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IN THE COURT OF COMMON PLEAS FRANKLIN COUNTY, PENNSYLVANIA

PAUL E. LEHMAN,

Plaintiff,

versus

JEFFREY L. KNOUSE, JAY D. FINKENBINDER, ALICE H. RAHAUSER and LEHMAN CONSTRUCTION SERVICES, INC.,

Defendants.

No. 2007-2510

Civil Action

Judge Richard J. Walsh

DEFENDANTS’ MEMORANDUM OF LAW IN SUPPORT OF MOTION FOR SUMMARY JUDGMENT

I. Introduction......................................................................................................................... 1 II. Procedural History .............................................................................................................. 3 III. Statement of Undisputed Facts ........................................................................................... 5 IV. Governing Standard .......................................................................................................... 13 V. Argument .......................................................................................................................... 14

A. The SAA’s Integration Clause Defeats Lehman’s Breach of Contract Claim ................. 14 B. Lehman Cannot Overcome the Presumption of At-Will Employment............................. 16 C. The Gist-of-the-Action Doctrine Bars Lehman’s Fraud Claim ........................................ 18 D. The Economic Loss Doctrine Bars Lehman’s Fraud Claim ............................................. 20 E. Lehman’s Conspiracy Claim Fails for Want of an Underlying Tort ................................ 23

VI. Conclusion ........................................................................................................................ 23

{00298809/1}

IN THE COURT OF COMMON PLEAS FRANKLIN COUNTY, PENNSYLVANIA

PAUL E. LEHMAN,

Plaintiff,

versus

JEFFREY L. KNOUSE, JAY D. FINKENBINDER, ALICE H. RAHAUSER and LEHMAN CONSTRUCTION SERVICES, INC.,

Defendants.

No. 2007-2510

Civil Action

Judge Richard J. Walsh

DEFENDANTS’ MEMORANDUM OF LAW IN SUPPORT OF MOTION FOR SUMMARY JUDGMENT

I. Introduction

Plaintiff Paul Lehman’s action is wholly dependent upon his allegation that defendants

promised him employment with Lehman Construction Services, Inc. (“LCSi”) until such time as

he chose to retire. Upon the strength of that alleged promise, Lehman states claims for breach of

contract, fraud in the inducement, and civil conspiracy. Although no such promise was ever

made, that is not particularly relevant for purposes of this motion. Rather, this motion asks

threshold legal questions regarding the sufficiency of Lehman’s allegations, the character of the

evidence he offers in support of those allegations, and the legal viability of certain claims he

bases upon those allegations. As explained below, on the basis of the undisputed facts, the

defendants are entitled to judgment as a matter of law on each of Lehman’s three claims.

Considering Lehman’s breach of contract claim first, Lehman contends that, in 2003, the

defendants made an oral promise that LCSi would employ Lehman until such time as he chose to

retire. That promise, Lehman contends, was made in partial consideration for his agreement to

transfer to LCSi the assets of Paul E. Lehman, Inc (“PELI”), a Lehman-controlled corporation

that had debts in excess of assets. However, the Sale of Assets Agreement (“SAA”), pursuant to

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which Lehman conveyed PELI’s assets, contained an integration provision. According to that

provision, the express terms of the SAA, which, among other things, obligated LCSi to pay cash

and assume substantial PELI debt (much of which Lehman had personally guaranteed),

constituted the entire agreement among the parties. In other words, the SAA’s integration clause

disclaims the agreement on which Lehman sues and, for that simple—yet sufficient—reason,

LCSi is entitled to judgment on Lehman’s breach claim. Moreover, because the individual

defendants were not parties to the SAA, Lehman’s breach claim against them likewise fails.

Even if the Court could ignore the dispositive impact of the SAA’s integration clause,

which it may not, Lehman’s breach claim fails for two additional reasons given that the alleged

breach involves a purported employment contract. First, in order for there to be a breach, there

must be a valid contract. In Pennsylvania, an employment contract must express either (1) a term

of employment or (2) cause for termination. Lehman’s allegations satisfy neither criterion.

Lehman instead pleads that his employment agreement was to endure for an indefinite period

(until he chose to retire) and was not susceptible to termination for any cause. Accordingly,

Lehman fails at the threshold; he does not allege an enforceable contract for employment.

Second, threshold validity aside, Pennsylvania law subjects employment relationships to

a presumption that they are “at-will.” To overcome the presumption, Lehman must establish an

express employment agreement through “clear and convincing” evidence. The evidence Lehman

offers—which consists only of vague and indistinct recollections—does not satisfy this exacting

evidentiary standard and, as a result, fails to provide a sufficient evidentiary basis on which to

conclude that LCSi bargained away the presumption of at-will employment. Because Lehman

does not allege a valid employment contract and, even so, cannot support the allegations he does

make with evidence of a nature sufficient to reach a jury, defendants are entitled to judgment as a

matter of law on Lehman’s breach of contract claim.

Turing to Lehman’s allegations of fraud in the inducement, the claim is nothing more

than the same breach of contract claim masquerading as a tort. Yet both the gist-of-the-action

doctrine and the economic loss rule prohibit Lehman from seeking to remedy an alleged breach

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of contract through resort to the common law of fraud. Although the Court permitted Lehman to

conduct discovery on his fraud claim, the facts developed in discovery have only emphasized the

legal infirmity of Lehman’s fraud claim. Summary judgment should be entered on that claim in

favor of the individual defendants. Further, because Lehman’s fraud claim fails as a matter of

law, his civil conspiracy claim dies on the vine. Because Lehman cannot establish tort liability,

the civil conspiracy claim, then, is also ripe for summary judgment.

* * * * *

In October 2003, Knouse, Finkenbinder and Hawbaker assumed substantial personal risk

in an effort to salvage a moribund business that, under Lehman’s stewardship, had for years

flirted with insolvency. Because of the defendants’ hard work and dedication, LCSi clawed its

way back from the brink of bankruptcy, became a successful business, and, as a result, saved

numerous jobs in the Chambersburg region. Despite that success, and for reasons wholly

unknown to the individual defendants, Lehman acted in a manner intended to sow dissatisfaction

among LCSi employees, spreading falsehoods to the effect that LCSi’s ownership had somehow

stolen his business and left him penniless. Upon discovering Lehman’s intentionally disruptive

conduct, LCSi fired him for cause.1 Lehman responded with a lawsuit chock full of baseless

accusations, several of which Lehman has since conceded were without foundation in fact. The

time has now come for Lehman’s accusations to be judged on their legal merit. As demonstrated

herein, they have none. Summary judgment should be granted.

