Malek v. eResearch Technology, Inc. ( 2022 )

[Cite as Malek v. eResearch Technology, Inc., 2022-Ohio-3330.]
COURT OF APPEALS OF OHIO
EIGHTH APPELLATE DISTRICT
COUNTY OF CUYAHOGA
CHAD MALEK, :
Plaintiff-Appellant, :
No. 111232
v. :
ERESEARCH TECHNOLOGY, INC., :
ET AL.,
Defendants-Appellees. :
JOURNAL ENTRY AND OPINION
JUDGMENT: AFFIRMED
RELEASED AND JOURNALIZED: September 22, 2022
Civil Appeal from the Cuyahoga County Court of Common Pleas
Case No. CV-20-933338
Appearances:
Kushner & Hamed Co., L.P.A., Philip S. Kushner, Michael
R. Hamed, and Brandon Mordue, for appellant.
Gallagher Sharp LLP, Lori E. Brown, and Maia E. Jerin,
for appellees.
KATHLEEN ANN KEOUGH, P.J.:
Plaintiff-appellant, Chad Malek, appeals from the trial court’s
judgments granting (1) defendants-appellees eResearch Technology, Inc. (“ERT”),
and James Corrigan’s motion for summary judgment on Malek’s fraud claim, (2)
defendants-appellees ERT and Steve Nuckols’s motion for summary judgment on
Malek’s claim for negligent misrepresentation, and (3) defendant-appellee Timothy
Kulbago’s Civ.R. 12(C) motion for judgment on the pleadings regarding Malek’s
fraud claim.1 For the reasons that follow, we affirm.
I. Factual Background
The record in this case reveals the following facts. ERT is a global
data and technology company that offers products and services to minimize risks in
clinical trials. Malek was the global vice president of imaging sales at ERT from
February 2017 until May 28, 2019, when he voluntarily resigned from his
employment. Corrigan, Nuckols, and Kulbago were part of ERT’s management
team. Nuckols and Kulbago reported to Corrigan, who was ERT’s former chief
executive officer; Nuckols was ERT’s chief commercial officer and Malek’s direct
supervisor; and Kulbago was ERT’s vice president of imaging.
In 2019, ERT was owned primarily by two investors, Nordic Capital
and Novo Holdings. Nordic and Novo held seats on ERT’s Board, along with an
independent board member and Corrigan. As private equity investors, Nordic and
Novo’s goals included obtaining a return on their investment, whether through a
sale of ERT or co-investment, and they regularly explored potential sale or
investment opportunities.
1 Malek does not challenge the trial court’s grant of summary judgment to Nuckols
on Malek’s fraud clam against him nor the granting of Corrigan’s and Kulbago’s Civ.R.
12(C) motions for judgment on the pleadings regarding Malek’s negligent
misrepresentation claim against them. He thus has waived any argument on appeal
regarding the trial court’s rulings on these claims.
Malek was not an ERT stockholder but was granted options pursuant
to the Goldcup Holdings, Inc. 2016 Stock Option Plan (“SOP”) to purchase ERT
stock under certain scenarios.2 Pursuant to the SOP terms, option holders could
potentially receive a payout if there was a “change in control” at ERT, which the SOP
defined as “the sale of the company * * * to an independent third party” where “such
party or parties acquires * * * more than 50% of the voting power of all outstanding
voting Equity Securities of the Company * * *.”
ERT’s investor group, Nordic, responded to frequent potential
investor inquiries during the first quarter of every year. In early 2019, after Nordic
attended an industry conference, it received inquiries from several potential
investors. Nordic and Novo decided to explore these opportunities and engaged an
outside consulting firm to help them “evaluate potential strategic alternatives for
ERT.” Nordic and Novo had preliminary discussions with several entities in early
2019, naming these initial discussions “Project Tenerife.” These initial discussions
were handled by Nordic and Novo without ERT’s involvement. In February 2019,
Nordic asked Corrigan to prepare a presentation for a number of potential investors,
including investment company Astorg, who were making inquiries about ERT.
On March 4, 2019, Bloomberg News published an article headlined
“Nordic Capital Considering Sale of ERT.” The Bloomberg article, in its entirety,
stated:
2 Malek was granted 743,113 shares at an exercise price of $1.00 per share.
Buyout firm Nordic Capital is considering a sale of health-care data
collection company ERT Operating Co., people with knowledge of the
matter said.
Nordic has held talks with potential advisers about strategic options for
the Philadelphia-based ERT, said the people, who asked not to be
identified because they weren’t authorized to speak publicly. ERT
could fetch about $2.5 billion in a sale, one of the people said. Nordic
hasn’t made a final decision on whether to pursue a sale and could still
elect to keep the business, they said.
