IN THE COURT OF COMMON PLEAS FRANKLIN COUNTY, PENNSYLVANIA PAUL E. LEHMAN, Plaintiff, versus JEFFREY L. KNOUSE, JAY D.

FINKENBINDER, ALICE H. RAHAUSER and LEHMAN CONSTRUCTION SERVICES, INC., Defendants. DEFENDANTS’ MEMORANDUM OF LAW IN SUPPORT OF MOTION FOR SUMMARY JUDGMENT I. II. III. IV. V. A. B. C. D. E. VI. Introduction......................................................................................................................... 1 Procedural History .............................................................................................................. 3 Statement of Undisputed Facts ........................................................................................... 5 Governing Standard .......................................................................................................... 13 Argument .......................................................................................................................... 14 The SAA’s Integration Clause Defeats Lehman’s Breach of Contract Claim ................. 14 Lehman Cannot Overcome the Presumption of At-Will Employment............................. 16 The Gist-of-the-Action Doctrine Bars Lehman’s Fraud Claim ........................................ 18 The Economic Loss Doctrine Bars Lehman’s Fraud Claim ............................................. 20 Lehman’s Conspiracy Claim Fails for Want of an Underlying Tort ................................ 23 Conclusion ........................................................................................................................ 23 No. 2007-2510 Civil Action Judge Richard J. Walsh

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IN THE COURT OF COMMON PLEAS FRANKLIN COUNTY, PENNSYLVANIA PAUL E. LEHMAN, Plaintiff, No. 2007-2510 versus Civil Action JEFFREY L. KNOUSE, JAY D. FINKENBINDER, ALICE H. RAHAUSER and LEHMAN CONSTRUCTION SERVICES, INC., Defendants. DEFENDANTS’ MEMORANDUM OF LAW IN SUPPORT OF MOTION FOR SUMMARY JUDGMENT I. Introduction Plaintiff Paul Lehman’s action is wholly dependent upon his allegation that defendants promised him employment with Lehman Construction Services, Inc. (“LCSi”) until such time as he chose to retire. Upon the strength of that alleged promise, Lehman states claims for breach of contract, fraud in the inducement, and civil conspiracy. Although no such promise was ever made, that is not particularly relevant for purposes of this motion. Rather, this motion asks threshold legal questions regarding the sufficiency of Lehman’s allegations, the character of the evidence he offers in support of those allegations, and the legal viability of certain claims he bases upon those allegations. As explained below, on the basis of the undisputed facts, the defendants are entitled to judgment as a matter of law on each of Lehman’s three claims. Considering Lehman’s breach of contract claim first, Lehman contends that, in 2003, the defendants made an oral promise that LCSi would employ Lehman until such time as he chose to retire. That promise, Lehman contends, was made in partial consideration for his agreement to transfer to LCSi the assets of Paul E. Lehman, Inc (“PELI”), a Lehman-controlled corporation that had debts in excess of assets. However, the Sale of Assets Agreement (“SAA”), pursuant to Judge Richard J. Walsh

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which Lehman conveyed PELI’s assets, contained an integration provision. According to that provision, the express terms of the SAA, which, among other things, obligated LCSi to pay cash and assume substantial PELI debt (much of which Lehman had personally guaranteed), constituted the entire agreement among the parties. In other words, the SAA’s integration clause disclaims the agreement on which Lehman sues and, for that simple—yet sufficient—reason, LCSi is entitled to judgment on Lehman’s breach claim. Moreover, because the individual defendants were not parties to the SAA, Lehman’s breach claim against them likewise fails. Even if the Court could ignore the dispositive impact of the SAA’s integration clause, which it may not, Lehman’s breach claim fails for two additional reasons given that the alleged breach involves a purported employment contract. First, in order for there to be a breach, there must be a valid contract. In Pennsylvania, an employment contract must express either (1) a term of employment or (2) cause for termination. Lehman’s allegations satisfy neither criterion. Lehman instead pleads that his employment agreement was to endure for an indefinite period (until he chose to retire) and was not susceptible to termination for any cause. Accordingly, Lehman fails at the threshold; he does not allege an enforceable contract for employment. Second, threshold validity aside, Pennsylvania law subjects employment relationships to a presumption that they are “at-will.” To overcome the presumption, Lehman must establish an express employment agreement through “clear and convincing” evidence. The evidence Lehman offers—which consists only of vague and indistinct recollections—does not satisfy this exacting evidentiary standard and, as a result, fails to provide a sufficient evidentiary basis on which to conclude that LCSi bargained away the presumption of at-will employment. Because Lehman does not allege a valid employment contract and, even so, cannot support the allegations he does make with evidence of a nature sufficient to reach a jury, defendants are entitled to judgment as a matter of law on Lehman’s breach of contract claim. Turing to Lehman’s allegations of fraud in the inducement, the claim is nothing more than the same breach of contract claim masquerading as a tort. Yet both the gist-of-the-action doctrine and the economic loss rule prohibit Lehman from seeking to remedy an alleged breach

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of contract through resort to the common law of fraud. Although the Court permitted Lehman to conduct discovery on his fraud claim, the facts developed in discovery have only emphasized the legal infirmity of Lehman’s fraud claim. Summary judgment should be entered on that claim in favor of the individual defendants. Further, because Lehman’s fraud claim fails as a matter of law, his civil conspiracy claim dies on the vine. Because Lehman cannot establish tort liability, the civil conspiracy claim, then, is also ripe for summary judgment. * * * * *

