Toppy, E. v. Passage Bio, Inc ( 2022 )

J-A15025-21
2022 PA Super 190ERIC TOPPY IN THE SUPERIOR COURT
OF PENNSYLVANIA
Appellant
v.
PASSAGE BIO, INC.
Appellee No. 24 EDA 2021
Appeal from the Order Entered November 25, 2020
In the Court of Common Pleas of Philadelphia County
Civil Division at No: 200400905
BEFORE: BOWES, J., STABILE, J., and MUSMANNO, J.
OPINION BY STABILE, J.: FILED NOVEMBER 9, 2022
In this employment dispute, Appellant, Eric Toppy, filed a five-count
complaint against Appellee, Passage Bio, Inc., alleging that Appellee breached
a settlement agreement that resolved Appellant’s wrongful termination claims
against Appellee. Appellee filed preliminary objections in the nature of
demurrers asserting, inter alia, that the parties never entered a binding
settlement agreement. The trial court sustained Appellee’s preliminary
objections and dismissed the complaint with prejudice. Appellant appeals
from the order of dismissal. We affirm in part and reverse in part. We reverse
the dismissal of Appellant’s claims for breach of the settlement agreement and
violation of the Wage Payment Collection Law (“WPCL”), 43 P.S. §§ 260.1—
260.13. We affirm the dismissal of Appellant’s claims for unjust enrichment,
fraudulent misrepresentation and negligent misrepresentation.
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Appellant’s complaint alleges the following. Appellee is an emerging
growth company engaged in the development of gene therapies for the
treatment of rare central nervous system diseases. In April 2019, based on
his prior employment in the health care industry and his relationships with
rare disease patient organizations, Appellee hired Appellant as Vice President
of Patient Engagement and Market Access. As compensation, Appellee agreed
to pay Appellant an annual salary of $260,000 and a bonus targeted at 25%
of his base salary. Appellee also granted Appellant 448,623 stock options
which were to vest over the ensuing four years.
In October 2019, while Appellant was on a business trip for Appellee in
Europe, Appellant’s supervisor, Ms. Quigley, sent Appellant an e-mail stating
that she intended to terminate his employment. On his return, Appellant met
with Appellee’s general counsel, who told him that his employment was at an
end effective October 25, 2019. Having consulted and retained counsel,
Appellant then asserted1 three employment-related claims for relief against
Appellee: (1) disability discrimination; (2) misrepresentation related to the
forfeiture of the 448,623 stock options he had been granted; and (3)
defamation related to pejorative comments that Quigley made about him to
third parties.
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1 Although the complaint is not clear on this point, it appears from context
that Appellant first asserted these claims in private correspondence to
Appellee as opposed to the filing of a civil action in the court of common pleas.
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Appellant and Appellee agreed to mediate his claims before Patricia
McInerney, a former common pleas judge. Complaint, ¶¶ 2, 4. On January
30, 2020, the mediation took place. Id. at ¶ 25. The parties reached
agreement on two of the three settlement terms that Appellant proposed,
namely payment by Appellee of eight months of Appellant’s annual salary and
a 25% bonus pro-rated for eight months. Id. at ¶ 26. What remained
unresolved was the number of shares of common stock Appellee agreed to
issue to Appellant in exchange for his 448,623 stock options.2 Id. at ¶ 27.
Settlement negotiations continued over the weekend regarding the number of
shares of stock to be issued to Appellant. Id. at ¶ 28. On Monday, February
3, 2020, Appellee agreed to issue Appellant 150,000 shares of common stock.
Id.
On February 3, 2020, Judge McInerney sent an e-mail to Appellant’s
counsel, Harold Goodman that stated as follows:
I just got out of a meeting and Susan has replied accepting your
proposal:
I just heard back from my client. They agree to the
terms [Appellant’s counsel] suggested (150,000
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2 While stock options “take many forms and have assorted conditions,”
Marchlen v. Township of Mt. Lebanon, 746 A.2d 566, 570 n.9 (Pa. 2000),
a stock option is, generally speaking, a benefit given by a company to an
employee to purchase company stock at a discount or fixed price. Stock
shares, on the other hand, represent fractional ownership of an issuing
company. Guarantee Trust and Safe Deposit Co. of Mt. Carmel v. Tye,
196 A. 618, 620 (Pa. Super. 1938) (share of stock in business corporation is
“one of the whole number of equal parts into which the capital stock of a
trading company or corporation is or may be divided”).
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shares, 8 months’ severance, 25% bonus pro-rated
for 8 months, etc.), with two small tweaks:
1. They want to add Lysogene to the list of companies
where [Appellant] cannot work (the others are
Axovant and Prevail Therapeutics).
2. Regarding the letter of reference, Steve Squinto is
willing to state something like Eric’s role changed and
he wanted to leave so that he could continue to work
in patient engagement. He does not want to address
Eric’s performance as he did not supervise Eric and
obviously, Eric’s supervisor was critical of his
performance.
They also wanted me to make clear that this is their final position.
Id., ex. 1. Nothing in this email stated or suggested that the stock would be
subject to a pre-IPO (initial public offering) reverse stock split. The complaint
alleged that the email constituted an agreement because it resolved the final
issue between the parties. Id. at ¶ 28 (“Following discussions over the
weekend, the parties reached agreement on that remaining issue [the number
of shares of common stock]. Specifically, as reflected in the attached Monday,
February 3, 2020 e-mail from Judge McInerney, [Appellee] agreed with
[Appellant’s] counsel to issue him 150,000 shares of its Common Stock”).
On February 12, 2020, counsel for Appellee sent Appellant’s counsel a
draft settlement agreement and release to review. The draft accurately
described the severance and bonus payments that Appellant would receive.
The draft stated that Appellee would issue Appellant 150,000 shares of its
Common Stock, but it added in a vague parenthesis that the number “may be
adjusted by stock splits, stock combinations, recapitalizations or the like.” Id.