A representative for ERT referred request for comment to Nordic. A
spokeswoman for Nordic, with offices including Stockholm, declined to
comment.
Nordic agree to buy ERT from peer Genstar Capital in March 2016 in a
deal that valued the company at about $1.8 billion. The company,
which provides patient data collection solutions for use in the
development of clinical pharmaceutical products, has grown via
acquisitions including Biomedical Systems Corp. and iCardiac
Technologies Inc. in 2017, according to its website.
Nordic, which is led by Managing Partner Kristoffer Melinder, has
invested about 13 billion euros ($14.7 billion) since being founded in
1989. The company also owns shares in air-treatment firm Munters
Group AB and consumer loans and deposits company Nordax Group
AB, according to its website.
Upon learning of the article, one ERT board member emailed
Corrigan and Raj Shah, a partner at Nordic and a board member, that it was “not
good to have this story out there. So much for keeping these initial chats quiet.”
Shah responded, “[A]gree no[t] great having rumors but not sure it makes much of
an impact.” The board member responded, “Agree we don’t need to focus much on
it ─ but hopefully Jim doesn’t create too much internal distraction for you to manage
and doesn’t impact negatively our recruiting efforts.” Corrigan responded that “it
will be a distraction for a few days” and that he would let them know if the article
impacted recruiting.
The Bloomberg article contained a number of inaccuracies, including
misidentifying ERT’s name and misrepresenting it as a data-collection company.
On March 5, 2019, ERT’s Chief Strategy Officer sent an email to ERT employees
confirming the article’s inaccuracies. That same day, Malek attended a management
team meeting during which Corrigan confirmed to the group that the Bloomberg
article was not factual and that “a sale was not on the horizon.”
On March 7, 2019, Corrigan met with representatives from Astorg
and Goldman Sachs. In light of the preliminary nature of the meeting and because
he believed the companies were “window shopping,” Corrigan gave a marketing
pitch rather than an in-depth presentation. No other executive team members were
advised of or attended the meeting due to the preliminary and confidential nature
of the meeting. Corrigan admitted that because the talks were so preliminary, he
had the Astorg people pose as Nordic personnel who were in town for a visit because
if employees saw him walking around with people they did not recognize, “it might
fuel up rumors,” especially because the Bloomberg article had just been released.
After the meeting, Corrigan reported to ERT’s board that Astorg
“seemed very interested in the space and company and our potential.” Although
Goldman Sachs was initially interested in ERT, it lost interest after another meeting
in March 2019. Corrigan continued meeting with other potential investors and did
not meet with the Astorg representatives again until July 25, 2019, when Astorg
became more serious about investing in ERT.
In January 2019, Malek began exploring employment opportunities
outside ERT. On April 2, 2019, ERT put Malek on a performance improvement plan.
Malek felt that his job was in jeopardy because he believed that employees who are
put on improvement plans generally leave their employment. Fearful of his future
at ERT, in May 2019, Malek accepted a job with his current employer, BenchSci.
Malek resigned from ERT on May 29, 2019, and his last day of work there was June
28, 2019. Upon resignation, pursuant to the SOP, Malek had 60 days, or until
August 28, 2019, to exercise his stock options.
In Malek’s exit interview, both Corrigan and Nuckols asked him to
stay on at ERT, and Kulbago told Malek that if he did not like his new job, he could
come back to ERT. But Malek was determined to leave, explaining to Corrigan and
Kulbago that his “decision to leave ERT [was] based on the fact that I know you lost
faith in my ability to manage the commercial imaging team.”
In early June 2019, Nordic met with Astorg. Nordic reported to
Corrigan that although the discussions were positive, the parties had not agreed on
any specific next steps and “the ball was definitely in [Astorg’s] court.” Due to the
preliminary nature of the discussions, Corrigan advised ERT’s board that although
certain members of the executive management team would make presentations to
the board at its upcoming meeting regarding other subjects, they would not be
present nor participate in any discussions regarding Project Tenerife during the
meeting.
In early July 2019, Astorg became more serious about its interest in
ERT and the discussions were given a new name: “Project Vinland.” It was still
unclear, however, whether ERT would ultimately strike a deal with Astorg or
whether such an event would be considered a “change of control” that would affect
employees’ stock options.
On July 24, 2019, Corrigan met with Astorg for a second meeting
where he gave an in-depth presentation on a confidential basis. In late July, as
Nordic and Astorg began the due diligence process, Nordic gave Corrigan
permission to engage ERT’s controller, general counsel, and vice president of
financial planning in Project Vinland. However, because Astorg’s deal with ERT was
still uncertain, details were kept confidential from the rest of the executive
management team.
