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Kolb v. ACRA Control, Inc.

United States District Court, D. Maryland, Southern Division

May 16, 2014

JOHN R. KOLB, JR., Plaintiff,
v.
ACRA CONTROL, LTD., d/b/a ACRA CONTROL, INC., et al., Defendants

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[Copyrighted Material Omitted]

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[Copyrighted Material Omitted]

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For John R Kolb, Plaintiff: Richard Murray, LEAD ATTORNEY, Pompan Murray and Werfel PLC, Alexandria, VA.

For ACRA CONTROL, LTD., agent of ACRA CONTROL, INC., Defendant: Howard Ross Feldman, LEAD ATTORNEY, Whiteford Taylor and Preston LLP, Baltimore, MD; Christopher C Jeffries, Whiteford Taylor and Preston LLC, Baltimore, MD.

OPINION

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MEMORANDUM OPINION

Paul W. Grimm, United States District Judge.

At its core, this case is a straightforward, one-count action for breach of contract in which Plaintiff John R. Kolb, Jr. sues his former employer, ACRA Control Ltd. (" ACRA Ireland" ), an Irish company. Yet, corporate acquisitions and later contractual relationships add complexity and, as a result, issues have arisen with regard to whether the contract at issue has expired and if not, what companies may be liable under that contract. At this juncture, I must determine

(1) whether Kolb may amend his Complaint to add ACRA Ireland's subsidiary, ACRA Control, Inc. (" ACRA U.S.A." ), a Maryland corporation, and/or Curtiss-Wright Controls (UK) Limited (" Curtiss-Wright UK" ), the company that acquired ACRA Ireland, as defendants and to include counts for unjust enrichment and violation of the Maryland Wage and Payment Collection Law, Md. Code Ann., Lab. & Empl. § § 3-501-3-509 (" MWPCL" );
(2) whether Defendants [1] may raise issues of Irish law; and

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(3) whether Kolb waived or released his claim for breach of contract by executing a later contract and related documents with Curtiss-Wright UK, and if so, whether the parties should brief the matter of sanctions that Defendants raise.[2]

In the interest of justice, I will grant Kolb leave to amend his Complaint to add a count for unjust enrichment against ACRA U.S.A.[3] But, I will deny Kolb's motions to amend insofar as he seeks to add Curtiss-Wright UK as a defendant with regard to his breach of contract claim, because the claim would be futile, and I will deny Kolb's motion to add a count for violation of the MWPCL against ACRA Ireland, because he has not shown good cause for his delay. Additionally, as I find that Plaintiff had sufficient notice that Defendants likely would raise issues of Irish law, I will deny Plaintiff's motion to find that Defendants waived their ability to raise such issues. Finally, because I find as a matter of law that Plaintiff waived the claims he now brings through a provision in the agreement he entered into with Curtiss-Wright UK, such that Defendants ACRA Ireland and ACRA U.S.A. are entitled to judgment as a matter of law, I will grant Defendants' motion for summary judgment. I will deny Defendants' motion for sanctions.

I. BACKGROUND

ACRA U.S.A. and Defendant ACRA Ireland are companies that " suppl[y] airborne data acquisition networks and recording systems and real-time data processing ground stations to the aerospace industry." Compl. ¶ 2, ECF No. 1; see Fergal Bonner Aff. ¶ 2,[4] Defs.' Mot. to Dismiss Mem. Ex.

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1, ECF No. 7-3. ACRA Ireland hired Plaintiff to be ACRA U.S.A's president in 1999, at which time Plaintiff and ACRA Ireland entered into an Employment Agreement and a Performance Incentive Compensation Plan (" PICP" ), the contract that Plaintiff contends ACRA Ireland has breached. Compl. ¶ 6. Pursuant to the PICP, Plaintiff could purchase shares in ACRA Ireland when it notified him that " the average turnover (ATO) of the company due to U.S. sales, as defined, exceeds one million ($1,000,000) dollars." PICP 1, Compl. Ex. A, ECF No. 1-1 (emphasis removed). This provision lasted " for a minimum of five (5) years during the period of employment unless mutually agreed in writing." Id.