In October 2003, Knouse, Finkenbinder and Hawbaker assumed substantial personal risk in an effort to salvage a moribund business that, under Lehman’s stewardship, had for years flirted with insolvency. Because of the defendants’ hard work and dedication, LCSi clawed its way back from the brink of bankruptcy, became a successful business, and, as a result, saved numerous jobs in the Chambersburg region. Despite that success, and for reasons wholly unknown to the individual defendants, Lehman acted in a manner intended to sow dissatisfaction among LCSi employees, spreading falsehoods to the effect that LCSi’s ownership had somehow stolen his business and left him penniless. Upon discovering Lehman’s intentionally disruptive conduct, LCSi fired him for cause.1 Lehman responded with a lawsuit chock full of baseless accusations, several of which Lehman has since conceded were without foundation in fact. The time has now come for Lehman’s accusations to be judged on their legal merit. As demonstrated herein, they have none. Summary judgment should be granted. II. Procedural History On or about July 20, 2007, Paul E. Lehman filed a Complaint in the Court of Common Pleas of Franklin County, Pennsylvania, naming as defendants Lehman Construction Services, Inc. (“LCSi”), as well as three individuals, Jeff Knouse, Jay Finkenbinder, and Alice Hawbaker2 (the “individual defendants”). Lehman’s complaint states three causes of action, all of which
1

Despite firing Lehman from his duties with LCSi, LCSi permitted Lehman to retain an office in its facilities, from which he now operates Lehman Church Concepts—a separate business arguably in competition with LCSi. After the complaint was filed, the named defendant, Alice Rahauser, married. Now known as Alice Hawbaker, she will be referred to by that name.
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arise out of LCSi’s decision to fire Lehman in the fall of 2006. Count I of Lehman’s complaint states a breach of contract claim against LCSi and the individual defendants. In Count II of the complaint, denominated as a claim for fraud in the inducement, Lehman accuses the individual defendants of falsely promising him employment with LCSi until such time as he chose to retire so as to induce Lehman into transferring the assets of his insolvent corporation to LCSi. Finally, Count III purports to state a claim for civil conspiracy against the individual defendants based on the fraudulent inducement alleged in Count II. After being served with the complaint, defendants filed Preliminary Objections arguing that the fraud and conspiracy claims against the individual defendants failed to state claims on which relief could be granted. First, the individual defendants argued that Pennsylvania’s gistof-the-action doctrine precludes Lehman from asserting fraud claims in circumstances where the action centers on an alleged failure to perform a contractual obligation. Second, the individual defendants contended that Pennsylvania’s so-called economic loss rule, which bars recovery of purely economic losses in tort, likewise operated to bar Lehman’s fraud claims. Finally, the individual defendants argued that, because the fraud claim is legally insufficient, the conspiracy count falls of its own weight for want of an underlying tort. After briefing and argument, the Court denied the individual defendants’ preliminary objections on the basis that the law did not clearly preclude Lehman’s fraud and conspiracy counts. See Order (Dec. 18, 2007). In the months since the Court disposed of the preliminary objections, the parties have conducted extensive document and deposition discovery, which all parties now agree is concluded. Based on the numerous undisputed facts defendants have developed through discovery (see Section IV, infra), defendants now move for summary judgment. In addition to renewing the issues defendants raised at the preliminary objection stage, defendants also seek summary judgment on Lehman’s breach of contract claim. Defendants’ motion for summary judgment therefore would, if granted, end this matter.

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III.

Statement of Undisputed Facts Plaintiff Paul E. Lehman was the sole shareholder of a corporation known as PELCO.

See Lehman Dep. at 9. PELCO, in turn, owned nearly all of the equity in Paul E. Lehman, Inc. (“PELI”). See id. According to Lehman, individual defendant Jeffrey Knouse owned the “few shares” of PELI that PELCO did not own. Lehman Dep. at 9. At all times leading up to the transfer of PELI’s assets, which is discussed in more detail below, Paul Lehman retained and exercised complete control of PELI and its business decisions as a result of his sole ownership of PELI’s parent company. See Lehman Dep. at 10. During his deposition, Lehman explained that “[f]inancial problems [had] been a problem for [PELI] for a long time,” and that PELI’s financial difficulties stretched back “years, even prior to 2000.” Lehman Dep. at 61. Lehman further agreed that, in 2003, PELI’s financial problems finally forced the company to take some sort of action. Id. Indeed, Lehman characterized PELI’s financial difficulties in the latter months of 2003 as “severe.”3 Lehman Dep. at 126. Despite considering other potential options (see, e.g., Lehman Dep. at 19 (bankruptcy); id. at 43 (new management)), Mr. Lehman finally decided that PELCO would transfer PELI’s assets to a new corporation, Lehman Construction Services, Inc., in exchange for cash and LCSi’s assumption of a considerable portion of PELI’s debt. Lehman Dep. at 63-64. Leading up to the transfer of PELI’s assets, Lehman participated in numerous discussions with the individual defendants, PELI’s legal counsel, Jack Sharpe, Esq., and, on a few occasions, PELI’s accountant, Paul Schultheis. During those discussions, Lehman agreed he should have no ownership role in the new corporation for fear that if he “was to be involved in the new corporation, [PELI’s creditors] would come after the new corporation.” Lehman Dep. at 68-69. Lehman further agreed that the ownership of the new corporation would consist of Mr. Knouse, Mr. Finkenbinder, and Ms. Hawbaker. Lehman Dep. at 69.