Finally, on September 8, 2019, because Astorg had become a serious
potential investor, Corrigan disclosed to the entire executive management team,
including Nuckols and Kulbago, that Nordic and Novo were considering a potential
transaction and instructed them to attend a meeting in Boston on September 9,
2019, where further details would be disclosed.
On October 21, 2019, ERT announced an investment by Astorg, who
entered as a partner with the existing owners through a purchase of 41 per cent of
ERT’s shares. On October 28, 2019, in a text conversation with Nuckols, Malek
stated that he was going to exercise his stock options. When Nuckols advised him
that he had missed the window to exercise, Malek responded that he had six months
after leaving ERT to exercise his options. On October 29, 2019, Malek contacted his
financial planner and asked him to procure a lender who would loan him the
$500,000 plus that he believed he needed to exercise his options. Malek was
subsequently informed by ERT that he had missed the window to exercise his
options.
On February 4, 2020, eight months after Malek voluntarily left ERT,
the Astorg transaction closed. Because Astorg did not purchase ERT, and its
investment was not at 50 per cent, the transaction did not meet the definition of
“change of control” in the SOP so as to implicate a potential payout. However, a
decision to liquidate ERT management’s stock holdings was made in late fall 2019,
well after Malek’s stock options had expired and six months after the Bloomberg
article was released.
II. Procedural Background
In June 2020, Malek filed suit against ERT, Corrigan, Nuckols, and
Kulbago, asserting claims for fraud and negligent misrepresentation arising out of
his decision to resign from ERT without exercising his stock options. After the
pleadings were closed, the trial court granted Kulbago’s Civ.R. 12(C) motion for
judgment on the pleadings regarding both claims. ERT, Corrigan, and Nuckols
subsequently filed a motion for partial judgment on the pleadings regarding the
negligent misrepresentation claim, which the trial court granted as to Corrigan but
denied as to Nuckols and ERT.
Both parties then filed cross-motions for summary judgment. Malek
moved for summary judgment on his fraud claims against Corrigan and ERT and
his negligent misrepresentation claim against Nuckols and ERT. ERT, Corrigan,
and Nuckols (collectively, “appellees”) moved for summary judgment on all
remaining claims. The trial court denied Malek’s motion and granted appellees’
motion. This appeal followed.
III. Law and Analysis
A. Summary Judgment Rulings
In his first assignment of error, Malek contends that the trial court
erred in granting appellees’ motion for summary judgment on his fraud claim
against Corrigan and ERT and his negligent misrepresentation claim against
Nuckols and ERT.
a. Standard of Review
We review a trial court’s decision on a motion for summary judgment
de novo. Grafton v. Ohio Edison Co., 77 Ohio St.3d 102, 105, 671 N.E.2d 241 (1996).
Summary judgment is appropriate when, construing the evidence most strongly in
favor of the nonmoving party, (1) there is no genuine issue of material fact; (2) the
moving party is entitled to judgment as a matter of law; and (3) reasonable minds
can only reach a conclusion that is adverse to the nonmoving party. Zivich v. Mentor
Soccer Club, 82 Ohio St.3d 367, 369-370, 696 N.E.2d 210 (1998).
The party moving for summary judgment bears the burden of
demonstrating that no material issues of fact exist for trial. Dresher v. Burt, 75 Ohio
St.3d 280, 292-293, 662 N.E.2d 264 (1996). The moving party has the initial
responsibility of informing the trial court of the basis for the motion and identifying
those portions of the record that demonstrate the absence of a genuine issue of
material fact on the essential elements of the nonmoving party’s claims. Id. After
the moving party has satisfied this initial burden, the nonmoving party has a
reciprocal duty to set forth specific facts by the means listed in Civ.R. 56(C) showing
that there is a genuine issue of material fact. Id.a. Malek’s Fraud Claim Against Corrigan
The elements of fraud are (1) a representation of fact (or where there
is a duty to disclose, concealment of a fact); (2) that is material to the transaction at
issue; (3) made falsely, with knowledge of its falsity or with utter disregard and
recklessness as to whether it is true or false; (4) with the intent of misleading another
into relying upon it; (5) justifiable reliance upon the misrepresentation (or
concealment); and (6) resulting injury proximately caused by the reliance. Cohen v.
Lamko, Inc., 10 Ohio St.3d 167, 169, 462 N.E.2d 407 (1984). All of these elements
must be present to find actionable fraud. Westfield Ins. Co. v. HULS Am., Inc., 128
Ohio App.3d 270, 280, 714 N.E.2d 934 (10th Dist.1998). The absence of even one
of these elements precludes recovery. Id.Malek’s fraud claim against Corrigan is based on his contention that
Corrigan fraudulently “denied ERT was pursuing a transaction” when he said in an
ERT team meeting on March 5, 2019, that the Bloomberg article was untrue and
unfounded. Malek also asserted in his motion for summary judgment and his brief
in opposition to appellees’ motion for summary judgment that after the meeting, he
asked Corrigan “too many times to count” whether there was any event on the
horizon that could make his options valuable and Corrigan consistently told him
“there was nothing that [he] saw that was going to * * * change the investment or
the ownership of the company.” He contends that if Corrigan had not misled him,
he would have stayed at ERT and been paid for his stock options.