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at ¶ 31. Unbeknownst to Appellant at that time, Appellee already intended to
authorize a pre-IPO reverse split3 of its common stock. Id. at ¶ 32. Appellee
was aware of this internal decision at the time of the mediation before Judge
McInerney (January 30, 2020) and on the day it agreed to issue Appellant
150,000 shares of its common stock (February 3, 2020). Id. at ¶ 33. Despite
that, Appellee never said anything to Appellant about the reverse stock split
until more than two weeks later. Id. at ¶ 34. On February 18, 2020, counsel
for Appellee informed Appellant’s counsel that four days earlier (February 14,
2020), Appellee’s Board of Directors had met and authorized a 4.43316
reverse split of its common stock. Id. No notice of that meeting was sent to
Appellant or his counsel. Id. at ¶ 36. In effect, without Appellant’s
agreement, Appellee unilaterally decided to reduce the agreed upon shares of
common stock to be issued to Appellant from 150,000 to 33,836 shares. Id.
at ¶ 34. This occurred after the parties already agreed to issue Appellant
150,000 shares in exchange for his 448,623 stock options, or approximately
33% of the options.
Appellant refused to sign the draft settlement agreement that Appellee
sent to Appellant’s counsel on February 12, 2020. Appellee’s Brief at 5.
In an initial public offering on February 28, 2020, Appellee’s stock
opened on the NASDAQ Exchange at $18.00 per share. Id. at ¶ 41. Based
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3 A reverse stock split is one whereby existing shares of stock are merged to
create a smaller number of proportionally more valuable shares.
Consequently, the price per share increases proportionally.
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on this opening share price, the difference between the value of 150,000
shares of Appellee’s common stock and 33,836 shares is in excess of $2
million. Id. at ¶ 44.
Appellant requested that Appellee comply with the terms of the
agreement that Appellant envisioned: payment of eight months of salary, a
25% bonus pro-rated for eight months, and distribution of 150,000 shares of
common stock to Appellant. Appellee refused. Appellant thereupon
commenced the present action by filing a five-count complaint against
Appellee. Count I alleged that Appellee breached the parties’ settlement
agreement and requested “enforcement in full of the parties February 3, 2020
settlement agreement, including payment of the severance and bonus he is
due, and an injunction compelling Passage Bio to issue him 150,000 shares of
its Common Stock.” Count I, Prayer for Relief. Counts II and III alleged
claims for intentional and negligent misrepresentation against Appellee based
on its failure to disclose its reverse stock split to Appellant. Count IV asserted
a claim for unjust enrichment. Count V alleged a claim for violation of the
WPCL.
Appellee filed preliminary objections to the complaint in the nature of
demurrers. Appellee’s sole basis for demurrer to Appellant’s claim for breach
of the settlement agreement was that Appellant repudiated the settlement
agreement, and thus could not enforce it, because he raised claims for
intentional and negligent misrepresentation in Counts II and III of his
complaint. Appellee “dispute[d] that the parties ever entered into an
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enforceable contract,” but for purposes of its preliminary objections, it
“accept[ed] as true” what it called the “factual allegation[]” that “an
enforceable contract was formed.” Appellee’s Memorandum In Support Of
Preliminary Objections to Complaint, at 7 n.4.4
Appellant filed a timely answer to the preliminary objections, and
Appellee filed a reply brief in support of its preliminary objections.
In a November 24, 2020 memorandum and order, the trial court
sustained Appellee’s preliminary objections and dismissed the complaint in its
entirety. This timely appeal followed. The trial court did not order Appellant
to file a Pa.R.A.P. 1925 statement of matters complained of on appeal.
Appellant raises the following issues in this appeal:
I. In sustaining [Appellee’s] preliminary objection and dismissing
[Appellant’s] claim for breach of the parties’ settlement
agreement, did the trial court commit reversible error by:
A. ignoring [Appellee’s] concessions that the parties did
enter into a binding settlement agreement;
B. disregarding the allegations in the Complaint that the
parties did reach an enforceable settlement agreement;
C. misconstruing the mediator’s e-mail (Exh. 1 to the
Complaint) regarding the substance of the parties’
settlement agreement?
____________________________________________
4 Appellee made a similar statement in its reply brief in support of its
preliminary objections. Reply Brief in Support of Appellee’s Preliminary
Objections to Complaint, at 2 (“Passage Bio . . . is not contesting the assertion
that the parties reached agreement on the material terms of a settlement
agreement”).
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II. In sustaining [Appellee’s] preliminary objection and dismissing
[Appellant’s] claim for unjust enrichment, did the trial court
commit reversible error by:
A. failing to recognize that a claim for unjust enrichment is
a judicially recognized alternative to one for breach of
contract; and
B. disregarding the allegations in the Complaint that
[Appellee] wrongfully secured a general release of claims
from [Appellant] while unjustly retaining all of the payments
and shares of Common Stock it agreed to provide him?
III. In sustaining [Appellee’s] preliminary objections and
dismissing [Appellant’s] claims for intentional and negligent
misrepresentation, did the trial court commit reversible error by
disregarding the allegations in the Complaint that [Appellee]
concealed from [Appellant] its intention to implement a pre-IPO
reverse split of its Common Stock that would dilute the number of
shares it agreed to issue to him from 150,000 to 33,836 shares?
IV. In sustaining [Appellee’s] preliminary objection and dismissing
[Appellant’s] claim for violation of Pennsylvania’s Wage Payment
and Collection Law (“WPCL”), did the trial court commit reversible
error by:
A. relying on its mistaken view that [Appellant] failed to
plead sufficient facts to support his claim for an enforceable
settlement agreement; and
B. concluding that the 150,000 shares of Common Stock
were not “wages” under the WPCL?
Appellant’s Brief at 5-6.
This Court reviews an order sustaining preliminary objections for an
error of law, and in so doing, it must apply the same standard as the trial
court. Sayers v. Heritage Valley Medical Group, Inc., 247 A.3d 1155,
1160-61 (Pa. Super. 2021). Preliminary objections in the nature of a
demurrer
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test the legal sufficiency of the complaint. When considering
preliminary objections, all material facts set forth in the
challenged pleadings are admitted as true, as well as all inferences
reasonably deducible therefrom. Preliminary objections which
seek the dismissal of a cause of action should be sustained only
in cases in which it is clear and free from doubt that the pleader
will be unable to prove facts legally sufficient to establish the right
to relief. If any doubt exists as to whether a demurrer should be
sustained, it should be resolved in favor of overruling the
preliminary objections.