Plaintiff also had options to purchase shares pursuant to other contracts. Specifically, in 2003 and again in 2010, Plaintiff and ACRA Ireland executed Option Agreements for Plaintiff to purchase shares of ACRA Ireland. Plaintiff exercised his rights under the 2003 Option Agreement, purchasing 100 shares of ACRA Ireland. Defs.' Summ. J. Mem. 12; Pl.'s Summ. J. Opp'n 5-6. Additionally, Plaintiff signed a Notice of Option Exercise, in which Plaintiff exercised his right to purchase shares of ACRA Ireland immediately before Curtiss-Wright UK acquired ACRA Ireland in 2011. Bonner Aff. ¶ 11 & Ex. 17. Thus, Plaintiff, as a shareholder of ACRA Ireland, was party to the 2011 Share Purchase Agreement (" SPA" ) between Curtiss-Wright UK and ACRA Ireland's shareholders. Aug. 13, 2013 Mem. Op. 4, ECF No. 19; see SPA, Defs.' Mot. to Dismiss Mem. Ex. 14, ECF No. 7-16.

Yet, ACRA Ireland never informed Plaintiff that he had the option to purchase shares pursuant to the PICP, and therefore Plaintiff never exercised that option. According to Plaintiff, he should have had that option for fiscal years 2004-2010, because the ATO from U.S. sales exceeded one million dollars for each of those years and Plaintiff worked for ACRA Ireland during that entire period. Compl. ¶ ¶ 8, 11 & 13. He claims that ACRA Ireland breached the PICP because he was not provided notice so that he could exercise the option to purchase shares for any of those years. Id. ¶ 16.

II. MOTIONS TO AMEND

Originally, Plaintiff also named Curtiss-Wright U.S.A. and ACRA U.S.A. as defendants. See Compl. 1. I granted summary judgment in favor of Defendant Curtiss-Wright U.S.A., reasoning that " [i]t is the successor of ACRA Ireland that would be bound by the contract and consequently should be named as a defendant in this case," and the SPA shows that Curtiss-Wright UK, not Curtiss-Wright U.S.A., acquired ACRA Ireland on July 28, 2011." Aug. 13, 2013 Mem. Op. 12. I directed Plaintiff that if he wanted to name Curtiss-Wright UK as a defendant, " he should file a motion to amend, with specific grounds and supporting authority for any proposed amendments and accompanied by a redlined complaint" by August 27, 2013. Id. at 13. Likewise, I granted Defendants' motion to dismiss the claim against ACRA U.S.A., reasoning that " ACRA U.S.A. is not a party to the PICP and therefore cannot owe a contractual obligation." Id. at 14. I stated that " [i]f Plaintiff believes that he can state a claim in quantum meruit or [for] unjust enrichment, he may file a motion to amend, with specific grounds and supporting authority for any proposed amendments and accompanied by a redlined complaint" by August 27, 2013. Id. at 14.

Plaintiff filed a timely Motion for Leave to File Amended Complaint and Memorandum of Law in Support (" Plaintiff's

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First Motion to Amend" ).[5] He proposed adding Curtiss-Wright UK as a defendant with regard to the breach of contract claim and adding a claim for unjust enrichment against ACRA U.S.A. Pl.'s 1st Mot. to Am. 1-2. More than five months later, on February 10, 2014, Plaintiff filed another Motion for Leave to File an Amended Complaint and Memorandum of Law in Support (" Plaintiff's Second Motion to Amend" ), ECF No. 52. In Plaintiff's Second Motion to Amend, Plaintiff seeks to add a count for violation of the MWPCL against ACRA Ireland, in addition to the previously-requested amendments. Pl.'s 2d Mot. to Am. 1-2.