Initially, we find that Malek cannot assert a fraud claim for Corrigan’s
alleged statements after the March 5, 2019 meeting that there was nothing on the
horizon with respect to any upcoming event relating to Malek’s stock options
because these statements were not pled with particularity in the complaint, as
required by Civ.R. 9(B). Under Civ.R. 9(B), the pleading must contain allegations of
fact that tend to show each element of a cause of action for fraud. Fast Tract Title
Servs. v. Barry, 8th Dist. Cuyahoga No. 110939, 2022-Ohio-1943, ¶ 12. “This means
that a defendant must state ‘the time, place, and content of the false representation,
the fact misrepresented, and the nature of what was obtained or given as a
consequence of the fraud.’” Cord v. Victory Solutions, L.L.C., 8th Dist. Cuyahoga
No. 106006, 2018-Ohio-590, ¶ 14, quoting Carter Jones Lumber Co. v. Denune, 132
Ohio App.3d 430, 433, 725 N.E.2d 330 (10th Dist.1999). Malek’s complaint makes
no allegation at all regarding Corrigan’s alleged additional statements; the
complaint’s single allegation of fraud against Corrigan is that during a management
meeting the week of March 4, 2019, Corrigan told Malek and several other
employees that the Bloomberg article was “false” and “likely had been released by a
competitor to cause disruption.” Thus, Malek’s fraud claim against Corrigan is
limited to this single instance of alleged fraud. Upon review, we find that the trial
court properly dismissed this claim against Corrigan and by extension, ERT,3
because Malek did not produce evidence in response to appellees’ summary
judgment motion regarding each element of his claim.
a. No Material Misrepresentation
First, Malek has produced no evidence that Corrigan made a material
misrepresentation of fact on March 5, 2019, when he stated that the Bloomberg
article was inaccurate or false. The Bloomberg article announced “Nordic Capital
Considering Sale of ERT.” But there is no evidence that Nordic had advised Corrigan
that it was looking to sell ERT at that time. Rather, the evidence is clear that when
Corrigan made the statement, he understood that Nordic was looking for a co-
investor and that ERT was not for sale. In fact, ERT was never sold. As Corrigan
testified in his deposition, “a co-investment occurred and a recap occurred, but not
a sale.”
In addition to an inaccurate headline, the article itself contained
several significant inaccuracies. It misidentified ERT’s line of work, because it is not
3A party injured by an employee acting within the scope of his employment may
pursue damages against the employer under the doctrine of respondeat superior, in
addition to pursuing damages against the employee. Osborne v. Lyles, 63 Ohio St.3d 326,
329, 587 N.E.2d 825 (1992); Schisler v. Columbus Med. Equip., 10th Dist. Franklin No.
15AP-551, 2016-Ohio-3302, ¶ 31.
a “healthcare data collection company.” The article also falsely stated a sale price of
$2.5 billion, which both Corrigan and Nuckols testified was inconceivable given that
Nordic had just purchased ERT in 2016 for $1.8 billion and a sales price of $2.5
billion would not be a sufficient return for ERT’s investors.
Furthermore, the status of the discussions with the potential
investors in March 2019 was so preliminary as to render any speculation regarding
a potential purchase by Astorg wholly unsubstantiated. ERT’s investor group,
Nordic, responded to potential investor inquiries at the beginning of every year.
When the Bloomberg article was published, discussions with a number of investors
were in very preliminary stages. Corrigan could not disclose the possibility of a sale
before Nordic had begun negotiating in earnest with Astorg or any other investor.
Furthermore, in March 2019, Corrigan believed that the investors who had
expressed an interest in ERT were merely “window shopping” and not seriously
interested in ERT. In fact, no serious investment discussions were happening at that
time and no sale was on the horizon. Thus, there is no evidence Corrigan
misrepresented on March 5, 2019, that ERT was not considering a sale for $2.5
billion because no such sale was being considered or negotiated at that time.