II. Procedural History

On or about July 20, 2007, Paul E. Lehman filed a Complaint in the Court of Common

Pleas of Franklin County, Pennsylvania, naming as defendants Lehman Construction Services,

Inc. (“LCSi”), as well as three individuals, Jeff Knouse, Jay Finkenbinder, and Alice Hawbaker2

(the “individual defendants”). Lehman’s complaint states three causes of action, all of which

1 Despite firing Lehman from his duties with LCSi, LCSi permitted Lehman to retain an office in its facilities, from which he now operates Lehman Church Concepts—a separate business arguably in competition with LCSi. 2 After the complaint was filed, the named defendant, Alice Rahauser, married. Now known as Alice Hawbaker, she will be referred to by that name.

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arise out of LCSi’s decision to fire Lehman in the fall of 2006. Count I of Lehman’s complaint

states a breach of contract claim against LCSi and the individual defendants. In Count II of the

complaint, denominated as a claim for fraud in the inducement, Lehman accuses the individual

defendants of falsely promising him employment with LCSi until such time as he chose to retire

so as to induce Lehman into transferring the assets of his insolvent corporation to LCSi. Finally,

Count III purports to state a claim for civil conspiracy against the individual defendants based on

the fraudulent inducement alleged in Count II.

After being served with the complaint, defendants filed Preliminary Objections arguing

that the fraud and conspiracy claims against the individual defendants failed to state claims on

which relief could be granted. First, the individual defendants argued that Pennsylvania’s gist-

of-the-action doctrine precludes Lehman from asserting fraud claims in circumstances where the

action centers on an alleged failure to perform a contractual obligation. Second, the individual

defendants contended that Pennsylvania’s so-called economic loss rule, which bars recovery of

purely economic losses in tort, likewise operated to bar Lehman’s fraud claims. Finally, the

individual defendants argued that, because the fraud claim is legally insufficient, the conspiracy

count falls of its own weight for want of an underlying tort.

After briefing and argument, the Court denied the individual defendants’ preliminary

objections on the basis that the law did not clearly preclude Lehman’s fraud and conspiracy

counts. See Order (Dec. 18, 2007). In the months since the Court disposed of the preliminary

objections, the parties have conducted extensive document and deposition discovery, which all

parties now agree is concluded. Based on the numerous undisputed facts defendants have

developed through discovery (see Section IV, infra), defendants now move for summary

judgment. In addition to renewing the issues defendants raised at the preliminary objection

stage, defendants also seek summary judgment on Lehman’s breach of contract claim.

Defendants’ motion for summary judgment therefore would, if granted, end this matter.

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III. Statement of Undisputed Facts

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

See Lehman Dep. at 9. PELCO, in turn, owned nearly all of the equity in Paul E. Lehman, Inc.

(“PELI”). See id. According to Lehman, individual defendant Jeffrey Knouse owned the “few

shares” of PELI that PELCO did not own. Lehman Dep. at 9. At all times leading up to the

transfer of PELI’s assets, which is discussed in more detail below, Paul Lehman retained and

exercised complete control of PELI and its business decisions as a result of his sole ownership of

PELI’s parent company. See Lehman Dep. at 10.

During his deposition, Lehman explained that “[f]inancial problems [had] been a problem

for [PELI] for a long time,” and that PELI’s financial difficulties stretched back “years, even

prior to 2000.” Lehman Dep. at 61. Lehman further agreed that, in 2003, PELI’s financial

problems finally forced the company to take some sort of action. Id. Indeed, Lehman

characterized PELI’s financial difficulties in the latter months of 2003 as “severe.”3 Lehman

Dep. at 126. Despite considering other potential options (see, e.g., Lehman Dep. at 19

(bankruptcy); id. at 43 (new management)), Mr. Lehman finally decided that PELCO would

transfer PELI’s assets to a new corporation, Lehman Construction Services, Inc., in exchange for

cash and LCSi’s assumption of a considerable portion of PELI’s debt. Lehman Dep. at 63-64.

Leading up to the transfer of PELI’s assets, Lehman participated in numerous discussions

with the individual defendants, PELI’s legal counsel, Jack Sharpe, Esq., and, on a few occasions,

PELI’s accountant, Paul Schultheis. During those discussions, Lehman agreed he should have

no ownership role in the new corporation for fear that if he “was to be involved in the new

corporation, [PELI’s creditors] would come after the new corporation.” Lehman Dep. at 68-69.

Lehman further agreed that the ownership of the new corporation would consist of Mr. Knouse,

Mr. Finkenbinder, and Ms. Hawbaker. Lehman Dep. at 69.

3 Lehman’s complaint devotes a considerable amount of attention to events both before and during litigation that was pending against PELI in 2003, principally the so-called Nedcon lawsuit. Despite the implications and innuendo of his complaint, Lehman makes no claim based on—and seeks no damages in connection with—the circumstances that arose with Nedcon. See Lehman Dep. at 122.

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In a memorandum dated October 4, 2003, Lehman informed the three individual

defendants, “I would like to offer the three of you the opportunity to buy [PELI] by assuming

debt we have incurred the past five years or so.” See Lehman Dep. at 72; Deposition Exhibit 3.

During his deposition, although Lehman did not dispute his authorship of the memorandum, he

disputed its substance. Lehman curiously testified that, despite the date of the memorandum and

the offer it plainly contained, he had made no offer to sell PELI and had, instead, accepted the

individual defendants’ “offer to buy.” Lehman Dep. at 74. Indeed, Lehman now contends that

“the particulars of the transition [from PELI to LCSi] were already known” at the time he drafted

the October 4 memorandum. Lehman Dep. at 79.