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Lehman’s complaint devotes a considerable amount of attention to events both before and during litigation that was pending against PELI in 2003, principally the so-called Nedcon lawsuit. Despite the implications and innuendo of his complaint, Lehman makes no claim based on—and seeks no damages in connection with—the circumstances that arose with Nedcon. See Lehman Dep. at 122.
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In a memorandum dated October 4, 2003, Lehman informed the three individual defendants, “I would like to offer the three of you the opportunity to buy [PELI] by assuming debt we have incurred the past five years or so.” See Lehman Dep. at 72; Deposition Exhibit 3. During his deposition, although Lehman did not dispute his authorship of the memorandum, he disputed its substance. Lehman curiously testified that, despite the date of the memorandum and the offer it plainly contained, he had made no offer to sell PELI and had, instead, accepted the individual defendants’ “offer to buy.” Lehman Dep. at 74. Indeed, Lehman now contends that “the particulars of the transition [from PELI to LCSi] were already known” at the time he drafted the October 4 memorandum. Lehman Dep. at 79. Regarding the provenance of the October 4 memorandum, Lehman explained that his real purpose for drafting the memorandum had not been to make an offer of sale, but to help the individual defendants “get financing from Orrstown [Bank]” for purposes of funding the acquisition. Lehman Dep. at 74. Despite agreeing that “it would be important for Orrstown to know that [he] would continue to be involved with the company,” Lehman Dep. at 79, the memorandum nowhere indicates that Lehman was to be employed by the new company until he chose to retire. Lehman characterizes the omission as “an oversight.” Lehman Dep. at 79. On October 31, 2003, Lehman addressed a meeting of PELI employees to announce the forthcoming transfer from PELI to LCSi. Lehman Dep. at 108. During that meeting, Lehman read a prepared statement and explained to PELI’s employees that “I plan to remain as an employee of the new company, but I will not be a stockholder or an officer of the new company. I will be working for them as a consultant.” Lehman Dep. at 110. As was the case with his October 4 memorandum, Lehman did not tell his employees that his involvement with LCSi would endure until such time as he decided to retire. During his deposition, Lehman suggested that certain contemporaneous notes Mr. Knouse took during the various meetings leading up to execution of the SAA supported his claims. See, e.g., Lehman Dep. at 23. The fact of the matter is that none of Mr. Knouse’s meticulous notes—not a single one—contains even the remotest suggestion that Lehman’s

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employment with LCSi was intended to endure until such time as Lehman chose to retire. Even Lehman’s own notes make no mention of a term of employment. Rather, Lehman’s notes indicate only that, following the transfer of PELI’s assets to LCSi, he would be “employed as a consultant for the new company.” Lehman Dep. at 120. Lehman also agreed that, consistent with his personal notes, the new company did indeed employ him as a consultant following the transfer. See id. In the end, Lehman is unaware of any document suggesting that a term of employment until retirement was ever mentioned during the meetings, let alone discussed and agreed among the parties. Lehman Dep. at 110-111. In short, the record is utterly devoid of documentary evidence supporting Lehman’s claims. Lehman’s claims proceed solely on the basis of his recollections—recollections that are perfectly vague and imprecise. Despite their centrality to his claims, Lehman cannot recall the specifics of any discussion he had with any of the three individual defendants he accuses of defrauding him into parting with his business. Instead of testifying to the date and substance of the allegedly fraudulent statements he claims to have relied upon to his detriment, Lehman’s testimony was almost uniformly unresponsive to direct questions: Q. Mr. Lehman, the first question I have for you is, when was the first time any of the defendants made an oral promise to you that you were going to have lifetime employment with Lehman Construction Services, Incorporated once that company was created? That was always considered from the very beginning, whenever they first said that they would like to take over the business. That was understood early on. I guess I’m not quite clear on what you mean by “that was understood.” Did you ever have a conversation with any of the three defendants to the effect that you were going to have lifetime employment with Lehman Construction Services? Yes. When was the first time you had a conversation regarding lifetime employment? That was early on, whenever they decided that they would like to take over the corporation. 7

A.

Q.

A. Q. A.

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Q. A. Q.

When was it first discussed – When was the creation of Lehman Construction Services first discussed? I would say the summer of ’03 was serious discussion. So it would have been in the summer of 2003 was the first time you would have discussed lifetime employment with any of them? Yes, and I would have never considered giving up the business if I was to get absolutely nothing in return. What I’m trying to get to is, I’d like to know when the first discussion was and what the substance of that discussion was, rather than generalities. Do you remember a particular date or a particular month during which – I have no particular notes on it, but it was always assumed that I would be an employee, because I had no other compensation. And I never would have given up the business with absolutely no compensation, had that not been the case. I wouldn’t have considered it. Okay, when you say it was always assumed that you were going to be an employee of the business, do you mean that it was implicit, that it wasn’t verbalized. It was verbalized, but it wasn’t written. Do you remember any particularities about the first time that lifetime employment was verbalized by any of the defendants in this case. It was discussed at numerous of our weekly meetings. The question is a little different. Do you remember the first time that this was brought up? I cannot. On how many different occasions, if you can recall, did you discuss lifetime employment, not just employment regularly, but lifetime employment with LCSi? Do you understand what I mean by LCSi? Yes. Do you remember on how many occasions you discussed this, roughly? We discussed that I would be employed until I chose to retire.

A. Q.

A.

Q.

A. Q.

A. Q. A. Q.

A. Q. A.

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Lehman Dep. at 5-8. Shortly thereafter Lehman appeared to recall a specific instance in which the matter was discussed. However, as the testimony played out, it became clear that the notes to which Lehman referred did not reference the issue of his employment through retirement and that, again, Lehman had no recollection of what any of the defendants said to him on the subject: Q. So you have a specific recollection of discussing that issue [employment until retirement] prior to the company-wide meeting where it was announced that [LCSi] was going to be created? Yes, because I’m sure that my notes for that meeting were shared with the group before I spoke to the employees. Do your notes regarding that meeting raise the issue of – discuss that you would be employed until you chose to retire? It states that I would be employed as a consultant for the new company. And you were employed as a consultant with the new company for a period of time, correct? For a short period of time, yes. Do you remember specifically what was said during the meeting prior to the large company meeting at which it was announced LCSi was going to be created? No, I do not.

A. Q.

A. Q. A. Q.

A.

Lehman Dep. at 13-14; see also Dep. Ex. 7, Notes for Company Meeting (Oct. 31, 2003). On January 1, 2004, Paul E. Lehman executed a document entitled Sale of Assets Agreement (“SAA”), through which LCSi purchased certain assets, and assumed certain liabilities, of Paul E. Lehman, Inc. See SAA (Exhibit 1); Lehman Dep. at 16-18. Lehman signed the document not only on behalf of PELI and PELCO, but also in his capacity as an individual. See Exhibit 1 at 15. Individual defendant Jeffrey Knouse, acting solely in his official capacity as President of LCSi, executed the document on behalf of LCSi. Id. On the date the assets and certain liabilities of PELI were transferred to LCSi, PELI’s debts exceeded its liabilities. Lehman Dep. at 18.