Malek contends that Corrigan lied when he said the article was not
true, however, because the article accurately reported that ERT was considering a
multibillion-dollar transaction. As support, he points to the phrase in the article
stating that “Nordic has held talks with potential advisors about strategic options
for Philadelphia-based ERT,” and the fact that a month before the article was
released, ERT had hired consulting firm KPMG to advise it on “potential strategic
alternatives.” (Emphasis added.) Malek’s argument fails. Although the article does
indeed contain the words “strategic options,” reading the headline and article in its
entirety clearly demonstrates that the Bloomberg article was indisputably about the
sale of ERT. Thus, Corrigan’s statement that the article was not true was not a
material misrepresentation given that the article concerned a sale that was not being
contemplated when the article was published and a sale that, in fact, never
happened.
b. No Fraudulent Intent
Malek also produced no evidence that Corrigan intended to defraud
or mislead him into voluntarily resigning in June 2019, or to forego exercising his
stock options in August 2019, when he said during a meeting in March 2019, that
the Bloomberg article was not true. Fraud is not established unless the person
makes the misrepresentation with knowledge of its falsity and with the intent of
misleading another to rely on it. Gaines v. Preterm-Cleveland, Inc., 33 Ohio St.3d
54, 56, 514 N.E.2d 709 (1987).
Malek’s case is based on his “hunch” that the appellees knew about
the Astorg transaction and were purposely misleading him because, as alleged in his
complaint, “[m]ulti-billion dollar transactions do not appear out of thin air. They
require months of planning, negotiations, and diligence.” But fraudulent conduct
cannot be established by mere conjecture; it must be proved by direct evidence or
justifiable inferences from established facts. Seitz v. Harvey, 2d Dist. Montgomery
No. 25867, 2015-Ohio-122, ¶ 43.
Malek’s suspicions are insufficient to create a genuine issue of
material fact regarding any fraudulent intent. Rather, the evidence demonstrates
that when the Bloomberg article came out on March 4, 2019, many of the details in
the article were incorrect. Further, the evidence demonstrates that Corrigan’s
statement about the Bloomberg article was not made directly to Malek; it was made
to a group of ERT employees during a regularly scheduled meeting. Finally, it is
undisputed that Corrigan asked Malek to stay on at ERT even after he had decided
to resign, a fact that in itself negates the element of intent. Quite simply, there is no
evidence that Corrigan intended that Malek rely on a statement made during a group
meeting in March 2019 in deciding to resign from ERT in May 2019, and not exercise
his stock options in August 2019, some five months after the statement was made.
Malek suggests in his appellate brief, as he argued in his brief
opposition to appellees’ motion for summary judgment, that Corrigan’s
concealment of the initial discussions with Astorg indicates fraudulent intent, as
demonstrated by his testimony that he had the Astorg representatives pose as
Nordic personnel for the March 7, 2019 meeting. But the two cases Malek cites in
support of his argument that concealment is an indication of fraudulent intent and
a “badge of fraud” do not support his common law fraud claim. In Harrison v.
Creviston, 168 Ohio App.3d 349, 354, 860 N.E.2d 113 (8th Dist.2006), the court
simply noted that concealing the transfer of money shortly before or after incurring
a substantial debt is a “badge of fraud” for purposes of determining whether a
fraudulent transfer occurred pursuant to R.C. 1336.04(B). Richardson v. Commr.,
509 F.3d 736 (6th Cir.2007), involved a party who fraudulently underreported taxes
in violation of a federal statute. Both cases are inapplicable here because neither
case discusses common law fraud under Ohio law or a factual scenario even remotely
similar to this case.
Malek also contends that Corrigan’s testimony that he believed the
Bloomberg article was a “distraction” to ERT employees and that he wanted to keep
the focus on growing the company rather than the rumor and distraction created by
the article demonstrates fraudulent intent. We disagree. As discussed above, the
article contained numerous inaccuracies. Being inaccurate and being a distraction
are two different things. Corrigan’s desire to keep employees focused on growing
ERT rather than the distraction created by the article does not render the article
true, and his desire to avoid the distraction created by the article does not support
Malek’s assertion that Corrigan intentionally misrepresented the article’s veracity.
Malek also suggests that the board member’s email to Corrigan and
another board member after the article was published that “it was not good to have
this story out there,” and Corrigan’s response that the article would “be a distraction
for a few days,” demonstrates that Corrigan’s statement about the Bloomberg article
was untrue. Again, whether the article was a distraction does not make it true, nor
make Corrigan’s statement that the article was “unfounded” a misrepresentation.
In short, there is no evidence in the record from which a jury could
conclude that Corrigan intended to defraud Malek or induce him to act on the
representation.
c. No Justifiable Reliance
Next, we find that Malek produced no evidence of any justifiable
reliance on Corrigan’s March 5, 2019 statement in his decision to resign from ERT
in May 2019, and let his stock options expire some five months later. In fact, Malek
testified that he left ERT, despite being asked to stay, because he was fearful of his
future at the company after he was put on a performance improvement plan and was
concerned about his job security. In his resignation letter, Malek confirmed that he
left ERT “based on the fact that I know you lost faith in my ability to manage the
commercial imaging team.” Thus, the undisputed evidence demonstrates that
Malek did not leave ERT because of or in reliance on Corrigan’s statement; he left
because he was worried about his job.