Regarding the provenance of the October 4 memorandum, Lehman explained that his real

purpose for drafting the memorandum had not been to make an offer of sale, but to help the

individual defendants “get financing from Orrstown [Bank]” for purposes of funding the

acquisition. Lehman Dep. at 74. Despite agreeing that “it would be important for Orrstown to

know that [he] would continue to be involved with the company,” Lehman Dep. at 79, the

memorandum nowhere indicates that Lehman was to be employed by the new company until he

chose to retire. Lehman characterizes the omission as “an oversight.” Lehman Dep. at 79.

On October 31, 2003, Lehman addressed a meeting of PELI employees to announce the

forthcoming transfer from PELI to LCSi. Lehman Dep. at 108. During that meeting, Lehman

read a prepared statement and explained to PELI’s employees that “I plan to remain as an

employee of the new company, but I will not be a stockholder or an officer of the new company.

I will be working for them as a consultant.” Lehman Dep. at 110. As was the case with his

October 4 memorandum, Lehman did not tell his employees that his involvement with LCSi

would endure until such time as he decided to retire.

During his deposition, Lehman suggested that certain contemporaneous notes Mr.

Knouse took during the various meetings leading up to execution of the SAA supported his

claims. See, e.g., Lehman Dep. at 23. The fact of the matter is that none of Mr. Knouse’s

meticulous notes—not a single one—contains even the remotest suggestion that Lehman’s

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employment with LCSi was intended to endure until such time as Lehman chose to retire. Even

Lehman’s own notes make no mention of a term of employment. Rather, Lehman’s notes

indicate only that, following the transfer of PELI’s assets to LCSi, he would be “employed as a

consultant for the new company.” Lehman Dep. at 120. Lehman also agreed that, consistent

with his personal notes, the new company did indeed employ him as a consultant following the

transfer. See id. In the end, Lehman is unaware of any document suggesting that a term of

employment until retirement was ever mentioned during the meetings, let alone discussed and

agreed among the parties. Lehman Dep. at 110-111. In short, the record is utterly devoid of

documentary evidence supporting Lehman’s claims.

Lehman’s claims proceed solely on the basis of his recollections—recollections that are

perfectly vague and imprecise. Despite their centrality to his claims, Lehman cannot recall the

specifics of any discussion he had with any of the three individual defendants he accuses of

defrauding him into parting with his business. Instead of testifying to the date and substance of

the allegedly fraudulent statements he claims to have relied upon to his detriment, Lehman’s

testimony was almost uniformly unresponsive to direct questions:

Q. Mr. Lehman, the first question I have for you is, when was the first time any of the defendants made an oral promise to you that you were going to have lifetime employment with Lehman Construction Services, Incorporated once that company was created?

A. That was always considered from the very beginning, whenever they first said that they would like to take over the business. That was understood early on.

Q. I guess I’m not quite clear on what you mean by “that was understood.” Did you ever have a conversation with any of the three defendants to the effect that you were going to have lifetime employment with Lehman Construction Services?

A. Yes.

Q. When was the first time you had a conversation regarding lifetime employment?

A. That was early on, whenever they decided that they would like to take over the corporation.

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Q. When was it first discussed – When was the creation of Lehman Construction Services first discussed?

A. I would say the summer of ’03 was serious discussion.

Q. So it would have been in the summer of 2003 was the first time you would have discussed lifetime employment with any of them?

A. Yes, and I would have never considered giving up the business if I was to get absolutely nothing in return.

Q. What I’m trying to get to is, I’d like to know when the first discussion was and what the substance of that discussion was, rather than generalities. Do you remember a particular date or a particular month during which –

A. I have no particular notes on it, but it was always assumed that I would be an employee, because I had no other compensation. And I never would have given up the business with absolutely no compensation, had that not been the case. I wouldn’t have considered it.

Q. Okay, when you say it was always assumed that you were going to be an employee of the business, do you mean that it was implicit, that it wasn’t verbalized.

A. It was verbalized, but it wasn’t written.

Q. Do you remember any particularities about the first time that lifetime employment was verbalized by any of the defendants in this case.

A. It was discussed at numerous of our weekly meetings.

Q. The question is a little different. Do you remember the first time that this was brought up?

A. I cannot.

Q. On how many different occasions, if you can recall, did you discuss lifetime employment, not just employment regularly, but lifetime employment with LCSi? Do you understand what I mean by LCSi?

A. Yes.

Q. Do you remember on how many occasions you discussed this, roughly?

A. We discussed that I would be employed until I chose to retire.

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Lehman Dep. at 5-8. Shortly thereafter Lehman appeared to recall a specific instance in which

the matter was discussed. However, as the testimony played out, it became clear that the notes to

which Lehman referred did not reference the issue of his employment through retirement and

that, again, Lehman had no recollection of what any of the defendants said to him on the subject:

Q. So you have a specific recollection of discussing that issue [employment until retirement] prior to the company-wide meeting where it was announced that [LCSi] was going to be created?

A. Yes, because I’m sure that my notes for that meeting were shared with the group before I spoke to the employees.

Q. Do your notes regarding that meeting raise the issue of – discuss that you would be employed until you chose to retire?

A. It states that I would be employed as a consultant for the new company.

Q. And you were employed as a consultant with the new company for a period of time, correct?

A. For a short period of time, yes.

Q. Do you remember specifically what was said during the meeting prior to the large company meeting at which it was announced LCSi was going to be created?

A. No, I do not.

Lehman Dep. at 13-14; see also Dep. Ex. 7, Notes for Company Meeting (Oct. 31, 2003).

On January 1, 2004, Paul E. Lehman executed a document entitled Sale of Assets

Agreement (“SAA”), through which LCSi purchased certain assets, and assumed certain

liabilities, of Paul E. Lehman, Inc. See SAA (Exhibit 1); Lehman Dep. at 16-18. Lehman signed

the document not only on behalf of PELI and PELCO, but also in his capacity as an individual.

See Exhibit 1 at 15. Individual defendant Jeffrey Knouse, acting solely in his official capacity as

President of LCSi, executed the document on behalf of LCSi. Id. On the date the assets and

certain liabilities of PELI were transferred to LCSi, PELI’s debts exceeded its liabilities.