A. Standard of Review

Whether to grant a motion for leave to amend is within this Court's discretion. Foman v. Davis, 371 U.S. 178, 182, 83 S.Ct. 227, 9 L.Ed.2d 222 (1962). Rule 15(a)(2) typically provides the standard for whether to grant a motion for leave to amend that a plaintiff files more than twenty-one days after the defendant files a responsive pleading or motion to dismiss. See id. ; Fed.R.Civ.P. 15(a)(2). Plaintiff's First Motion to Amend is timely and governed by Rule 15(a)(2). See Foman, 371 U.S. at 182; Fed.R.Civ.P. 15(a)(2).

Pursuant to Rule 15(a)(2), " [t]he court should freely give leave [to amend] when justice so requires." The Court only should deny leave to amend if amendment " would prejudice the opposing party, reward bad faith on the part of the moving party, or . . . amount to futility," MTB Servs., Inc. v. Tuckman-Barbee Constr. Co., No. RDB-12-2109, 2013 WL 1819944, at *3 (D. Md. Apr. 30, 2013); see Foman, 371 U.S. at 182 (stating that the court also may deny leave if the plaintiff has amended more than once already without curing the deficiencies in the complaint); Laber v. Harvey, 438 F.3d 404, 426 (4th Cir. 2006). Otherwise, " [i]f the underlying facts or circumstances relied upon by a plaintiff may be a proper subject of relief," and the plaintiff moves to amend, the Court should grant the motion so that the plaintiff has the " opportunity to test his claim on the merits." Foman, 371 U.S. at 182.

Determining whether amendment would be futile does not involve " 'an evaluation of the underlying merits of the case.'" MTB Servs., 2013 WL 1819944, at *3 (quoting Next Generation Grp. v. Sylvan Learning Ctrs., LLC., No. CCB-11-0986, 2012 WL 37397, at *3 (D. Md. Jan. 5, 2012)). Rather, " the merits of the litigation" are only relevant to the Court's ruling on a motion for leave to amend if " a proposed amendment may clearly be seen to be futile," Davis v. Piper Aircraft Corp., 615 F.2d 606, 613 (4th Cir. 1980), such as " if the proposed amended complaint fails to state a claim under the applicable rules and accompanying standards," Katyle v. Penn Nat. Gaming Inc., 637 F.3d 462, 471 (4th Cir. 2011); see MTB Servs., 2013 WL 1819944, at *3. A complaint fails to state a claim if it does not contain " a short and plain statement of the claim showing that the pleader is entitled to relief," Fed.R.Civ.P. 8(a)(2), or does not state " a plausible claim for relief," as " [t]hreadbare recitals of the elements of a cause of action, supported by mere conclusory statements, do not suffice," Ashcroft v. Iqbal, 556 U.S. 662, 678-79, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009). " A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable

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inference that the defendant is liable for the misconduct alleged." Id. at 663.

When a plaintiff moves to amend after the deadline established in the scheduling order for doing so, Rule 16(b)(4) becomes the starting point in the Court's analysis. CBX Techs., Inc. v. GCC Techs., LLC, No. JKB-10-2112, 2012 WL 3038639, at *3 (D. Md. July 24, 2012). Plaintiff filed his Second Motion to Amend on February 10, 2014. See Pl.'s 2d Mot. to Am. The Scheduling Order that I issued on August 13, 2013 allowed the parties to move for joinder of additional parties and amendment of pleadings until September 27, 2013. ECF No. 21. Contrary to Plaintiff's assertions,[6] none of my later orders superseded the deadline for amendment. Therefore, Plaintiff " 'first must satisfy the good cause standard of Rule 16(b),'" and if he succeeds, he " 'then must pass the tests for amendment under [Rule] 15(a).'" CBX Techs., Inc., 2012 WL 3038639, at *3 (quoting Odyssey Travel Ctr., Inc. v. RO Cruises, Inc., 262 F.Supp.2d 618, 631 (D. Md. 2003)); see Nourison Rug Corp. v. Parvizian, 535 F.3d 295, 298 (4th Cir. 2008).