The evidence also demonstrates that Malek’s decision to not invest
over $500,000 in ERT and timely exercise his stock options within 60 days after he
resigned from ERT is because he mistakenly believed he had six months after his
resignation to exercise his options. On October 28, 2019, Malek sent Nuckols a text
message in which he stated that he had six months to exercise his options, and on
October 29, 2019, Malek asked his financial planner to find a lender who could “pull
the $518,779” Malek believed he needed to exercise his options. However, as Malek
now admits, by then it was too late; his options had expired 60 days after his
voluntary resignation from ERT. Malek’s text makes clear that his decision to not
timely exercise his options was not based on Corrigan’s March 5, 2019 statement
about the Bloomberg article; it was based on his misunderstanding regarding how
long he had to exercise his options.
The absence of any element of a fraud claim precludes recovery.
Minaya v. NVR, Inc., 8th Dist. Cuyahoga No. 105445, 2017-Ohio-9019, ¶ 12.
Because Malek did not produce evidence demonstrating there was a genuine issue
of fact regarding all the elements of his fraud claim against Corrigan, the trial court
properly granted summary judgment to appellees on this claim.
a. Malek’s Negligent Misrepresentation Claim Against Nuckols
Malek next challenges the trial court’s grant of summary judgment to
Nuckols on his negligent misrepresentation claim.
In Delman v. Cleveland Hts., 41 Ohio St.3d 1, 534 N.E.2d 835 (1989),
the Ohio Supreme Court set for the elements of negligent representation as follows:
One who, in the course of his business, profession or employment, or
in any other transaction in which he has a pecuniary interest, supplies
false information for the guidance of others in their business
transactions, is subject to liability for pecuniary loss caused to them by
their justifiable reliance upon the information, if he fails to exercise
reasonable care or competence in obtaining or communicating the
information.
Id. at 4. Thus, “the elements of a negligent misrepresentation claim ‘require (1) a
defendant who is in the business of supplying information; and (2) a plaintiff who
sought guidance with respect to his business transactions from the defendant.’”
Hamilton v. SYSCO Food Servs. of Cleveland, 170 Ohio App.3d 203, 2006-Ohio-
6419, 866 N.E.2d 559, ¶ 20 (8th Dist.), quoting Nichols v. Ryder Truck Rental, Inc.,
8th Dist. Cuyahoga No. 65376, 1994 Ohio App. LEXIS 2697 (June 23, 1994).
In his complaint, Malek alleged that Nuckols falsely represented in
March 2019 that the Bloomberg article was false, ERT was not close to an exit plan
because too much work needed to be done to improve ERT’s operations, and the
$2.5 billion valuation was inaccurate and too low. Malek further alleged that he
spoke with Nuckols on four separate occasions between June 27, 2019, and the end
of August and, each time, Nuckols told him that ERT had no transaction in sight that
would result in his stock options having value for at least 12 to 18 months. We find
that the trial court properly granted appellees’ motion for summary judgment
regarding this claim.
First, any statements that Nuckols allegedly made while Malek was
an employee of ERT are not actionable under a claim of negligent
misrepresentation. In Nichols, this court specifically rejected the application of the
tort of negligent misrepresentation in the employer – employee context because an
employer is not in “the business of supplying information for the guidance of
others.” Id. at 11. This court reasoned that the class of persons “who are in the
business of supplying information for the guidance of others typically include
attorneys, surveyors, abstractors of title and banks dealing with no-depositors’
checks.” Id. at 11-12. Further, the court found that “no court in Ohio has held the
tort of negligent misrepresentation applicable to the employer – employee
relationship.” Id. at 12. Accordingly, we find that the trial court properly granted
summary judgment to appellees on Malek’s misrepresentation claim regarding any
statements made by Nuckols prior to June 28, 2019, when Malek resigned from
ERT.
We likewise find that the trial court properly granted summary
judgment on Malek’s misrepresentation claim with respect to any statements by
Nuckols in July and August 2019, because it is undisputed that Nuckols is not “in
the business” of supplying information about stock options.
Malek contends, however, that this case involves a “transaction in
which Nuckols had a pecuniary interest”; i.e., that Nuckols, as a participant in ERT’s
stock plan, had a pecuniary interest in any pending transaction involving ERT that
would affect the value of his stock. Malek asserts that this is the “second type of
negligent misrepresentation claim” identified in Delman, supra, as opposed to the
“first type” involving representations made in the course of a “business, profession,
and employment,” and thus, he contends that the trial court improperly granted
summary judgment on this claim.