Id. at 1161.
In his first argument, Appellant contends that the trial court erred by
dismissing the first count in his complaint, a claim that Appellee breached the
settlement agreement by refusing to issue 150,000 shares of its common
stock to Appellant. We agree that the trial court erred by dismissing this
count.
The trial court’s analysis on this issue was as follows:
Judge McInerney’s February 3, 2020 email records an incomplete
agreement, one that was almost there—but not quite. Appellant’s
offer to release [Appellee] included the idea of [Appellant]
receiving 150,000 shares of stock. This was generally acceptable
to [Appellee], but with “two small tweaks.” These tweaks are not
defined in Judge Mclnerney’s email and they turn out to be
substantive when revealed in [Appellee’s] complete draft
Settlement Agreement. These “two small tweaks” go to the heart
of how the respective parties monetarily valued “150,000 shares,”
and they have disagreed.
And also, without an agreed date on which the value of the shares
were to be measured, the essential term defining consideration
was neither final nor enforceable.
In this situation, [Appellee’s] February 12, 2020 draft Settlement
Agreement amounts to a counter-offer which has not—to date—
been accepted.
Trial Court Memorandum Opinion, 11/24/20, at 5.
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We believe two preliminary maters warrant comment before we address
the merits of the trial court’s analysis.
First, all points in the above-recited passage were raised by the trial
court sua sponte; Appellee did not raise any of these points in its preliminary
objections or in its reply brief in support of preliminary objections. This Court
has held that trial courts should not dismiss actions based on grounds not
raised by the parties. MacGregor v. Mediq Inc., 576 A.2d 1123, 1127-28
(Pa. Super. 1990) (trial court erred by sustaining preliminary objections and
dismissing complaint by sua sponte raising immunity issue that defendant did
not raise; “the preliminary objections raised only the questions regarding the
Rule 1020 defect and whether the averred facts supported a claim for
emotional distress and punitive damages. Under the Rules and the case law,
it is clear that matters not raised in preliminary objections may not be
considered by the court sua sponte”). Appellant, however, did not object to
the trial court’s decision to dismiss his claim for reasons not raised by
Appellee. Since Appellant failed to make a MacGregor argument, we do not
address whether to vacate the decision on this basis.
On the other hand, because of the sua sponte nature of the trial court’s
decision, and because the trial court did not order Appellant to file a Pa.R.A.P.
1925 statement, this appeal is the first opportunity for Appellant to object to
the issues raised in the trial court’s memorandum opinion. Appellant availed
himself of this opportunity in his appellate briefs. Consequently, we will review
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the merits of the arguments raised by Appellant in opposition to the trial
court’s decision. See, e.g., DiGregorio v. Keystone Health Plan East, 803
A.2d 361, 366 (Pa. Super. 2003) (plaintiffs’ claim that trial court violated
coordinate jurisdiction rule of law of the case doctrine by granting defendant’s
purported motion to dismiss on morning of trial was not waived by failure to
raise it on the record before the trial court; plaintiffs raised the issue at their
first opportunity in their concise statement of matters complained of on
appeal, and court’s decision, whether judgment on the pleadings or summary
judgment, denied plaintiffs an opportunity to preserve issue in written
response).
Second, Appellant argues that Appellee is bound by its “judicial
admissions” in the trial court and that for purposes of its preliminary
objections, it accepted that the parties entered into a binding settlement
agreement. Appellant’s Brief at 23-24 (citing Appellee’s memoranda in
support of preliminary objections). We disagree. Judicial admissions “apply
only to disputed facts[] and are exclusive of legal theories and conclusions of
law.” Nicholas v. Hoffman, 158 A.3d 675, 696 (Pa. Super. 2017). The
existence of a contract is a conclusion of law, not a disputed fact. Delaware
River Preservation Co., Inc. v. Miskin, 923 A.2d 1177, 1182 (Pa. Super.
2007) (question of whether valid contract has been formed is generally one of
law for court to decide). Thus, Appellee’s acceptance of a contract for
purposes of preliminary objections does not constitute a judicial admission.
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Proceeding to the merits of this appeal, we consider that the substance
of Appellant’s first issue is that the parties entered a valid and enforceable
settlement agreement through Judge McInerney’s February 3, 2020 email and
Appellant’s acceptance of the two “tweaks” therein. The enforceability of
settlement agreements
is determined according to principles of contract law. Because
contract interpretation is a question of law, this Court is not bound
by the trial court’s interpretation. Our standard of review over
questions of law is de novo and to the extent necessary, the scope
of our review is plenary as [the appellate] court may review the
entire record in making its decision.
Mastroni–Mucker v. Allstate Ins. Co., 976 A.2d 510, 517–18 (Pa. Super.
2009).
Like any contract, to be enforceable, a settlement agreement must
possess all the elements of a valid contract: offer, acceptance, and
consideration. Muhammad v. Strassburger, McKenna, Messer, Shilobod
& Gutnick, 587 A.2d 1346, 1349 (Pa. 1991). “[I]t is essential to the
enforceability of a settlement agreement that the minds of the parties should
meet upon all the terms, as well as the subject matter, of the agreement.”
Mazzella v. Koken, 739 A.2d 531, 536 (Pa. 1999). “An alleged acceptance
of an offer is not unconditional and, therefore, is not an ‘acceptance’ if it
materially alters the terms of the offer.” Yarnall v. Almy, 703 A.2d 535, 539
(Pa. Super. 1997). “As such, a reply which purports to accept an offer, but
instead changes the terms of the offer, is not an acceptance, but, rather, is a
counter-offer, which has the effect of terminating the original offer.” Id.- 12 -
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“When the evidence is in conflict as to whether the parties intended that a
particular writing should constitute an enforceable contract, it is a question of
fact whether a contract exists.” Yellow Run Coal Co. v. Alma-Elly-Yv
Mines, Ltd., 426 A.2d 1152, 1154 (Pa. Super. 1981).
