her for comments about its terms. (Id. at ¶ 46.) Nor was she given membership certificates or any other evidence of her interest in E4. (Id. at ¶ 47.) Employees were hired without her approval or input, and despite having "full P&L responsibility," Defendants refused to give her access to E4's profit and loss statements. (Id. at ¶¶ 48–49, 54–55.) Her salary was not adjusted after six months, but remained at $225,000 throughout her tenure with the company, and no incentive plan was implemented while she worked there. (Id. at ¶¶ 50–51.)

In mid-June 2019, after ten months of working for E4, Stein met with Matheson to discuss Defendants’ failure to fulfill the terms of the offer letter, including their failure to provide profit and loss information, to review her salary after six months, to create an incentive/bonus plan, or to draft an operating agreement. (Id. at ¶¶ 56–57.) A few days later, on June 21, 2019, Stein sent a follow-up email, memorializing their conversation. (Id. at p. 25, Ex. B.) Later that day, Defendants issued a termination letter, providing 90 days’ notice of termination "[c]onsistent with your letter of employment." (Id. at ¶ 58, Ex. C.) As to termination, the offer letter states:

During the first 6 months of this contract either party may terminate the agreement by giving fourteen (14) days written notice. Should you[r] employment be terminated within the initial 6 month period, you will retain ownership of any clients you bring to E4 Health.

Following this initial 6-month period this employment contract can be terminated by either party by giving ninety (90) days written notice. At that time ownership of all clients will remain with E4 Health Group, LLC.

(Id. at ¶ 60, Ex. A.) Per this provision, all of Connexion's clients remained with E4 when Stein was forced to leave the company. (Id. at ¶ 61.)

Stein claims that Defendants acted to:

deceive Ms. Stein, stonewall her repeated and reasonable requests for information to which she was entitled, take advantage of her good-faith performance of her duties, and trade upon Ms. Stein's client relationships — and then, nearly as soon as Defendants possibly could, and as soon as Ms. Stein demonstrated an unambiguous intention to formalize her rights as a Partner per the terms of the Offer Letter, Defendants terminated their employment relationship with Ms. Stein and have wrongfully claimed Ms. Stein's clients as Defendants’ own.

(Id. ) Stein claims that under the de facto merger, she remains a member of E4 and has been "subject to the oppression of the majority members, including Defendants Matheson, Galella, and Schramm." (Id. at ¶ 62.)

On December 10, 2019, Stein brought this action against Matheson, Galella, Schramm, and E4. (See generally Doc. No. 1.) The complaint asserts four counts: (1) breach of contract, (2) breach of fiduciary duty, (3) tortious interference with contract and/or economic relations, and (4) dissolution of limited liability company. (See generally Doc. No. 1.) Schramm has since been dismissed from the case. (See Doc. Nos. 27 & 28.) The remaining Defendants now move to dismiss Counts I and III. (Doc. No. 10.)

II. Subject Matter Jurisdiction

Before ruling on the Defendants’ motion to dismiss, we must first confirm that we have subject matter jurisdiction. Stein argues that we have jurisdiction under 28 U.S.C. § 1332 because the amount in controversy exceeds $75,000 and the action is between citizens of different states. (Doc. No. 37.) Defendants counter that we do not have diversity jurisdiction because at the time the complaint was filed, both Stein and E4 were citizens of Pennsylvania.³ (Doc. No. 38.)

"To satisfy the jurisdictional requirements of 28 U.S.C. § 1332(a)(1), the federal diversity statute, diversity must be complete; that is, no plaintiff can be a citizen of the same state as any of the defendants." Midlantic Nat'l Bank v. Hansen , 48 F.3d 693, 696 (3d Cir. 1995). A "natural person is deemed to be a citizen of the state where he is domiciled," and "the citizenship of an LLC" is determined "by the citizenship of each of its members." Zambelli Fireworks Mfg. Co. v. Wood , 592 F.3d 412, 418–20 (3d Cir. 2010). In both cases, the inquiry turns on "the citizenship of the parties at the time the complaint was filed." Midlantic Nat'l Bank , 48 F.3d at 696.

Defendants argue that under the offer letter, E4 agreed that Stein "would own 5% of the membership interests" in the company and that she would "retain [her] ownership should the company terminate [her] employment for any reason other than cause." (Doc. No. 1 at p. 22; see also Doc. No. 38 at p. 3.) They reason that because Stein was not terminated for cause, she remained a member of E4 at the time she filed this action, and there is no diversity because E4 and Stein were both citizens of Pennsylvania. (Doc. No. 38 at p. 3.) We are not convinced.

Defendants are correct that under the offer letter, E4...