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Paragraph 20.8 of the SAA contains what is commonly known as an integration clause. See Exhibit 1 at 13-14. Entitled “Entire Agreement,” paragraph 20.8 states: This agreement contains the entire understanding between and among the parties and supersedes any prior understandings and agreements among them respecting the subject matter of this agreement. Any amendments to this agreement must be in writing and signed by the party against whom enforcement of that amendment is sought. Id. As noted above, there is no dispute that Lehman was a party to the SAA in his individual capacity and thus bound by its terms. There is likewise no dispute that the individual defendants were not, in their individual capacities, parties to the SAA. The SAA, by its terms, was an agreement between PELCO, PELI, Lehman and LCSi. Lehman concedes that every discussion he purports to have had regarding LCSi’s alleged commitment to employ him until such time as he chose to retire occurred prior to execution of the SAA. Lehman Dep. at 12. Lehman’s testimony on the issue brooks no ambiguity: Q: Do you remember the last time that you discussed with the three individual defendants the issue of lifetime employment with [LCSi]? I don’t know if lifetime was discussed, but it was until I chose to retire, which wouldn’t have necessarily been lifetime. I had hopes of working another five years. Would the last time you had one of those discussions have occurred prior to signing of the asset purchase agreement? Certainly.

A:

Q: A:

Lehman Dep. at 12. Lehman further admits there is no written amendment to the SAA memorializing any agreement regarding his employment in any capacity or for any period of time. Lehman Dep. at 23. Indeed, Lehman admits that, at no time before or after execution of the SAA, did he see a single note reflecting a commitment by LCSi or its officers to provide him with employment until he chose to retire. Lehman Dep. at 23-24. The defendants do not dispute that a handful of Mr. Knouse’s notes reflected the defendants’ “concern for [Lehman’s] recovering some money and for how [he] was to be paid and [his] benefits and the like.” Lehman Dep. at 23. On the fundamental issue of whether LCSi intended to bargain away the at-

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will employment relationship, however, nothing in the written record hints that Lehman’s employment relationship with LCSi would endure unless and until Lehman chose to retire. Throughout his deposition, Lehman provided competing explanations for the fact the he did not seek to reduce his alleged employment agreement to a written employment contract. First, Lehman testified that he did not want a written agreement because he believed that a written agreement would enable—and, indeed, was necessary for—potential creditors to attach his wages. Lehman Dep. at 8 (“[I]f we had a written agreement and we lost the $3 million lawsuit, that could be attached, and I’d never receive it”). Second, Lehman did not want a written agreement because he believed the agreement would appear as a liability on LCSi’s balance sheet. Lehman Dep. at 8-12 (a written agreement “would have shown up on their balance sheet and that would not have been a good thing for them”). Third, later in his deposition, Lehman explained that he simply saw no need for a written agreement given that he “knew” the new company and its officers. Lehman Dep. id. at 118-119 (“I didn’t see any need to have all this in writing, because I knew these folks”). Of course, Lehman’s familiarity with Knouse had not stood in the way of his decision to heavily document other, arguably less significant, financial transactions he had entered with Knouse in the past. See Lehman Dep. at 45-46 (testifying to “very, very – very good documentation” associated with Knouse’s share purchase agreement and debenture); id. at 118-19 (testifying to “heavily papered” share purchase and debenture transactions between PELI and Knouse). For present purposes, however, it is enough that the record establishes that the exclusion of employment terms from the SAA was not the product of fraud, accident, or mistake. Based on his testimony, the best-case scenario for Lehman is that the exclusion was, instead, an intentional decision on his part. Turning to issues solely related to Lehman’s fraud and conspiracy claims against the individual defendants, Lehman’s deposition testimony serves only to emphasize the fundamental legal insufficiency of those claims, which the individual defendants first questioned at the preliminary objection stage. Lehman could not identify any specific act, specific conduct, or specific statement of the individual defendants upon which he relied in deciding to transfer the

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assets of his insolvent corporation to LCSi. Lehman Dep. at 114. When asked whether, as his complaint requests, he was seeking to rescind the SAA as a remedy for the alleged fraud, Lehman’s response was clear: “No.” Lehman Dep. at 116. Lehman then explained that the damages he seeks in connection with his claim for fraud are the same monetary damages he seeks in connection with his breach of contract claim. Id. Consequently, it is undisputed that the relief Lehman seeks based on the alleged fraud and conspiracy is identical to the relief he seeks in connection with his breach of contract claim. Legal insufficiency aside, during his deposition, Lehman contradicted key allegations he verified in support of his fraud and conspiracy claims against the three individual defendants. Lehman’s complaint asserts that, in inducing him to enter the SAA, the individual defendants’ conduct was intentionally and maliciously fraudulent. Complaint at ¶ 135. When asked, however, to identify a specific act or conduct he considered to be intentionally and maliciously fraudulent, Lehman testified that he “was not aware of any at the time,” and, despite now having a “concern,” was “not aware of any” as of the date he gave his deposition. Lehman Dep. at 11718. Similarly, when asked what it was about the defendants’ conduct leading up to execution of the SAA that was “without justification,” Lehman responded that “I was not privy to many of the meetings they had. That’s the only comment I could make.” Lehman Dep. at 121. Just how it is that a meeting of buyers to which the seller is not invited amounts to unjustifiable conduct is left for the mind to ponder. Finally, and most pointedly, despite making public allegations accusing his former colleagues of fraud and conspiracy, Lehman expressly denied that there was “anything about the defendants’ conduct prior to entering into the asset purchase agreement that [he] consider[s] to have been unlawful.” Lehman Dep. at 120. * * * * *

As the individual defendants argued at the preliminary objection stage, the law requires that Lehman’s breach of contract action be treated as just that—a breach of contract action. Not only do two well-established legal doctrines prevent Lehman from transforming his breach action into tort claims, but also, through his testimony, Lehman has now disavowed the very