Of significance, “[i]f the parties have agreed on the essential terms, the
contract is enforceable even though it is an informal memorandum requiring
future approval or negotiations of incidental terms.” Id. at 1155. Indeed,
courts also will enforce informal agreements that are missing “material” terms
so long as the parties agree on the essential terms. Field v. Golden Triangle
Broad, Inc., 305 A.2d 689, 694 (Pa. 1973); Bredt v. Bredt, 326 A.2d 446,
449 (Pa. Super. 1974). In Field, a party who sought to purchase two radio
stations wrote a letter in the form of a preliminary memorandum stating the
parties’ agreement on price and terms for financing. The letter stated that it
was “(s)ubject to agreement on a formal contract,” and it did not specify a
date for settlement or set a deadline for approval by the Federal
Communications Commission. Our Supreme Court held that the letter was an
enforceable contract:
Appellant also urges that “many other” material terms and
conditions that are customarily included in a contract for sale of a
going concern are absent from the . . . letter agreement. However,
the fact that additional provisions would enhance the position of
both parties is not controlling. What is necessary is that the
parties agree to all the essential terms and intend the letter to be
binding upon them. We believe that the letter agreement in
question manifests such agreement and intention.
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Id., 305 A.2d at 694. Subsequently, in Bredt, the parties reached a verbal
agreement in open court in a support action. The court and counsel referred
to the “agreement” between the parties. Id., 326 A.2d at 449. At the
conclusion of the hearing, the husband’s attorney stated that the “agreement
itself will have to be formalized.” Id. The court entered an order finding that
the parties entered into a binding agreement in open court. Citing Field, this
Court affirmed, stating, “The fact that the parties intended to formalize their
agreement at some later date or omitted some material terms and conditions
therefrom is not controlling as long as the parties agreed to all the essential
terms and intended the contract to be binding upon them.” Id.
Mastroni-Mucker provides another useful illustration of a settlement
agreement that constitutes an enforceable contract despite the absence of a
formalized agreement. There, during trial, counsel for the parties stated on
the record that the plaintiffs accepted a $60,000 settlement offer from the
defendants in exchange for a general release of claims. The defendants later
reneged on the settlement, contending that it was conditioned on the parties’
approval of a particular form of release. This Court held that the on-the-
record agreement constituted an enforceable contract because it contained an
offer, acceptance, and consideration and counsel for the defendants never
expressed that the scope of the release was in dispute. Id., 976 A.2d at 523.
Of note, in a case with analogous facts, the New York Court of Appeals
held that plaintiffs, who had entered stock option agreements with a
corporation, had the right to exercise their options without adjustment for the
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corporation’s post-agreement reverse stock split. Reiss v. Fin. Performance
Corp., 764 N.E.2d 958 (N.Y. 2001). The Court of Appeals observed that one
month before the stock option agreements with the plaintiffs, the corporation
had agreed to a stock option agreement with a third person that in fact
required adjustment in the event of a reverse stock split. Id. at 959-60.
Thus, the omission of an adjustment provision from the plaintiffs’ agreements
indicated that the parties did not intend for any adjustment in the event of a
post-agreement reverse stock split. Id. at 961. Although we are not bound
by decisions from other jurisdictions, we regard this ruling as persuasive
authority on the point whether Appellee’s omission to inform Appellant of a
possible reverse stock split at the time settlement was reached should now
affect the number of common shares agreed upon to be issued to Appellant.
Farese v. Robinson, 222 A.3d 1173, 1188 (Pa. Super. 2019) (although
Superior Court is not bound by decisions from courts in other jurisdictions, we
may use such decisions for guidance to degree we find them useful,
persuasive, and not incompatible with Pennsylvania law).
In this case, the complaint alleges that the parties agreed to mediate
claims that Appellant planned to file against Appellee relating to the
termination of his employment. During the mediation, Appellant proposed
three terms for settling the dispute. Appellee agreed to two of these terms
during the mediation. The third term proposed by Appellant was that Appellee
would issue him 150,000 shares of common stock in exchange for the 448,623
stock options given to Appellant during his employment. Following the
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mediation, the mediator sent an email to Appellant’s attorney stating that
Appellee agreed to all three terms: eight months of severance pay, a bonus,
and 150,000 shares of common stock. The email added that Appellee agreed
to these terms with “two small tweaks”: (1) Appellant could not work for
another entity named Lysogene, and (2) Steve Squinto’s letter of reference
would be modified as to the reason why Appellant was terminated. Neither of
these tweaks affected agreement upon the term promising Appellant 150,000
shares of common stock. One week later, Appellee sent a formal settlement
agreement to Appellant that purported to change the nature of stock to be
issued, but Appellant did not sign it. On February 14, 2020, Appellee’s Board
of Directors authorized a reverse stock split that would reduce the 150,000
shares promised to Appellant to 33,836 shares. Appellee planned this reverse
stock split prior to Appellant’s mediation but did not inform Appellant about
the split until February 18, 2020, four days after the Board of Directors
authorized the split and fifteen days after the mediator related to Appellant
on February 3, 2020, Appellee’s agreement to issue 150,000 shares to
Appellant. On February 28, 2020, Appellee’s initial public offering of its stock
took place on the NASDAQ exchange.
The allegations in the complaint, accepted as true, and the inferences
reasonably deducible therefrom, state a cause of action against Appellee for
breaching a settlement agreement that it entered with Appellant on February
3, 2020. Appellant offered to settle the dispute in consideration for three
terms. Appellee accepted two of these terms during the mediation, and the
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mediator’s February 3, 2020 email constituted Appellee’s acceptance of the
third term. Thus, the averments of the complaint support that the parties
reached a meeting of the minds on all essential terms. The two additional
terms in the email that Appellant would not work at Lysogene and Steve
Squinto would modify his letter of reference for Appellant, were immaterial,
since the email characterized them as mere “tweaks.” Therefore, those terms
did not constitute a counteroffer that nullified Appellant’s offer. Second, it is
apparent, and we can infer from the complaint, that Appellant immediately
accepted these minor “tweaks,” given the complaint’s repeated references to
the “February 3, 2020 agreement,” Complaint at ¶¶ 34, 35, the “agreement
that [Appellant] and [Appellee] reached on February 3, 2020,” id. at ¶ 49,
and “February 3, 2020[,] when the case settled,” id. at ¶ 33.5
Under the precedents discussed above, see Field, Bredt, Mastroni-
Mucker, the fact that the agreement was informal instead of a signed formal
release does not render it unenforceable, because the essential terms of the
agreement were spelled out in the February 3, 2020 email. In particular, the
____________________________________________
5 In arriving at this inference, we do not take into account Appellant’s response
to Appellee’s preliminary objections in the trial court, in which Appellant
asserted that he accepted the tweaks. Appellant’s Memorandum Of Law In
Opposition To Appellee’s Preliminary Objections, at 13 n.1. Nor do we take
into account Appellant’s assertion in this Court that states that he approved
the tweaks on February 4, 2020, one day after the mediator’s email.