Malek cites Barr v. Lader, 8th Dist. Cuyahoga No. 87514, 2007-Ohio-
156, in support of this argument. Barr does not support Malek’s argument that the
trial court improperly granted summary judgment in favor of Nuckols on his claim,
however. The question in Barr was whether the plaintiff had adequately pleaded a
cause of action for negligent misrepresentation against a corporation and its officers
sufficient to withstand a Civ.R. 12(B)(6) motion to dismiss for failure to state a claim
upon which relief may be granted. Id. at ¶ 14. The issue here, however, is whether
Malek produced any evidence in response to appellees’ motion for summary
judgment to create a genuine issue of material fact regarding his negligent
misrepresentation claim against Nuckols. We find that he did not.
Malek admitted that he had no evidence that Nuckols knew of the
Astorg transaction in the summer of 2019 when he spoke with him (Malek Dep., p.
85), and in fact, Nuckols testified that he had no knowledge of the transaction until
September 8, 2019, when Corrigan told him and other members of the executive
management team to fly to Boston for a meeting on September 9, 2019, where they
were advised of the potential transaction. (Nuckols Dep., p. 29-30). Malek fails to
explain or offer any evidence regarding how Nuckols could have an interest in June,
July, and August 2019, in a “transaction” that he knew nothing about and that did
not even exist when his statements were made. Furthermore, Malek testified that
he did not speak with Nuckols in a business capacity relative to his stock options
(Malek Dep., p. 78), but rather, that he and Nuckols informally discussed their
children, the state of ERT, and Malek’s “hunch” that there was some financial
transaction on ERT’s horizon. Even assuming, as Malek argues, that this case
involves the “second type” of negligent misrepresentation claim, there is no evidence
that Nuckols’s statements were made in the context of a “transaction in which he
had a pecuniary interest,” and thus, they cannot form the basis for a negligent
misrepresentation claim.
Furthermore, Nuckols’s statements are not actionable because they
were merely his opinion and prediction regarding a future event. Malek testified
that Nuckols told him that exercising his options was “up to you. I can’t make that
call” but “they’re not going to be worth anything for at least 12 to 18 months.” (Malek
Dep., p. 74.) Negligent misrepresentation claims “require misrepresentations of
past or existing facts, not promises or representations relating to future actions or
conduct.” Telxon Corp. v. Smart Media of Del., Inc., 9th Dist. Summit No. 22098,
2005-Ohio-4931, ¶ 33. Nuckols’s statements, made in light of a transaction he knew
nothing about, were nothing more than his opinion and prediction about what could
happen in the future and thus cannot form the basis for a negligent
misrepresentation claim.
Last, there is no evidence to support Malek’s claim that Nuckols acted
negligently in supplying him with confidential corporate information after he
resigned, in violation of ERT policy. Malek contends that ERT’s prohibition against
sharing business information with former employees applies to information
regarding whether it is pursuing business transactions and thus, “by providing [him]
with false information about the pending transaction, Nuckols violated corporate
policy * * * and acted negligently.” However, there is no evidence whatsoever that
Nuckols knew about the Astorg transaction during his conversations with Malek in
the summer of 2019 and therefore, nothing to support Malek’s assertion that
Nuckols gave him false information about the transaction.
To summarize, the record reflects that Malek failed to produce any
evidence to create a genuine issue of material fact regarding either his fraud claims
against Corrigan or his negligent misrepresentation claim against Nuckols.
Accordingly, the trial court properly granted summary judgment to appellees on
both claims. The first assignment of error is overruled.
B. Civ.R. 12(C) Ruling
In his second assignment of error, Malek contends that the trial court
erred in granting Kulbago’s Civ.R. 12(C) motion for judgment on the pleadings
regarding his fraud claim.
Motions for judgment on the pleadings are governed by Civ.R. 12(C),
which states that “[a]fter the pleadings are closed but within such time as not to
delay the trial, any party may move for judgment on the pleadings.” To be entitled
to a dismissal under Civ.R. 12(C), “it must appear beyond doubt that [the
nonmovant] can prove no set of facts warranting the requested relief, after
construing all the material factual allegations in the complaint and all reasonable
inferences therefrom in [the nonmovant’s] favor.” State ex rel. Toledo v. Lucas Cty.
Bd. of Elections, 95 Ohio St.3d 73, 74, 765 N.E.2d 854 (2002). We review a ruling
on a motion for judgment on the pleadings de novo. DiGorgio v. Cleveland, 8th
Dist. Cuyahoga No. 95945, 2011-Ohio-5878, ¶ 19.
The entirety of Malek’s allegations against Kulbago are as follows:
Not long after that meeting [referring to the March 5, 2019
management meeting], Mr. Malek asked Tim Kulbago, ERT’s Imaging
Produce Line Executive and a member of the Executive Management
Team, about any possible sale involving ERT. Mr. Kulbago and Mr.