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foundations of those claims. For the reasons set forth below, the individual defendants are entitled to judgment as a matter of law on the fraud and conspiracy claims. Lehman’s breach of contract claim fairs no better. At the threshold, discovery has produced absolutely no evidence that any of the individual defendants offered Lehman any manner of employment while acting in their individual capacities. Simply put, the individual defendants are not parties to the SAA. Because the only proper defendant on Lehman’s breach claim is LCSi, the individual defendants are entitled to judgment on that claim. Likewise, because the SAA included, and Lehman executed, an integration clause, LCSi is entitled to judgment as a matter of law with regard to promises Lehman claims were made prior to—and in consideration for—his entry into the SAA. And even if the integration clause were not sufficient to bar Lehman’s claim (and it plainly is), his complaint fails to allege a valid employment contract and, that issue aside, the vague, imprecise, and conclusory recollections Lehman offers are insufficient, as a matter of law, to place the issue before a jury. IV. Governing Standard The standard governing a court’s consideration of a motion for summary judgment is well-settled. Summary judgment is appropriate where, as here, “the pleadings, depositions, answers to interrogatories and admissions on file, together with affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law.” Pa.R.C.P. 1035(b). Construing Rule 1035(b), the Pennsylvania Supreme Court has explained: Where a non-moving party bears the burden of proof on an issue, he may not merely rely on his pleadings or answers in order to survive summary judgment. We have stated quite plainly that ‘failure of a non-moving party to adduce sufficient evidence on an issue essential to its case and on which it bears the burden of proof . . . establishes the entitlement of the moving party to judgment as a matter of law.’ Manzetti v. Mercy Hosp. of Pittsburgh, 565 Pa. 471, 482, 776 A.2d 938, 945 (2001) (citing Young v. DOT, 560 Pa. 373, 744 A.2d 1276, 1277 (2001). In cases in which the material facts are undisputed or the evidentiary record contains insufficient evidence to make out a prima facie

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cause of action, summary judgment shall be granted. Basil v. H&R Block, Inc., 777 A.2d, 100 (Pa. Super. 2001). Here, as set forth below, there is no dispute as to any fact of consequence and, based on the undisputed facts, defendants are entitled to summary judgment on all claims. V. Argument A. The SAA’s Integration Clause Defeats Lehman’s Breach of Contract Claim

Throughout his deposition testimony, Lehman repeatedly explained that he considered the ostensible promise of employment until he chose to retire as having been part and parcel of his decision to enter into the SAA. For example, Lehman testified that he “would have never considered giving up the business if I was to get absolutely nothing in return.” Lehman Dep. at 6. He also explained that he “never would have given up the business with absolutely no compensation [through employment], had that not have been the case. I wouldn’t have considered it.” Lehman Dep. At 6-7. Thus, Lehman’s own deposition testimony unambiguously indicates that, as far as Lehman was—and is—concerned, the alleged promise of employment on which he sues constituted consideration for his entry into the SAA. The problem with Lehman’s breach claim, however, is that the SAA contains a perfectly clear integration clause. Paragraph 20.8 of the SAA, entitled Entire Agreement, states: This agreement contains the entire understanding between and among the parties and supersedes any prior understandings and agreements among them respecting the subject matter of this agreement. Any amendments to this agreement must be in writing and signed by the party against whom enforcement of that amendment is sought. Exhibit 1 at 13-14. As our Supreme Court has explained: Where the parties, without any fraud or mistake, have deliberately put their engagements in writing, the law declares the writing to be not only the best, but the only, evidence of their agreement. All preliminary negotiations, conversations and verbal agreements are merged in and superseded by the subsequent written contract. Yocca v. Pittsburgh Steelers Sports, Inc., 578 Pa. 479, 497, 854 A.2d 425, 436 (2004) (citation omitted). Accordingly, parol evidence of “prior representations is inadmissible as to matters covered by the written agreement with an integration clause.” Hart v. Arnold, 2005 PA Super 328, 884 A.2d 316, 340 (Pa. Super. 2005) (citation omitted). Of course, the on evidence
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Lehman offers of a contract for employment until he chose to retire consists of parol evidence offered through his testimony alone. And, as noted above, Lehman cannot even testify with specificity regarding the language of the representations or when they were made. Lehman concedes that he was aware, and had a “general understanding” of, paragraph 20.8 at the time he executed the SAA. Lehman Dep. at 20-21. Although irrelevant for purposes of whether Lehman, a lifelong businessman whose work depended upon contracts, is bound by the agreement he freely executed, Lehman further concedes that he “certainly had an opportunity” to retain counsel in connection with his entry into the SAA, but chose not to do so because he “didn’t see the need for it.” (Lehman Dep. at 20). There is no dispute that the SAA does not contain any provision remotely capable of being construed as guaranteeing Lehman any employment, let alone employment until such time as he chose to retire. There is likewise no dispute over the fact that the SAA was not subsequently modified to include any such promise by means of a written amendment to the SAA. Lehman Dep. at 23. In fact, Lehman explained that the last time he discussed such employment with anyone would have been before he executed the SAA. Lehman Dep. at 12. The only basis for considering alleged representations made prior to execution of the SAA—as Lehman contends all employment-related representations were—is in the event of an allegation that “the parties agreed that those representations would be added to the written agreement but they were omitted because of fraud, accident, or mistake.” Hart, 884 A.2d at 340. Lehman makes no such allegation in this case. Indeed, the evidence unequivocally establishes that, for various competing reasons (e.g., to avoid his creditors (Lehman Dep. at 8), to spare LCSi’s balance sheet (Lehman Dep. at 8-12), or because he knew “these folks” (Lehman Dep. at 118)), Lehman affirmatively intended not to put employment-related matters in writing. Because the SAA expressly states that it contains and expresses the entire agreement between the parties, Lehman’s contentions regarding breach of a promise of employment extended as consideration for his entry into the SAA must fail as against LCSi. And, because the individual defendants simply were not parties to that agreement in any individual capacity, the