Lehman Dep. at 18.

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Paragraph 20.8 of the SAA contains what is commonly known as an integration clause.

See Exhibit 1 at 13-14. Entitled “Entire Agreement,” paragraph 20.8 states:

This agreement contains the entire understanding between and among the parties and supersedes any prior understandings and agreements among them respecting the subject matter of this agreement. Any amendments to this agreement must be in writing and signed by the party against whom enforcement of that amendment is sought.

Id. As noted above, there is no dispute that Lehman was a party to the SAA in his individual

capacity and thus bound by its terms. There is likewise no dispute that the individual defendants

were not, in their individual capacities, parties to the SAA. The SAA, by its terms, was an

agreement between PELCO, PELI, Lehman and LCSi.

Lehman concedes that every discussion he purports to have had regarding LCSi’s alleged

commitment to employ him until such time as he chose to retire occurred prior to execution of

the SAA. Lehman Dep. at 12. Lehman’s testimony on the issue brooks no ambiguity:

Q: Do you remember the last time that you discussed with the three individual defendants the issue of lifetime employment with [LCSi]?

A: I don’t know if lifetime was discussed, but it was until I chose to retire, which wouldn’t have necessarily been lifetime. I had hopes of working another five years.

Q: Would the last time you had one of those discussions have occurred prior to signing of the asset purchase agreement?

A: Certainly.

Lehman Dep. at 12. Lehman further admits there is no written amendment to the SAA

memorializing any agreement regarding his employment in any capacity or for any period of

time. Lehman Dep. at 23. Indeed, Lehman admits that, at no time before or after execution of

the SAA, did he see a single note reflecting a commitment by LCSi or its officers to provide him

with employment until he chose to retire. Lehman Dep. at 23-24. The defendants do not dispute

that a handful of Mr. Knouse’s notes reflected the defendants’ “concern for [Lehman’s]

recovering some money and for how [he] was to be paid and [his] benefits and the like.”

Lehman Dep. at 23. On the fundamental issue of whether LCSi intended to bargain away the at-

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will employment relationship, however, nothing in the written record hints that Lehman’s

employment relationship with LCSi would endure unless and until Lehman chose to retire.

Throughout his deposition, Lehman provided competing explanations for the fact the he

did not seek to reduce his alleged employment agreement to a written employment contract.

First, Lehman testified that he did not want a written agreement because he believed that a

written agreement would enable—and, indeed, was necessary for—potential creditors to attach

his wages. Lehman Dep. at 8 (“[I]f we had a written agreement and we lost the $3 million

lawsuit, that could be attached, and I’d never receive it”). Second, Lehman did not want a

written agreement because he believed the agreement would appear as a liability on LCSi’s

balance sheet. Lehman Dep. at 8-12 (a written agreement “would have shown up on their

balance sheet and that would not have been a good thing for them”). Third, later in his

deposition, Lehman explained that he simply saw no need for a written agreement given that he

“knew” the new company and its officers. Lehman Dep. id. at 118-119 (“I didn’t see any need to

have all this in writing, because I knew these folks”). Of course, Lehman’s familiarity with

Knouse had not stood in the way of his decision to heavily document other, arguably less

significant, financial transactions he had entered with Knouse in the past. See Lehman Dep. at

45-46 (testifying to “very, very – very good documentation” associated with Knouse’s share

purchase agreement and debenture); id. at 118-19 (testifying to “heavily papered” share purchase

and debenture transactions between PELI and Knouse). For present purposes, however, it is

enough that the record establishes that the exclusion of employment terms from the SAA was not

the product of fraud, accident, or mistake. Based on his testimony, the best-case scenario for

Lehman is that the exclusion was, instead, an intentional decision on his part.

Turning to issues solely related to Lehman’s fraud and conspiracy claims against the

individual defendants, Lehman’s deposition testimony serves only to emphasize the fundamental

legal insufficiency of those claims, which the individual defendants first questioned at the

preliminary objection stage. Lehman could not identify any specific act, specific conduct, or

specific statement of the individual defendants upon which he relied in deciding to transfer the

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assets of his insolvent corporation to LCSi. Lehman Dep. at 114. When asked whether, as his

complaint requests, he was seeking to rescind the SAA as a remedy for the alleged fraud,

Lehman’s response was clear: “No.” Lehman Dep. at 116. Lehman then explained that the

damages he seeks in connection with his claim for fraud are the same monetary damages he

seeks in connection with his breach of contract claim. Id. Consequently, it is undisputed that the

relief Lehman seeks based on the alleged fraud and conspiracy is identical to the relief he seeks

in connection with his breach of contract claim.

Legal insufficiency aside, during his deposition, Lehman contradicted key allegations he

verified in support of his fraud and conspiracy claims against the three individual defendants.

Lehman’s complaint asserts that, in inducing him to enter the SAA, the individual defendants’

conduct was intentionally and maliciously fraudulent. Complaint at ¶ 135. When asked,

however, to identify a specific act or conduct he considered to be intentionally and maliciously

fraudulent, Lehman testified that he “was not aware of any at the time,” and, despite now having

a “concern,” was “not aware of any” as of the date he gave his deposition. Lehman Dep. at 117-

18. Similarly, when asked what it was about the defendants’ conduct leading up to execution of

the SAA that was “without justification,” Lehman responded that “I was not privy to many of the

meetings they had. That’s the only comment I could make.” Lehman Dep. at 121. Just how it is

that a meeting of buyers to which the seller is not invited amounts to unjustifiable conduct is left

for the mind to ponder. Finally, and most pointedly, despite making public allegations accusing

his former colleagues of fraud and conspiracy, Lehman expressly denied that there was “anything

about the defendants’ conduct prior to entering into the asset purchase agreement that [he]

consider[s] to have been unlawful.” Lehman Dep. at 120.

* * * * *

As the individual defendants argued at the preliminary objection stage, the law requires

that Lehman’s breach of contract action be treated as just that—a breach of contract action. Not

only do two well-established legal doctrines prevent Lehman from transforming his breach

action into tort claims, but also, through his testimony, Lehman has now disavowed the very

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foundations of those claims. For the reasons set forth below, the individual defendants are

entitled to judgment as a matter of law on the fraud and conspiracy claims.