Appellant’s Brief at 13 n.1. We cannot take these statements into
consideration because they do not appear in Appellant’s complaint. Sayers,
247 A.3d at 1161 (review of demurrer in preliminary objections limited to
challenged pleading). Reasonable inferences, however, may be
acknowledged.
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term that Appellant would receive 150,000 shares of Appellee’s common stock
was essential in order to provide an adequate exchange for the 448,623 stock
options and add sufficient value to Appellant’s settlement package. The
complaint also satisfactorily alleges that Appellee breached the agreement by
reducing the number of shares by 75 percent by a reverse stock split, an act
that Appellee planned prior to settlement negotiations.
The trial court concluded that the complaint failed to state a claim
because the parties did not agree on the price of the common stock shares or
their date of valuation. In this regard, the trial court misconstrues the
agreement reached between the parties as pled in the complaint. The parties
agreed to a quantity of stock to be issued in place of the stock options, not to
a value that would be paid in stock. The complaint buttresses why the parties
negotiated a quantity of stock as opposed to a value to be paid in stock. The
complaint alleges that Appellee’s initial public offering of its common stock
took place several weeks after the parties reached their settlement
agreement. The inference arises that the parties did not negotiate a price
because they intended the market price of the shares to determine their value.
For the same reason, it was not necessary for the parties to define a date of
valuation for the shares.
We therefore must disagree with the trial court’s conclusion that the
parties did not reach an agreement because the mediator’s email did not
define the “two small tweaks” remaining for negotiation and the parties failed
to resolve them. The email explicitly identified the two “tweaks” as (1)
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Appellant would not work for Lysogene and (2) a revision to the scope of
Squinto’s letter of reference. Further, as discussed above, we infer from the
allegations in the complaint that Appellant accepted the tweaks. In addition,
we disagree with the trial court’s claim that these tweaks “go to the heart of
how the respective parties monetarily valued ‘150,000 shares’ [of Appellee’s
common stock].” Trial Ct. Op. at 5. These subjects appear to concern where
Appellant will work in the future and the content of the reference that Squinto
will send to prospective employers, subjects entirely unrelated to the valuation
of the shares. The trial court simply was mistaken as to the importance these
tweaks had to the settlement agreement.
Appellee argued in the trial court, and continues to argue here, that
Appellant cannot pursue a claim for breach of the settlement agreement
because he rescinded this claim by asserting counts for intentional and
negligent misrepresentation in the complaint. The trial court did not address
this issue in its opinion and order dismissing Appellant’s action.
We disagree with Appellee’s argument for several reasons. First, the
law is clear that parties may plead and pursue alternative causes of action but
are limited to a recovery of damages under a single theory. Our Supreme
Court recently stated:
[O]ur Rules of Civil Procedure expressly allow the pleading of
alternative causes of action, see Pa.R.C.P. 1020(c), and further
permit liberal amendment of pleadings in order to secure a proper
determination of the merits . . . Accordingly, a party may generally
simultaneously plead and attempt to prove alternative causes of
action seeking damages through inconsistent remedies supported
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by the same factual scenario . . . . However, the substantive
application of the election of remedies doctrine operates to bar
windfall judgments or otherwise duplicative recoveries resulting
from a single injury; although such inconsistent remedies may be
pleaded and pursued in litigation, damages calculated pursuant to
only one theory may be recovered.
Gamesa Energy USA, LLC v. Ten Penn Center Associates, L.P., 217 A.3d
1227, 1239 (Pa. 2019). Therefore, Appellant has the right to plead and pursue
claims of misrepresentation as well as a claim for breach of the settlement
agreement. He cannot recover damages for the same injury, however, under
more than one theory.
Appellee relies on Smith v. Brink, 561 A.2d 1253 (Pa. Super. 1989),
and Devore v. City of Philadelphia, 2005 WL 352698 (E.D.Pa. 2005), for
the proposition that Appellant rescinded the settlement agreement by alleging
claims of misrepresentation in his complaint. Smith is not controlling. There,
the plaintiff sued two police officers in federal court under 42 U.S.C. § 1983for an alleged illegal arrest. The parties entered a settlement, but the
defendants reneged on the agreement. Instead of seeking to enforce the
settlement, the plaintiff proceeded to litigate their Section 1983 claims, which
resulted in a defense verdict. After losing the verdict, the plaintiff filed a
separate action in the Court of Common Pleas of Dauphin County seeking to
enforce the settlement. The Dauphin County court dismissed this action, and
we affirmed, reasoning:
[The plaintiff] fully litigated his federal tort suit to a final verdict
in favor of the appellees. Therefore, the present suit must fail for
want of consideration since the settlement was based in part upon
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the existence of [the plaintiff’s] federal action. Moreover, [his]
decision to forego litigation on the breach of contract action until
after the final resolution of [his] tort claim acted, in effect, as a
repudiation of the alleged settlement agreement.
Id., 561 A.2d at 1256. We also stated that
when a settlement contract is breached, the plaintiff has two
coexistent but inconsistent remedies available: he may treat the
compromise agreement as rescinded and sue on the original tort,
or he may sue on the contract. The plaintiff may not, however,
prosecute one of these remedies to judgement and then sue on
the other.