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claim likewise fails as against them. The defendants being entitled to judgment as a matter of law, the Court should enter summary judgment on all defendants’ behalf, and against Lehman, on his breach of contract claim. B. Lehman Cannot Establish a Valid Employment Contract

Because Lehman’s claim for breach is one that relates to his employment, Lehman must, at the threshold, establish that his employment relationship with LCSi was not, as the law presumes, an at-will employment relationship. Veno v. Meredith, 357 Pa. Super. 85, 515 A.2d 571, 577 (Pa. Super 1986). The employment at-will doctrine provides that either the employer or the employee may terminate the employment relationship at will, with no legal recourse for the non-terminating party. Yetter v. Ward Trucking Corp., 401 Pa. Super. 467, 473, 585 A.2d 1022, 1025 (Pa. Super. 1991). A party overcomes the presumption of at-will employment by proving the existence of an express contract of employment. Veno v. Meredith, 357 Pa. Super. 85, 515 A.2d 571, 577 (Pa. Super 1986). In Pennsylvania, however, an employment contract can be proven only through “evidence of a specific term of employment or cause for termination.” Rogers v. Prudential Ins. Co. of America, 803 F.Supp 1024 (M.D. Pa. 1992) (emphasis added). Moreover, Lehman need not only produce some evidence, but must “produce ‘clear and convincing evidence’ that the parties intended to change the employment arrangement to a contract of definite length. Shaffer v. BNP/Cooper, 1998 U.S. Dist. LEXIS 14013 at *13 (E.D. Pa. Sept. 4, 1998) (citing Greene v. Oliver Realty, Inc., 363 Pa. Super. 534, 526 A.2d 1192, 1200 (Pa. Super. 1986)). Lehman’s allegations regarding the alleged ‘contract’ of employment fail at the outset. Contrary to governing law, Lehman pleads an employment contract that was (1) of indefinite length, i.e., until he chose to retire, and (2) not susceptible to termination. Failing to allege “a specific term of employment or cause for termination,” Lehman’s complaint fails, in the first instance, to make out a valid contract for employment. Based on that failure of pleading, the defendants are entitled to summary judgment on Lehman’s breach claim.

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Even if the employment agreement Lehman pleads could be enforced (and it cannot), Pennsylvania courts demand great clarity before they will find that an employer has contracted away the presumption of at-will employment. Scott v. Extracorporeal, Inc., Pa. Super. 90, 99, 545, A. 2d 334, 338 (1998). Evidence of “[v]ague or conclusory statements promising extended employment are insufficient to overcome the at-will presumption.” Shaffer, 1998 U.S. Dist. LEXIS 14013 at *13. Far from offering “clear and convincing” evidence that LCSi intended to contract away the presumption of at-will employment, the very best Lehman could say during his deposition was that he recalls the issue of employment until he chose to retire being discussed during a handful of meetings leading up to the SAA. He could not recall what was said during the meetings apart from general allusions to employment until he chose to retire. Such testimony constitutes the “vague or conclusory statements” that cannot, as a matter of law, establish an express employment contract; the law demands much greater clarity than Lehman can offer. In the end, it is probably not a coincidence that Lehman’s testimony regarding discussions of his employment is littered with phrases of implication, such as “[that] was understood early on,” (Lehman Dep. at 5) and “it was always assumed” (Lehman dep. at 6). What Lehman may have “understood” and “assumed” during discussions leading up to the SAA is no substitute for what was actually said. Absent such evidence, Lehman cannot reach a jury. Even if the Court could allow the matter to proceed in the face of a clear integration clause (and it cannot), Lehman fails to allege an enforceable employment agreement for want of either “a specific term of employment or cause for termination.” Further, the insubstantial character of the evidence Lehman offers in support of his allegations is insufficient as a matter of law to reach a jury. Summary judgment should be entered in all defendants’ favor because (1) Lehman alleges no valid contract and (2) the intent to depart from the at-will employment relationship requires evidence more substantial than a plaintiff’s unspecific recollection of general discussions.

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C.

The Gist-of-the-Action Doctrine Bars Lehman’s Fraud Claim

Application of the gist-of-the-action doctrine precludes Lehman from asserting a fraud claim because his action centers on an alleged failure to perform a purported contractual obligation, i.e., provide him with employment until he chose to retire. Lehman alleges that the individual defendants represented that he would “be employed by Defendant Lehman Construction Services for as long as he desired and at the same compensation that they were being paid.”4 Complaint at ¶ 125. It is this alleged promise, which provides the basis for all Lehman’s claims, regardless of how they are denominated. In short, Lehman’s fraud claim is inextricably intertwined in the purported contractual relationship between the Lehman and LCSi and, as such, is barred by Pennsylvania’s gist-of-the-action doctrine. The purpose of the gist-of-the-action doctrine is to “maintain the separate spheres of the law of contract and tort.” New York State Electric & Gas Corp. v. Westinghouse Electric Corp., 387 Pa. Super. 537, 564 A.2d 919 (Pa. Super. Ct. 1989). The gist-of-the-action doctrine bars tort claims arising solely from a contract between parties where the duties allegedly breached were created and grounded in the contract itself. In eToll, Inc. v. Elias/Savion Advertising, Inc., 2002 Pa. Super 347, 811 A.2d 10 (Pa. Super. Ct. 2002), the Superior Court examined the underpinnings of the gist-of-the-action doctrine, concluding that the “doctrine is designed to maintain the conceptual distinction between breach of contract claims and tort claims. As a practical matter, the doctrine precludes plaintiffs from re-casting ordinary breach of contract claims into tort claims.” eToll, 811 A.2d at 14 (internal citations omitted) (emphasis added). In essence, the term “gist” is a legal term of art referring to “the essential ground or object of the action in point of law, without which there would be no cause of action.” Id. at 15 (citing American Guar. & Liab. Ins. Co. v. Fojanini, 90 F. Supp. 2d 615, 622, 623 (E.D. Pa. 2000)). The court in eToll summarized Pennsylvania law governing the gist-of-the-action doctrine and concluded the doctrine would operate to bar tort claims in circumstances: (1) where the tort claim arises solely from a contract between the parties;
4