Corrigan had a close working relationship, including weekly one-on-
one meetings. They also golfed outside of work. Mr. Malek brought up
a rumor circulating in the Company that Mr. Corrigan was courting
potential buyers and investors. Mr. Kulbago responded that the
Bloomberg article was completely untrue and that he would know if the
CEO was courting potential buyers or investors because he knew what
meetings were on Mr. Corrigan’s calendar.
(Complaint, ¶ 30.)
As discussed above, in accordance with Civ.R. 9(B), claims of fraud
must be pled with particularity. The rule “places a higher burden than is normally
required upon the person asserting such a claim to support general allegations with
specific facts.” Reasoner v. State Farm Mut. Auto. Ins. Co., 10th Dist. Franklin No.
01AP-490, 2002-Ohio-878, ¶ 20-21.
To comply with the Civ.R. 9(B) requirement, “‘the pleading must
contain allegations of fact which tend to show each and every element
of a cause of action for fraud.’” Parmatown S. Assn. v. Atlantis Realty
Co., 8th Dist. Cuyahoga No. 106503, 2018-Ohio-2520, ¶ 7, quoting
Minaya v. NVR Inc., 2017-Ohio-9019, 103 N.E.3d 160, ¶ 11 (8th Dist.).
“This means that a defendant must state ‘the time, place, and content
of the false representation, the fact misrepresented, and the nature of
what was obtained or given as a consequence of the fraud.’” Cord v.
Victory Solutions, L.L.C., 8th Dist. Cuyahoga No. 106006, 2018-Ohio-
590, ¶ 14, quoting Carter Jones Lumber Co. v. Denune, 132 Ohio
App.3d 430, 433, 725 N.E.2d 330 (10th Dist.1999). Such particularity
is required to both apprise the opposing party of the act that is the
subject of the fraud claim and to allow the opposing party to prepare an
effective defense. Turner v. Salvagnini Am., Inc., 12th Dist. Butler No.
CA 2007-09-233, 2008-Ohio-3596, ¶ 26.
Fast Tract Title Servs., 8th Dist. Cuyahoga No. 110939, 2022-Ohio-1943 at ¶ 12.
Malek’s fraud claim against Kulbago was clearly not pled with
sufficient particularity. Its vague allegation that Malek spoke with Kulbago “not long
after” the March 5, 2019 meeting does not sufficiently plead the date, time, and place
of the alleged fraudulent misrepresentation.
Likewise, there are no specific allegations that Kulbago knew the
Bloomberg article was false and that he intended to mislead Malek when he told him
the article was not true. In fact, in his answer, Kulbago admitted that he was advised
by ERT’s executive vice president in an email dated March 5, 2019, that the
Bloomberg article was “based on rumours [sic] and needs to be ignored.” But even
without considering Kulbago’s answer, it is apparent that Malek alleged no facts that
Kulbago knowingly misrepresented information about the Bloomberg article with
the intent to mislead him into relying on the statement.
Likewise, there are no specific allegations that Malek relied on
Kulbago’s representation in March 2019 in deciding to leave ERT and not timely
exercise his stock options. In fact, Malek alleges in the complaint that he relied on
Nuckols’s representations in declining to exercise his stock options. (Complaint, ¶
40.)
Finally, Malek made no specific allegation that Kulbago knew about
the Astorg transaction in March 2019 such that his statement about the Bloomberg
article was untrue. Malek’s fraud claim against Kulbago, like his fraud claim against
the other defendants, is based on mere conjecture that it would have been
impossible for Kulbago, as a senior executive at ERT, not to have known about any
pending transaction involving ERT and that his statement about the Bloomberg
article must therefore have been untrue. But as discussed above, a fraud claim
cannot be based on conjecture; it must be supported with specific facts establishing
each element of the claim. Malek’s complaint failed to do so with respect to Kulbago;
it simply lumped him in with the other defendants without allegations of fraud
relating specifically to him.
Accordingly, because Malek failed to plead his fraud claim against
Kulbago with the requisite particularity required by Civ.R. 9(B), the trial court did
not err in granting Kulbago’s Civ.R. 12(C) motion for judgment on the pleadings.
The second assignment of error is overruled.
Judgment affirmed.
It is ordered that appellees recover from appellant costs herein taxed.
The court finds there were reasonable grounds for this appeal.
It is ordered that a special mandate be sent to said court to carry this judgment
into execution.
A certified copy of this entry shall constitute the mandate pursuant to Rule 27
of the Rules of Appellate Procedure.
KATHLEEN ANN KEOUGH, PRESIDING JUDGE
MARY EILEEN KILBANE, J., and
EMANUELLA D. GROVES, J., CONCUR