Id. (citing Burrus v. American Casualty, 518 F.2d 1267, 1269 (7th Cir.
1975)).
Smith does not support Appellee’s argument that Appellant rescinded
the settlement agreement by merely alleging tort claims in the complaint.
Smith held that the plaintiff therein could not sue for breach of the settlement
agreement because he tried to take two bites at the apple—he first
prosecuted his tort claims to verdict and then, displeased with the verdict,
sued for breach of the settlement agreement. The present case is different.
Appellant did not prosecute his original claims to judgment before seeking to
enforce his settlement agreement. Indeed, it does not appear that he has
ever filed a lawsuit alleging his original claims prior to the instant action. All
claims in Appellant’s present action relate to the settlement agreement. Count
I seeks to enforce the settlement agreement; Count II, a claim of unjust
enrichment, seeks damages for benefits allegedly conferred upon Appellee
through the settlement agreement; Counts III and IV demand damages for
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alleged misrepresentations during and after settlement negotiations; Count V,
a claim under the WPCL, seeks damages for breach of the settlement
agreement. No claim in the complaint relates to Appellant’s original claims of
discrimination, wrongful forfeiture of stock options or defamation. Nor do any
claims in the complaint rescind the settlement agreement. This case is
Appellant’s first bite at the apple, not his second.
Devore also is inapposite. There, following a verdict in favor of the
plaintiff in an employment dispute, the parties settled the plaintiff’s underlying
claims while post-verdict motions were pending. The defendant then failed to
comply with the settlement. In response, the trial judge offered the plaintiff
one of two options: (1) file a separate action to enforce the settlement, or (2)
vacate the settlement and reinstate the pre-settlement verdict. The plaintiff
chose to reinstate the verdict but then filed a separate action to enforce the
settlement. Similar to Smith, the court precluded the separate action on the
ground that the plaintiff could not take two bites at the apple; he could not
both retain his verdict and enforce his settlement. Unlike the plaintiff in
Devore, Appellant does not seek recovery on both the settlement agreement
and his original claims. Appellant merely seeks remedies relating to the
settlement agreement.
We conclude today only that the allegations of the complaint, accepted
as true for the purpose of evaluating Appellee’s preliminary objections, set
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forth a valid action for breach of contract.6 Therefore, the trial court erred in
sustaining Appellee’s preliminary objection to Count I of the complaint, and
we remand for further proceedings on this count.
In his second issue, Appellant contends that the trial court erred by
dismissing his claim of unjust enrichment in Count IV of the complaint. We
affirm the dismissal of this count.
A claim for unjust enrichment arises from a quasi-contract. Gutteridge
v. J3 Energy Grp., Inc., 165 A.3d 908, 916 (Pa. Super. 2017). “A quasi-
contract imposes a duty, not as a result of any agreement, whether express
or implied, but in spite of the absence of an agreement, when one party
receives unjust enrichment at the expense of another.” Id. “The elements of
unjust enrichment are benefits conferred on defendant by plaintiff,
appreciation of such benefits by defendant, and acceptance and retention of
such benefits under such circumstances that it would be inequitable for
defendant to retain the benefit without payment of value.” Id. “Critically, the
doctrine of unjust enrichment is inapplicable when the relationship between
parties is founded upon a written agreement or express contract.” Wilson v.
Parker, 227 A.3d 343, 353 (Pa. Super. 2020).
____________________________________________
6 Our decision today is limited to reviewing the trial court’s disposition of
preliminary objections, does not foreclose the parties from developing all
factual issues in the parties’ dealings during later stages of this case, including
but not limited to whether they arrived at an agreement, how they arrived at
the agreement, the terms of the agreement and whether any ambiguity exists
in the agreement.
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In Khawaja v. RE/MAX Central, 151 A.3d 626 (Pa. Super. 2016), the
plaintiff, Khawaja, filed an action alleging breach of a written contract and
unjust enrichment. The defendant filed preliminary objections arguing that
the plaintiff failed to state a cause of action. The trial court sustained the
defendant’s preliminary objections and dismissed the complaint in its entirety.
This Court reversed the trial court’s decision to dismiss the breach of contract
claim and remanded for further proceedings on this claim. We then affirmed
the dismissal of the unjust enrichment claim, reasoning:
A claim sounding in breach of contract may be pleaded
alternatively with a claim of unjust enrichment if the claims are
raised in separate counts of a complaint. Lugo v. Farmers Pride,
Inc., 967 A.2d 963, 970 (Pa. Super. 2009). However, the fact
remains that “[a] cause of action for unjust enrichment arises only
when a transaction is not subject to a written or express contract,”
Northeast Fence & Iron Works, Inc. v. Murphy Quigley Co.,
933 A.2d 664, 669 (Pa. Super. 2007). Khawaja argues that the
trial court’s rejection of her claim based on the Agreement meant
that her unjust enrichment claim should have been permitted to
proceed . . . But because we have reversed the dismissal of
Khawaja’s contract claim, this argument no longer has any force.
Khawaja’s complaint alleged unjust enrichment in her second
count, which incorporated by reference the facts pled in Count I,
her breach of contract count . . . Her unjust enrichment count thus
averred the existence and terms of the signed Agreement.
Because a claim for unjust enrichment cannot stand when there
is an express contract and because Khawaja’s allegations in this
regard are based on the terms of such a contract, we affirm the
trial court’s dismissal of Khawaja’s unjust enrichment claim.
Id., 151 A.3d at 633-34.
The same reasoning applies here. We have vacated the dismissal of
Appellant’s claim for breach of the settlement agreement in Count I, a claim
of an express contract. Appellant’s claim for unjust enrichment in Count IV
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incorporates by reference the factual allegations pled in Count I. Complaint,
at ¶ 65. Thus, Appellant’s unjust enrichment claim avers the existence and
terms of the settlement agreement. Because an unjust enrichment claim
cannot stand when there is an express contract, and because Appellant’s
allegations of unjust enrichment are based on the terms of such a contract,
we affirm the dismissal of his unjust enrichment claim.
In his third issue, Appellant maintains that the trial court erred by
dismissing his claims for intentional and negligent misrepresentations. We
disagree.