Lehman makes no claim that, while employed, he was not paid the same salary as the individual defendants and admits he has no reason to believe he was not so compensated. See Lehman Dep. at 80-81.
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(2) where the duty allegedly breached was created and grounded in the contract itself; (3) where the liability stems from a contract; or (4) where the tort claim essentially duplicates a breach of contract claim or the success of which is wholly dependent on the terms of a contract. Id. at 19-20 (internal citations and quotations omitted) (emphasis added). Whether an action is based upon the contractual relationship of the parties or broader social policies embodied in the law of torts, i.e., whether the gist-of-the-action doctrine applies to bar tort relief, is a question of law. Id. at 15. Courts have routinely found the doctrine applicable in cases such as this. For example, in Galdieri v. Monsanto Co., 245 F. Supp. 2d 636, 651 (D. Pa. 2002), the court addressed a claim in which former employees of Monsanto, after being terminated without cause, argued that Monsanto failed to honor long-term incentive plan obligations arising under their employment contracts. The plaintiffs also argue, as Lehman does here, that Monsanto induced them to enter into the employment contracts with no intent on performing the incentive plan obligations. Id. at 650. In dismissing the fraudulent inducement claim, the court held: The gist of Plaintiffs’ claim is that Monsanto contractually agreed to establish a long term incentive plan and failed to perform. Their breach of contract claim cannot be ‘bootstrapped’ into a fraud claim merely by adding the words ‘fraudulently induced’ or alleging the contracting parties never intended to perform. Id. at 651; Cf. Bohler-Uddeholm Am., Inc. v. Ellwood Group, Inc., 247 F.3d 79 (3d Cir. 2001) (holding that breach of fiduciary duty was not barred because the fiduciary duties owed by and between joint venturers are separate and distinct from contractual obligations). Lehman’s cause of action for fraud in the inducement is nothing more than a breach of contract claim recast in tort, which, although unnecessary, falls into each of the four categories the Superior Court described in eToll. Lehman claims that defendants’ alleged representation regarding employment until retirement must have been fraudulent for the simple reason that he was subsequently fired. This contention is, for all practical purposes, identical to Lehman’s

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claim for breach. All Lehman has done is re-brand his breach of contract claim with a tort label, which is precisely the practice the gist-of-the-action doctrine forbids. That Lehman’s fraud claim is nothing more than a re-branded breach of contract allegation is further established by reference to evidence developed during discovery. As set forth above, during his deposition Lehman conceded that the only act of the individual defendants that he contends induced him to enter into the SAA is the same alleged promise of employment that underlies his breach of contract claim. Lehman makes no other allegation of fraud in connection with his entry into the SAA. Moreover, despite a now-disowned request for rescission of the SAA, the compensatory relief Lehman seeks on his fraud claim is identical to that which he seeks for the alleged breach of contract. The facts that establish the identity of the fraud and contract claims, whether they be admissions contained in the complaint, or testimony given in deposition, are undisputed in the record. Because the gist-of-the-action doctrine bars Lehman’s fraud claim on the strength of that identity, summary judgment is warranted. Even on the merits, the defendants are entitled to summary judgment for the simple reason that, during his deposition, Lehman expressly denied that there was “anything about the defendants’ conduct prior to entering into the asset purchase agreement that [he] consider[s] to have been unlawful.” Lehman Dep. at 120. There simply is no basis for allowing Lehman’s fraud claim to proceed any further. Indeed, based on Lehman’s troubling deposition testimony, there is considerable question as to whether the fraud claim was lawfully commenced. D. The Economic Loss Doctrine Bars Lehman’s Fraud Claim

The economic loss doctrine “prohibits plaintiffs from recovering in tort economic losses to which their entitlement flows only from a contract.” Debbs v. Chrysler Corp., 2002 PA Super 326, P88, 810 A.2d 137, 164 (Pa. Super. Ct. 2002) (citing Werwinski v. Ford Motor Co., 286 F.3d 661, 2002 U.S. App. LEXIS 6854 (3rd Cir. Pa. 2002)). Generally speaking, the economic loss doctrine prevents recovery in tort where the claimed damage is based solely on the loss of economic expectation. See E. River S.S. Corp. v. Transamerica Delaval, 476 U.S. 858, 106 S.

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Ct. 2295, 90 L. Ed. 2d 865 (U.S. 1986). The economic loss rule is a reflection of the practical reality that, when parties contract with one another, they are free to allocate the risk and remedies for breach. See Werwinski, 286 F.3d 661. Permitting tort claims to proceed in circumstances where economic expectations are defined by contract is to allow one party to unilaterally reallocate contractual risk and remedies. The record in this action could not be more precise with regard to the nature of the damages Lehman seeks in connection with his fraud claim. At the threshold, Lehman disowned the remedy of rescission, which is the only form of relief uniquely sought on his fraud claim: Q. Sitting here today, is it your desire that the asset purchase agreement be undone? [Objection] A. No.

Lehman Dep. at 115. Lehman than indicated that the monetary damages he seeks for fraudulent inducement are of a piece with those he seeks on his breach of contract claim: Q. Am I correct in assuming that the damages you seek in the fraudulent inducement count are the same damages you would be seeking in the breach of contract count? [Objection] A. Q. Would you ask me the question again, please? Am I correct . . . that the monetary damages you would associate with [the fraudulent inducement] count are the same [as those you associate with the contract count]? That’s correct.

A. Lehman Dep. at 116.

Because Lehman’s damages flow, by his own testimony, from the alleged breach of contract that is the crux of this action, the only manner through which his tort claim can survive the economic loss rule is by means of an exception to that rule. While, as explained above, the gist-of-the-action doctrine would still bar the fraud claim, there is no applicable exception that would spare the claim from the economic loss rule.