Lehman’s breach of contract claim fairs no better. At the threshold, discovery has

produced absolutely no evidence that any of the individual defendants offered Lehman any

manner of employment while acting in their individual capacities. Simply put, the individual

defendants are not parties to the SAA. Because the only proper defendant on Lehman’s breach

claim is LCSi, the individual defendants are entitled to judgment on that claim. Likewise,

because the SAA included, and Lehman executed, an integration clause, LCSi is entitled to

judgment as a matter of law with regard to promises Lehman claims were made prior to—and in

consideration for—his entry into the SAA. And even if the integration clause were not sufficient

to bar Lehman’s claim (and it plainly is), his complaint fails to allege a valid employment

contract and, that issue aside, the vague, imprecise, and conclusory recollections Lehman offers

are insufficient, as a matter of law, to place the issue before a jury.

IV. Governing Standard

The standard governing a court’s consideration of a motion for summary judgment is

well-settled. Summary judgment is appropriate where, as here, “the pleadings, depositions,

answers to interrogatories and admissions on file, together with affidavits, if any, show that there

is no genuine issue as to any material fact and that the moving party is entitled to judgment as a

matter of law.” Pa.R.C.P. 1035(b).

Construing Rule 1035(b), the Pennsylvania Supreme Court has explained:

Where a non-moving party bears the burden of proof on an issue, he may not merely rely on his pleadings or answers in order to survive summary judgment. We have stated quite plainly that ‘failure of a non-moving party to adduce sufficient evidence on an issue essential to its case and on which it bears the burden of proof . . . establishes the entitlement of the moving party to judgment as a matter of law.’

Manzetti v. Mercy Hosp. of Pittsburgh, 565 Pa. 471, 482, 776 A.2d 938, 945 (2001) (citing

Young v. DOT, 560 Pa. 373, 744 A.2d 1276, 1277 (2001). In cases in which the material facts

are undisputed or the evidentiary record contains insufficient evidence to make out a prima facie

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cause of action, summary judgment shall be granted. Basil v. H&R Block, Inc., 777 A.2d, 100

(Pa. Super. 2001). Here, as set forth below, there is no dispute as to any fact of consequence

and, based on the undisputed facts, defendants are entitled to summary judgment on all claims.

V. Argument

A. The SAA’s Integration Clause Defeats Lehman’s Breach of Contract Claim

Throughout his deposition testimony, Lehman repeatedly explained that he considered

the ostensible promise of employment until he chose to retire as having been part and parcel of

his decision to enter into the SAA. For example, Lehman testified that he “would have never

considered giving up the business if I was to get absolutely nothing in return.” Lehman Dep. at

6. He also explained that he “never would have given up the business with absolutely no

compensation [through employment], had that not have been the case. I wouldn’t have

considered it.” Lehman Dep. At 6-7. Thus, Lehman’s own deposition testimony unambiguously

indicates that, as far as Lehman was—and is—concerned, the alleged promise of employment on

which he sues constituted consideration for his entry into the SAA.

The problem with Lehman’s breach claim, however, is that the SAA contains a perfectly

clear integration clause. Paragraph 20.8 of the SAA, entitled Entire Agreement, states:

This agreement contains the entire understanding between and among the parties and supersedes any prior understandings and agreements among them respecting the subject matter of this agreement. Any amendments to this agreement must be in writing and signed by the party against whom enforcement of that amendment is sought.

Exhibit 1 at 13-14. As our Supreme Court has explained:

Where the parties, without any fraud or mistake, have deliberately put their engagements in writing, the law declares the writing to be not only the best, but the only, evidence of their agreement. All preliminary negotiations, conversations and verbal agreements are merged in and superseded by the subsequent written contract.

Yocca v. Pittsburgh Steelers Sports, Inc., 578 Pa. 479, 497, 854 A.2d 425, 436 (2004) (citation

omitted). Accordingly, parol evidence of “prior representations is inadmissible as to matters

covered by the written agreement with an integration clause.” Hart v. Arnold, 2005 PA Super

328, 884 A.2d 316, 340 (Pa. Super. 2005) (citation omitted). Of course, the on evidence

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Lehman offers of a contract for employment until he chose to retire consists of parol evidence

offered through his testimony alone. And, as noted above, Lehman cannot even testify with

specificity regarding the language of the representations or when they were made.

Lehman concedes that he was aware, and had a “general understanding” of, paragraph

20.8 at the time he executed the SAA. Lehman Dep. at 20-21. Although irrelevant for purposes

of whether Lehman, a lifelong businessman whose work depended upon contracts, is bound by

the agreement he freely executed, Lehman further concedes that he “certainly had an

opportunity” to retain counsel in connection with his entry into the SAA, but chose not to do so

because he “didn’t see the need for it.” (Lehman Dep. at 20).

There is no dispute that the SAA does not contain any provision remotely capable of

being construed as guaranteeing Lehman any employment, let alone employment until such time

as he chose to retire. There is likewise no dispute over the fact that the SAA was not

subsequently modified to include any such promise by means of a written amendment to the

SAA. Lehman Dep. at 23. In fact, Lehman explained that the last time he discussed such

employment with anyone would have been before he executed the SAA. Lehman Dep. at 12.

The only basis for considering alleged representations made prior to execution of the

SAA—as Lehman contends all employment-related representations were—is in the event of an

allegation that “the parties agreed that those representations would be added to the written

agreement but they were omitted because of fraud, accident, or mistake.” Hart, 884 A.2d at 340.

Lehman makes no such allegation in this case. Indeed, the evidence unequivocally establishes

that, for various competing reasons (e.g., to avoid his creditors (Lehman Dep. at 8), to spare

LCSi’s balance sheet (Lehman Dep. at 8-12), or because he knew “these folks” (Lehman Dep. at

118)), Lehman affirmatively intended not to put employment-related matters in writing.