In a non-disclosure case, the tort of intentional misrepresentation
requires proof of: (1) concealment; (2) which is material; (3) with the intent
of misleading another into reliance upon the material omission; (4) justifiable
reliance on the material omission; and (5) resulting injury caused by the
reliance. Bortz v. Noon, 729 A.2d 555, 560-61 (Pa. 1999). Negligent
misrepresentation requires proof of: (1) a misrepresentation of a material
fact; (2) made under circumstances in which the misrepresenter ought to have
known its falsity; (3) with an intent to induce another to act on it; and (4)
which results in injury to a party acting in justifiable reliance on the
misrepresentation. Id. at 561.
In the trial court, Appellee argued in its preliminary objections that the
complaint failed to allege that Appellant relied to his detriment upon any
misrepresentation. The trial court agreed, reasoning that “[Appellant] never
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released [Appellee] and therefore cannot show he relied on a
misrepresentation to do anything detrimental to his interests.” Trial Ct. Op.
at 6. We too agree with Appellee. The complaint does not allege that
Appellant took any action to his detriment as a result of Appellee’s
concealment of its intent to perform a reverse stock split. The complaint
alleges that when Appellant entered into a settlement agreement with
Appellee on February 3, 2020, Appellee allegedly harbored the intent to
perform a reverse stock split. On February 14, 2020, Appellee performed the
reverse stock split, lowering the number of Appellant’s shares from 150,000
(the number of shares in the settlement agreement) to 33,836 shares. On
February 28, 2020, the initial public offering of Appellee’s stock took place.
Appellant’s complaint seeks to enforce the promise in the settlement
agreement to provide him with 150,000 shares. These allegations do not
demonstrate that Appellant took any action to his own detriment. Appellant
did not act to his own detriment by entering the alleged February 3, 2020
settlement agreement. To the contrary, the agreement is beneficial to him
because it gives him 150,000 shares. Indeed, Appellant regards this
agreement as beneficial because he is attempting to enforce it in this action.
Nor did Appellant act to his own detriment in response to the release that
Appellee sent on February 12, 2020, since Appellant never signed the release.
Lastly, Appellant did not act to his own detriment after Appellee performed
the reverse stock split and its initial public offering. The only act that Appellant
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took in response was to prosecute this lawsuit, an act that in no way
constitutes detrimental reliance on any conduct by Appellee.
For these reasons, we affirm the dismissal of the counts in Appellant’s
complaint for intentional or negligent misrepresentation.
In his final issue, Appellant contends that the trial court erred in
dismissing his claim for relief under the WPCL in Count V of the complaint.
According to the complaint, Appellee promised to pay 448,623 stock options
to Appellant in the parties’ original April 2019 agreement. Subsequently, in
the February 3, 2020 agreement, Appellee promised to issue 150,000 shares
of stock to Appellant in consideration of his stock options. The complaint
alleges that Appellee breached the WPCL by failing to pay the stock shares
promised in the February 3, 2020 agreement. Complaint, ¶¶ 71-75. We hold
that Appellant states a valid claim under the WPCL for Appellee’s refusal to
pay the stock shares.
The legislature enacted the WPCL
to provide a vehicle for employees to enforce payment of their
wages and compensation held by their employers. The underlying
purpose of the WPCL is to remove some of the obstacles
employees face in litigation by providing them with a statutory
remedy when an employer breaches its contractual obligation to
pay wages. The WPCL does not create an employee’s substantive
right to compensation; rather, it only establishes an employee’s
right to enforce payment of wages and compensation to which an
employee is otherwise entitled by the terms of an agreement.
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Hartman, 766 A.2d at 352. “[T]he Pennsylvania rules of statutory
construction require the civil provisions of the WPCL to be liberally construed.”
Id. at 353 (citing 1 Pa.C.S.A. § 1928(c)).
The WPCL provides a right of action to “any employe” to whom “any
type of wages is payable.” 43 P.S. § 260.9a(a). There are two distinct
categories of “wages” under the WPCL, “earnings” and “fringe benefits or wage
supplements.” 43 P.S. § 260.2a.
The WPCL’s definition section, 43 P.S. § 260.2a, defines “wages” and
“fringe benefits or wage supplements” as follows:
Wages. Includes all earnings of an employe, regardless of
whether determined on time, task, piece, commission or other
method of calculation. The term ‘wages’ also includes fringe
benefits or wage supplements whether payable by the employer
from his funds or from amounts withheld from the employes’ pay
by the employer.
Fringe benefits or wage supplements. Includes all monetary
employer payments to provide benefits under any employe benefit
plan, as defined in section 3(3) of the Employee Retirement
Income Security Act of 1974, 29 U.S.C. § 1001 et seq.; as well as
separation, vacation, holiday, or guaranteed pay; reimbursement
for expenses; union dues withheld from the employes’ pay by the
employer; and any other amount to be paid pursuant to an
agreement to the employe, a third party or fund for the benefit
of employes.
43 P.S. § 260.2a (emphasis added). Under these definitions, “any other
amount to be paid pursuant to an agreement with an employe” constitutes
fringe benefits, which in turn constitute wages under the WPCL. See also
Shaer v. Orthopaedic Surgeons of Cent. Pennsylvania, Ltd., 938 A.2d
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457, 465 (Pa. Super. 2007) (“severance pay and other separation related
contractual arrangements are indeed covered by the WPCL”).
With this statutory framework in place, we turn to the allegations in
Count V of the complaint. Construed in the light most favorable to Appellant,
the complaint states a valid cause of action under the WPCL for two reasons.
First, the stock options in the parties’ original agreement are considered
“fringe benefits” under the WPCL. 43 P.S. § 260.2a; Scully v. US WATS,
Inc., 238 F.3d 497 (3d Cir. 2001).7 In Scully, the plaintiff entered into a
two-year agreement to serve as the defendant’s president and CEO. As an
inducement for the plaintiff to remain the full two years, the defendant granted
him an option to purchase 850,000 shares of restricted stock that would vest
over a two-year period. Before the two-year period expired, the defendant
terminated the plaintiff without just cause. Subsequent to termination, the
plaintiff attempted to exercise his option to purchase 600,000 shares that had
vested by that date, but the defendant refused to honor the option. The
plaintiff contended that the defendant violated the WPCL by refusing to honor
the option. The district court ruled in favor of the defendant, but the Third
Circuit reversed.