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The law in Pennsylvania is admittedly somewhat unsettled with regard to exceptions to the economic loss doctrine for claims of misrepresentation or fraud. Yet cases that do recognize an exception to the doctrine for fraud in the inducement do so only in circumstances where the alleged fraud is independent of, or extraneous to, a contract between the parties. See Werwinski, 286 F.3d at 674-81; Montgomery County v. Microvote Corp., 2000 U.S. Dist. LEXIS 983, 22-23 (D. Pa. 2000); see also Huron Tool & Engineering Co. v. Precision Consulting Services, Inc., 209 Mich. App. 365, 532 N.W.2d 541, 545 (Mich. Ct. App. 1995). For example, in Bilt-Rite Contrs, Inc. v. Architectural Studio, 581 Pa. 454, 866 A.2d 270 (Pa. 2005), the Pennsylvania Supreme Court recognized an exception to the economic loss doctrine for claims of misrepresentation. That exception, however, is narrow and readily distinguishable from the case at hand. In Bilt-Rite, the court found that an exception to the doctrine exists where design professionals have reason to know their representations will be relied upon by third parties. The court allowed the exception because, unlike matters in this case, there was no contract under which the third party contractor could sue the design professional for breach: [Our earlier] application of the “economic loss” rule maintains the dividing line between tort and contract while recognizing the realities of modern tort law. Purely “economic loss” may be recoverable under a variety of tort theories. The question, thus, is not whether the damages are physical or economic. Rather, the question of whether the plaintiff may maintain an action in tort for purely economic loss turns on the determination of the source of the duty plaintiff claims the defendant owed. A breach of a duty which arises under the provisions of a contract between the parties must be redressed under contract, and a tort action will not lie. A breach of duty arising independently of any contract duties between the parties, however, may support a tort action. Bilt-Rite, 581 Pa. at 483 (citing Tommy L. Griffin Plumbing & Heating Co. v. Jordon, Jones & Goulding, Inc., 320 S.C. 49, 463 S.E.2d 85 (S.C. 1995)). Thus, the exception carved-out by BiltRite applies only where there is lack of privity between the parties and, for that reason, the source of the claim is not grounded in a contractual obligation. Here, Lehman seeks purely economic damages on his fraud claim. And because those damages arise from—and are identical to—those allegedly flowing from the breach of an alleged
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contractual, this matter falls squarely within the rule that such losses may not be recovered in tort. As is also the case with the gist-of-the-action doctrine, the inextricably intertwined nature of Lehman’s fraud and breach claims renders his fraud claim barred by application of the economic loss doctrine. The facts pertinent to the Court’s determination are undisputed and the individual defendants are entitled to judgment as a matter of law. As also noted above, summary judgment on Lehman’s fraud claim is all the more justified by reference to Lehman’s own admission that there was nothing “about the defendants’ conduct prior to entering into the asset purchase agreement that [he] consider[s] to have been unlawful.” Lehman Dep. at 120. E. Lehman’s Conspiracy Claim Fails for Want of an Underlying Tort

A Plaintiff asserting a claim for civil conspiracy must “allege the existence of all elements necessary to such a cause of action. A cause of action for conspiracy requires that two or more persons combine or enter an agreement to commit an unlawful act or to do an otherwise lawful act by unlawful means.” Burnside v. Abbott Laboratories, 351 Pa. Super. 264, 278, 505 A.2d 973, 980 (Pa. Super. Ct. 1985). In this case, the only unlawful act alleged is fraud in the inducement. Thus, Lehman cannot maintain a claim for conspiracy if he cannot establish a right to recovery on the underlying fraud action. Weaver v. Franklin County, 2007 Pa. Commw. LEXIS 104, 918 A.2d 194 (Pa. Commw. Ct. 2007); Manning v. WPXI, Inc., 2005 PA Super 343, 886 A.2d 1137 (Pa. Super. Ct. 2005). As shown above, Lehman’s fraud claim is subject to summary judgment on multiple grounds. Both the gist-of-the-action doctrine and the economic loss rule independently operate to limit Lehman’s remedy to damages for breach of contract (and, as also established above, Lehman’s breach claim likewise fails as a matter of law). Because Lehman has no viable tort claim to present to a jury, the individual defendants are entitled, as a matter of course, to summary judgment on Lehman’s civil conspiracy claim. VI. Conclusion For all the foregoing reasons, defendants respectfully request that the Court enter summary judgment in their favor on each of Lehman’s three claims. Specifically, Lehman’s

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breach of contract claim fails because (1) it is barred by the SAA’s integration clause; (2) the individual defendants were not parties to the SAA; (3) Lehman has not alleged an enforceable employment contract; and (4) Lehman’s evidence of the unenforceable employment contract he alleges is, in any event, insufficiently distinct to place before a jury. Lehman’s fraud claim against the individual defendants is barred by the gist-of-the-action and economic loss doctrines, and the associated civil conspiracy claim fails for lack of a viable supporting tort claim.

Dated: April 30, 2009

By: Eric Suter (No. 202017) CGA Law Firm 135 North George St. York, PA 17401 P: 717.848.4900 Attorneys for defendants

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IN THE COURT OF COMMON PLEAS FRANKLIN COUNTY, PENNSYLVANIA PAUL E. LEHMAN, Plaintiff, v. JEFFREY L. KNOUSE, JAY D. FINKENBINDER, ALICE H. RAHAUSER and LEHMAN CONSTRUCTION SERVICES, INC., Defendants. CERTIFICATE OF SERVICE I hereby certify that on this 30th day of April 2009, I caused copies of Defendants’ Motion for Summary Judgment and Defendants’ Memorandum of Law in Support of Motion for Summary Judgment to be served on the person(s) listed below by First Class Mail postage prepaid at York, Pennsylvania: James J. Kutz, Esq. Barbara A. Zemlock, Esq. POST & SCHELL P.C. 17 North Second St., 12th Floor Harrisburg, PA 17101-1601 Fon: 717.731.1970 Fax: 717.731.1985 No. 2007-2510 Civil Action Judge Richard J. Walsh

By: Eric Suter (No. 202017) CGA Law Firm 135 North George St. York, PA 17401 P: 717.848.4900 Attorneys for defendants

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