Because the SAA expressly states that it contains and expresses the entire agreement

between the parties, Lehman’s contentions regarding breach of a promise of employment

extended as consideration for his entry into the SAA must fail as against LCSi. And, because the

individual defendants simply were not parties to that agreement in any individual capacity, the

{00298809/1} 16

claim likewise fails as against them. The defendants being entitled to judgment as a matter of

law, the Court should enter summary judgment on all defendants’ behalf, and against Lehman,

on his breach of contract claim.

B. Lehman Cannot Establish a Valid Employment Contract

Because Lehman’s claim for breach is one that relates to his employment, Lehman must,

at the threshold, establish that his employment relationship with LCSi was not, as the law

presumes, an at-will employment relationship. Veno v. Meredith, 357 Pa. Super. 85, 515 A.2d

571, 577 (Pa. Super 1986). The employment at-will doctrine provides that either the employer or

the employee may terminate the employment relationship at will, with no legal recourse for the

non-terminating party. Yetter v. Ward Trucking Corp., 401 Pa. Super. 467, 473, 585 A.2d 1022,

1025 (Pa. Super. 1991).

A party overcomes the presumption of at-will employment by proving the existence of an

express contract of employment. Veno v. Meredith, 357 Pa. Super. 85, 515 A.2d 571, 577 (Pa.

Super 1986). In Pennsylvania, however, an employment contract can be proven only through

“evidence of a specific term of employment or cause for termination.” Rogers v. Prudential Ins.

Co. of America, 803 F.Supp 1024 (M.D. Pa. 1992) (emphasis added). Moreover, Lehman need

not only produce some evidence, but must “produce ‘clear and convincing evidence’ that the

parties intended to change the employment arrangement to a contract of definite length. Shaffer

v. BNP/Cooper, 1998 U.S. Dist. LEXIS 14013 at *13 (E.D. Pa. Sept. 4, 1998) (citing Greene v.

Oliver Realty, Inc., 363 Pa. Super. 534, 526 A.2d 1192, 1200 (Pa. Super. 1986)).

Lehman’s allegations regarding the alleged ‘contract’ of employment fail at the outset.

Contrary to governing law, Lehman pleads an employment contract that was (1) of indefinite

length, i.e., until he chose to retire, and (2) not susceptible to termination. Failing to allege “a

specific term of employment or cause for termination,” Lehman’s complaint fails, in the first

instance, to make out a valid contract for employment. Based on that failure of pleading, the

defendants are entitled to summary judgment on Lehman’s breach claim.

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Even if the employment agreement Lehman pleads could be enforced (and it cannot),

Pennsylvania courts demand great clarity before they will find that an employer has contracted

away the presumption of at-will employment. Scott v. Extracorporeal, Inc., Pa. Super. 90, 99,

545, A. 2d 334, 338 (1998). Evidence of “[v]ague or conclusory statements promising extended

employment are insufficient to overcome the at-will presumption.” Shaffer, 1998 U.S. Dist.

LEXIS 14013 at *13. Far from offering “clear and convincing” evidence that LCSi intended to

contract away the presumption of at-will employment, the very best Lehman could say during his

deposition was that he recalls the issue of employment until he chose to retire being discussed

during a handful of meetings leading up to the SAA. He could not recall what was said during

the meetings apart from general allusions to employment until he chose to retire. Such testimony

constitutes the “vague or conclusory statements” that cannot, as a matter of law, establish an

express employment contract; the law demands much greater clarity than Lehman can offer.

In the end, it is probably not a coincidence that Lehman’s testimony regarding

discussions of his employment is littered with phrases of implication, such as “[that] was

understood early on,” (Lehman Dep. at 5) and “it was always assumed” (Lehman dep. at 6).

What Lehman may have “understood” and “assumed” during discussions leading up to the SAA

is no substitute for what was actually said. Absent such evidence, Lehman cannot reach a jury.

Even if the Court could allow the matter to proceed in the face of a clear integration

clause (and it cannot), Lehman fails to allege an enforceable employment agreement for want of

either “a specific term of employment or cause for termination.” Further, the insubstantial

character of the evidence Lehman offers in support of his allegations is insufficient as a matter of

law to reach a jury. Summary judgment should be entered in all defendants’ favor because (1)

Lehman alleges no valid contract and (2) the intent to depart from the at-will employment

relationship requires evidence more substantial than a plaintiff’s unspecific recollection of

general discussions.

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

Application of the gist-of-the-action doctrine precludes Lehman from asserting a fraud

claim because his action centers on an alleged failure to perform a purported contractual

obligation, i.e., provide him with employment until he chose to retire. Lehman alleges that the

individual defendants represented that he would “be employed by Defendant Lehman

Construction Services for as long as he desired and at the same compensation that they were

being paid.”4 Complaint at ¶ 125. It is this alleged promise, which provides the basis for all

Lehman’s claims, regardless of how they are denominated. In short, Lehman’s fraud claim is

inextricably intertwined in the purported contractual relationship between the Lehman and LCSi

and, as such, is barred by Pennsylvania’s gist-of-the-action doctrine.

The purpose of the gist-of-the-action doctrine is to “maintain the separate spheres of the

law of contract and tort.” New York State Electric & Gas Corp. v. Westinghouse Electric Corp.,

387 Pa. Super. 537, 564 A.2d 919 (Pa. Super. Ct. 1989). The gist-of-the-action doctrine bars tort

claims arising solely from a contract between parties where the duties allegedly breached were

created and grounded in the contract itself. In eToll, Inc. v. Elias/Savion Advertising, Inc., 2002

Pa. Super 347, 811 A.2d 10 (Pa. Super. Ct. 2002), the Superior Court examined the

underpinnings of the gist-of-the-action doctrine, concluding that the “doctrine is designed to

maintain the conceptual distinction between breach of contract claims and tort claims. As a

practical matter, the doctrine precludes plaintiffs from re-casting ordinary breach of contract

claims into tort claims.” eToll, 811 A.2d at 14 (internal citations omitted) (emphasis added). In

essence, the term “gist” is a legal term of art referring to “the essential ground or object of the

action in point of law, without which there would be no cause of action.” Id. at 15 (citing

American Guar. & Liab. Ins. Co. v. Fojanini, 90 F. Supp. 2d 615, 622, 623 (E.D. Pa. 2000)).