____________________________________________
7Although not binding on us, we may cite federal authority for its persuasive
value. Bochetto v. Piper Aircraft Co., 94 A.3d 1044, 1050 (Pa. Super.
2014).
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The Third Circuit held that the stock option extended to the plaintiff “falls
within the [WPCL’s] definition of fringe benefits or wage supplements because
it represents an ‘amount to be paid pursuant to an agreement to the
employee.’” Id., 238 F.3d at 517. The court continued:
[A] stock option may qualify as earned compensation under the
WPCL if the employer specifically agreed to deliver the option as
employment compensation . . . [This case] presents exactly this
situation. Stock options provide an incentive to an employee to
work to increase the stock’s value and thereby benefit the
company . . . The company benefits because the stock option
lowers the amount of up-front compensation costs that must be
paid directly to the employee, but the employee bears a
considerable risk since his compensation will not increase unless
the stock value increases. Thus, stock options are often termed
“contingent compensation.” . . .
[The parties] entered into this precise arrangement. As the
District Court noted, “[t]he entire thrust of the overall
arrangement between plaintiff and the defendants was that
plaintiff’s efforts in improving the fortunes of the company would
be rewarded on the basis of the company’s improved condition as
of a year after the exercise of the option.” Scully v. US WATS,
Inc., No. CIV. A. 97–4051, 1999 WL 592695, at *1 (E.D.Pa. June
10, 1999).
[I]t is quite apparent that plaintiff’s whole purpose in
entering into these arrangements was the expectation
that, as a result of his efforts, the company would
experience a big improvement in its fortunes, and
plaintiff would share in that prosperity. Defendants
wrongfully deprived plaintiff of that opportunity[] and
should not be permitted to insist that plaintiff’s chance
for future profit ended as of January 23, 1997 [the
date he exercised his option]. . . .
Scully, 1999 WL 553474, at *5.
Under these circumstances, we think it clear that, once [the
plaintiff] entered into the two-year oral employment contract, he
needed to do no more to bind [the defendant] to the stock option.
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[The plaintiff’s] stock option was thus “earned within the meaning
of the WPCL because [he] was not required to render any further
services before they vested and became exercisable.”
Id. at 517-18. We find this analysis persuasive and similarly conclude that
the stock options provided to Appellant in the original April 2019 agreement
constitute fringe benefits covered under the WPCL.
Second, accepting as true the averment that the parties entered a
settlement agreement on February 3, 2020, the stock shares promised under
this agreement constitute fringe benefits, and therefore wages, under the
WPCL. Under Scully, Appellant’s right to stock options, as a component of
the parties’ original agreement, is a fringe benefit that vested during
Appellant’s employment. The 150,000 stock shares promised in the February
3, 2020 settlement represent the parties’ compromise of the number of stock
options Appellant earned, and thus was entitled to exercise, during his
employment. Consequently, the stock shares are fringe benefits because they
relate back to stock options that were fringe benefits, and hence wages, under
Appellant’s employment agreement. Since the stock shares qualify as wages,
Appellant states a valid claim under the WPCL due to Appellee’s failure to issue
them.
We do not agree with the grounds advanced by the trial court or
Appellee for rejecting Appellant’s WPCL action. The trial court rejected
Appellant’s WPCL claim, stating, “[Appellant] relies on the February 3, 2020
email to make a claim that he is owed employee compensation in the form of
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150,000 shares which [Appellant] would characterize as wages. As the parties
have not settled, there is no binding contract that could be remotely construed
to require ‘wage’ compensation.” Trial Ct. Op. at 6. The trial court’s rationale
is incorrect because, as held above, the allegations in the complaint, accepted
as true, demonstrate that the February 3, 2020 agreement was binding on
Appellee, and the promised shares relate back to options that were a part of
Appellant’s employment agreement.
Citing three federal decisions, Riseman v. Advanta Corp., 39 F. App’x
761 (3d Cir. 2002), De Ascencio v. Tyson Foods, Inc., 342 F.3d 301 (3d
Cir. 2003), and Meister v. Sun Chem. Corp., 2018 WL 4961596 (E.D. Pa.
Oct. 15, 2018), Appellee argues that the stock shares fall outside the
protections of the WPCL. Riseman held the mere fact that certain
compensation is not payable until a future date is not necessarily fatal to a
WPCL claim so long as the employee is deemed to have earned it during his
employment. Id. at 765. De Ascencio stated in dicta that the WPCL does
not create a right to compensation, but rather only provides a statutory
remedy when the employer breaches a contractual obligation to pay earned
wages. Id. at 304. It is the contract between the parties that governs in
determining whether specific wages are earned. Id. Meister, on the other
hand, held that an agreement to make post-employment payments based
upon post-employment considerations could not be considered wages or
compensation earned because the plaintiff did not earn them during his
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employment. Appellee cites to these cases in support of its belief that the
agreement to issue stock shares under the February 3, 2020 agreement places
them outside what was earned during employment. As we have discussed,
however, since the February 3, 2020 agreement provides for the issuance of
stock in consideration of options earned during employment, the shares may
be considered fringe benefits, and hence wages, under the WPCL.
Accordingly, we conclude that Count V of the complaint states a valid
cause of action for recovery under the WPCL. The trial court erred in
dismissing this count of the complaint.
For the reasons articulated above, we affirm the trial court’s dismissal
of Counts II, III and IV of the complaint, and we reverse the dismissal of
Counts I and V.
Order affirmed in part and reversed in part. Order affirmed to the extent
it dismissed Counts II, III and IV of complaint. Order reversed to the extent
it dismissed Counts I and V of complaint. Counts I and V are reinstated, and
this case is remanded for further proceedings on those counts. Jurisdiction
relinquished.
Judge Musmanno did not participate in the consideration or decision of
this case.
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Judgment Entered.
Joseph D. Seletyn, Esq.
Prothonotary
Date: 11/09/2022
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