The court in eToll summarized Pennsylvania law governing the gist-of-the-action

doctrine and concluded the doctrine would operate to bar tort claims in circumstances:

(1) where the tort claim arises solely from a contract between the parties;

4 Lehman makes no claim that, while employed, he was not paid the same salary as the individual defendants and admits he has no reason to believe he was not so compensated. See Lehman Dep. at 80-81.

{00298809/1} 19

(2) where the duty allegedly breached was created and grounded in the contract itself;

(3) where the liability stems from a contract; or

(4) where the tort claim essentially duplicates a breach of contract claim or the success of which is wholly dependent on the terms of a contract.

Id. at 19-20 (internal citations and quotations omitted) (emphasis added).

Whether an action is based upon the contractual relationship of the parties or broader

social policies embodied in the law of torts, i.e., whether the gist-of-the-action doctrine applies to

bar tort relief, is a question of law. Id. at 15. Courts have routinely found the doctrine applicable

in cases such as this. For example, in Galdieri v. Monsanto Co., 245 F. Supp. 2d 636, 651 (D.

Pa. 2002), the court addressed a claim in which former employees of Monsanto, after being

terminated without cause, argued that Monsanto failed to honor long-term incentive plan

obligations arising under their employment contracts. The plaintiffs also argue, as Lehman does

here, that Monsanto induced them to enter into the employment contracts with no intent on

performing the incentive plan obligations. Id. at 650. In dismissing the fraudulent inducement

claim, the court held:

The gist of Plaintiffs’ claim is that Monsanto contractually agreed to establish a long term incentive plan and failed to perform. Their breach of contract claim cannot be ‘bootstrapped’ into a fraud claim merely by adding the words ‘fraudulently induced’ or alleging the contracting parties never intended to perform.

Id. at 651; Cf. Bohler-Uddeholm Am., Inc. v. Ellwood Group, Inc., 247 F.3d 79 (3d Cir. 2001)

(holding that breach of fiduciary duty was not barred because the fiduciary duties owed by and

between joint venturers are separate and distinct from contractual obligations).

Lehman’s cause of action for fraud in the inducement is nothing more than a breach of

contract claim recast in tort, which, although unnecessary, falls into each of the four categories

the Superior Court described in eToll. Lehman claims that defendants’ alleged representation

regarding employment until retirement must have been fraudulent for the simple reason that he

was subsequently fired. This contention is, for all practical purposes, identical to Lehman’s

{00298809/1} 20

claim for breach. All Lehman has done is re-brand his breach of contract claim with a tort label,

which is precisely the practice the gist-of-the-action doctrine forbids.

That Lehman’s fraud claim is nothing more than a re-branded breach of contract

allegation is further established by reference to evidence developed during discovery. As set

forth above, during his deposition Lehman conceded that the only act of the individual

defendants that he contends induced him to enter into the SAA is the same alleged promise of

employment that underlies his breach of contract claim. Lehman makes no other allegation of

fraud in connection with his entry into the SAA. Moreover, despite a now-disowned request for

rescission of the SAA, the compensatory relief Lehman seeks on his fraud claim is identical to

that which he seeks for the alleged breach of contract.

The facts that establish the identity of the fraud and contract claims, whether they be

admissions contained in the complaint, or testimony given in deposition, are undisputed in the

record. Because the gist-of-the-action doctrine bars Lehman’s fraud claim on the strength of that

identity, summary judgment is warranted. Even on the merits, the defendants are entitled to

summary judgment for the simple reason that, during his deposition, Lehman expressly denied

that there was “anything about the defendants’ conduct prior to entering into the asset purchase

agreement that [he] consider[s] to have been unlawful.” Lehman Dep. at 120. There simply is

no basis for allowing Lehman’s fraud claim to proceed any further. Indeed, based on Lehman’s

troubling deposition testimony, there is considerable question as to whether the fraud claim was

lawfully commenced.

D. The Economic Loss Doctrine Bars Lehman’s Fraud Claim

The economic loss doctrine “prohibits plaintiffs from recovering in tort economic losses

to which their entitlement flows only from a contract.” Debbs v. Chrysler Corp., 2002 PA Super

326, P88, 810 A.2d 137, 164 (Pa. Super. Ct. 2002) (citing Werwinski v. Ford Motor Co., 286

F.3d 661, 2002 U.S. App. LEXIS 6854 (3rd Cir. Pa. 2002)). Generally speaking, the economic

loss doctrine prevents recovery in tort where the claimed damage is based solely on the loss of

economic expectation. See E. River S.S. Corp. v. Transamerica Delaval, 476 U.S. 858, 106 S.

{00298809/1} 21

Ct. 2295, 90 L. Ed. 2d 865 (U.S. 1986). The economic loss rule is a reflection of the practical

reality that, when parties contract with one another, they are free to allocate the risk and remedies

for breach. See Werwinski, 286 F.3d 661. Permitting tort claims to proceed in circumstances

where economic expectations are defined by contract is to allow one party to unilaterally re-

allocate contractual risk and remedies.

The record in this action could not be more precise with regard to the nature of the

damages Lehman seeks in connection with his fraud claim. At the threshold, Lehman disowned

the remedy of rescission, which is the only form of relief uniquely sought on his fraud claim:

Q. Sitting here today, is it your desire that the asset purchase agreement be undone?

[Objection]

A. No.

Lehman Dep. at 115. Lehman than indicated that the monetary damages he seeks for fraudulent

inducement are of a piece with those he seeks on his breach of contract claim:

Q. Am I correct in assuming that the damages you seek in the fraudulent inducement count are the same damages you would be seeking in the breach of contract count?

[Objection]

A. Would you ask me the question again, please?

Q. Am I correct . . . that the monetary damages you would associate with [the fraudulent inducement] count are the same [as those you associate with the contract count]?

A. That’s correct.

Lehman Dep. at 116.

Because Lehman’s damages flow, by his own testimony, from the alleged breach of

contract that is the crux of this action, the only manner through which his tort claim can survive

the economic loss rule is by means of an exception to that rule. While, as explained above, the

gist-of-the-action doctrine would still bar the fraud claim, there is no applicable exception that

would spare the claim from the economic loss rule.

{00298809/1} 22

The law in Pennsylvania is admittedly somewhat unsettled with regard to exceptions to

the economic loss doctrine for claims of misrepresentation or fraud. Yet cases that do recognize

an exception to the doctrine for fraud in the inducement do so only in circumstances where the

alleged fraud is independent of, or extraneous to, a contract between the parties. See Werwinski,

286 F.3d at 674-81; Montgomery County v. Microvote Corp., 2000 U.S. Dist. LEXIS 983, 22-23

(D. Pa. 2000); see also Huron Tool & Engineering Co. v. Precision Consulting Services, Inc.,

209 Mich. App. 365, 532 N.W.2d 541, 545 (Mich. Ct. App. 1995).

For example, in Bilt-Rite Contrs, Inc. v. Architectural Studio, 581 Pa. 454, 866 A.2d 270

(Pa. 2005), the Pennsylvania Supreme Court recognized an exception to the economic loss

doctrine for claims of misrepresentation. That exception, however, is narrow and readily

distinguishable from the case at hand. In Bilt-Rite, the court found that an exception to the

doctrine exists where design professionals have reason to know their representations will be

relied upon by third parties. The court allowed the exception because, unlike matters in this

case, there was no contract under which the third party contractor could sue the design

professional for breach:

[Our earlier] application of the “economic loss” rule maintains the dividing line between tort and contract while recognizing the realities of modern tort law. Purely “economic loss” may be recoverable under a variety of tort theories. The question, thus, is not whether the damages are physical or economic. Rather, the question of whether the plaintiff may maintain an action in tort for purely economic loss turns on the determination of the source of the duty plaintiff claims the defendant owed. A breach of a duty which arises under the provisions of a contract between the parties must be redressed under contract, and a tort action will not lie. A breach of duty arising independently of any contract duties between the parties, however, may support a tort action.

Bilt-Rite, 581 Pa. at 483 (citing Tommy L. Griffin Plumbing & Heating Co. v. Jordon, Jones &

Goulding, Inc., 320 S.C. 49, 463 S.E.2d 85 (S.C. 1995)). Thus, the exception carved-out by Bilt-

Rite applies only where there is lack of privity between the parties and, for that reason, the

source of the claim is not grounded in a contractual obligation.

Here, Lehman seeks purely economic damages on his fraud claim. And because those

damages arise from—and are identical to—those allegedly flowing from the breach of an alleged

{00298809/1} 23

contractual, this matter falls squarely within the rule that such losses may not be recovered in

tort. As is also the case with the gist-of-the-action doctrine, the inextricably intertwined nature

of Lehman’s fraud and breach claims renders his fraud claim barred by application of the

economic loss doctrine. The facts pertinent to the Court’s determination are undisputed and the

individual defendants are entitled to judgment as a matter of law. As also noted above, summary

judgment on Lehman’s fraud claim is all the more justified by reference to Lehman’s own

admission that there was nothing “about the defendants’ conduct prior to entering into the asset

purchase agreement that [he] consider[s] to have been unlawful.” Lehman Dep. at 120.

E. Lehman’s Conspiracy Claim Fails for Want of an Underlying Tort

A Plaintiff asserting a claim for civil conspiracy must “allege the existence of all

elements necessary to such a cause of action. A cause of action for conspiracy requires that two

or more persons combine or enter an agreement to commit an unlawful act or to do an otherwise

lawful act by unlawful means.” Burnside v. Abbott Laboratories, 351 Pa. Super. 264, 278, 505

A.2d 973, 980 (Pa. Super. Ct. 1985). In this case, the only unlawful act alleged is fraud in the

inducement. Thus, Lehman cannot maintain a claim for conspiracy if he cannot establish a right

to recovery on the underlying fraud action. Weaver v. Franklin County, 2007 Pa. Commw.

LEXIS 104, 918 A.2d 194 (Pa. Commw. Ct. 2007); Manning v. WPXI, Inc., 2005 PA Super 343,

886 A.2d 1137 (Pa. Super. Ct. 2005).

As shown above, Lehman’s fraud claim is subject to summary judgment on multiple

grounds. Both the gist-of-the-action doctrine and the economic loss rule independently operate

to limit Lehman’s remedy to damages for breach of contract (and, as also established above,

Lehman’s breach claim likewise fails as a matter of law). Because Lehman has no viable tort

claim to present to a jury, the individual defendants are entitled, as a matter of course, to

summary judgment on Lehman’s civil conspiracy claim.

VI. Conclusion

For all the foregoing reasons, defendants respectfully request that the Court enter

summary judgment in their favor on each of Lehman’s three claims. Specifically, Lehman’s

{00298809/1} 24

breach of contract claim fails because (1) it is barred by the SAA’s integration clause; (2) the

individual defendants were not parties to the SAA; (3) Lehman has not alleged an enforceable

employment contract; and (4) Lehman’s evidence of the unenforceable employment contract he

alleges is, in any event, insufficiently distinct to place before a jury. Lehman’s fraud claim

against the individual defendants is barred by the gist-of-the-action and economic loss doctrines,

and the associated civil conspiracy claim fails for lack of a viable supporting tort claim.

Dated: April 30, 2009

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

{00298809/1}

IN THE COURT OF COMMON PLEAS FRANKLIN COUNTY, PENNSYLVANIA

PAUL E. LEHMAN,

Plaintiff, v.

JEFFREY L. KNOUSE, JAY D. FINKENBINDER, ALICE H. RAHAUSER and LEHMAN CONSTRUCTION SERVICES, INC.,

Defendants.

No. 2007-2510

Civil Action

Judge Richard J. Walsh

CERTIFICATE OF SERVICE

I hereby certify that on this 30th day of April 2009, I caused copies of Defendants’

Motion for Summary Judgment and Defendants’ Memorandum of Law in Support of Motion for

Summary Judgment to be served on the person(s) listed below by First Class Mail postage

prepaid at York, Pennsylvania:

James J. Kutz, Esq. Barbara A. Zemlock, Esq. POST & SCHELL P.C.

17 North Second St., 12th Floor Harrisburg, PA 17101-1601

Fon: 717.731.1970 Fax: 717.731.1985

By:

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