" '" [G]ood cause" means that scheduling deadlines cannot be met despite a party's diligent efforts.' . . . Carelessness is not compatible with a finding of diligence and offers no reason for a grant of relief." CBX Techs., Inc., 2012 WL 3038639, at *4 (quoting Potomac Elec. Power Co. v. Elec. Motor Supply, Inc., 190 F.R.D. 372, 375 (D. Md. 1999) (citation omitted)). The Court focuses " less . . . on the substance of the proposed amendment and more . . . [on] the timeliness of the motion to amend 'and the reasons for its tardy submission.'" Id. (quoting Rassoull v. Maximus, Inc., 209 F.R.D. 372, 373-74 (D. Md. 2002)). This is because " [a] court's scheduling order 'is not a frivolous piece of paper, idly entered, which can be cavalierly disregarded by counsel without peril.'" Id. (quoting Potomac Elec. Power Co., 190 F.R.D. at 376 (citation and quotation marks omitted)). Specifically, the Court considers whether the moving party acted in good faith, the length of the delay and its effects, and whether the delay will prejudice the non-moving party. Tawwaab v. Va. Linen Serv., Inc., 729 F.Supp.2d 757, 768-69 (D. Md. 2010). When " at least some of the evidence needed for a plaintiff to prove his or her claim did not come to light until after the amendment deadline," a plaintiff has " good cause" for moving to amend at a later date. Id. at 768; see In re Lone Star Indus., 19 F.3d 1429, 1994 WL 118475, at *11 (4th Cir. 1994) (concluding that district court abused its discretion when it denied motion to amend to add a new claim after deadline set in scheduling order had passed).

B. First Motion to Amend

1. Breach of contract claim against Curtiss-Wright UK

Plaintiff insists that Curtiss-Wright UK is a proper defendant for his breach of contract claim because it is " responsible for ACRA Ireland's liabilities," whether Curtiss-Wright UK acquired ACRA Ireland through a " stock purchase" or an " asset purchase." Pl.'s 1st Mot. to Am. 3-4. Defendants counter that " allowing Plaintiff to amend his Complaint to add a claim against Curtiss-Wright UK would be futile" because the breach of contract claim against Curtiss-Wright UK " would not survive a motion to dismiss." Defs.'

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Opp'n to Pl.'s 1st Mot. to Am. 3. They argue:

Curtiss-Wright UK's status as the sole shareholder of ACRA Ireland (which today continues to have a separate, ongoing legal existence as a subsidiary of Curtiss-Wright UK), in and of itself, as a matter of law, does not cause it to be liable for the breach of contract entered into by ACRA Ireland.

Id.

To state a claim against Curtiss-Wright UK for breach of contract, Plaintiff first must allege that Curtiss-Wright UK owed it " 'a contractual obligation.'" Bezmenova v. Ocwen Financial Corp., No. AW-13-0003, 2013 WL 3863948, at *3 (D. Md. July 23, 2013) (quoting Taylor v. NationsBank, N.A., 365 Md. 166, 776 A.2d 645, 651 (Md. 2001)). As I noted in my August 13, 2013 Memorandum Opinion, a corporation does not acquire another corporation's liabilities simply by acquiring its assets. Aug. 13, 2013 Mem. Op. 12 (citing PCS Nitrogen Inc. v. Ashley II of Charleston LLC, 714 F.3d 161, 174 (4th Cir. 2013)). A successor corporation only acquires its predecessor's liabilities if " '(1) the successor expressly or impliedly agrees to assume the liabilities of the predecessor; (2) the transaction may be considered a de facto merger; (3) the successor may be considered a " mere continuation" of the predecessor; or (4) the transaction is fraudulent'" or (5) " where 'substantial continuity' exists between a predecessor and successor corporation." See PCS Nitrogen Inc., 714 F.3d at 174. In his proposed verified Amended Complaint, ECF No. 52-4, Plaintiff alleges that " ACRA Ireland was acquired by Curtiss-Wright U.K. on or about July 28, 2011 through a share purchase agreement," and that Curtiss-Wright UK " is the sole shareholder of ACRA Ireland." Am. Compl. ¶ ¶ 2 & 4. Additionally, Plaintiff claims that " [i]n acquiring ACRA Ireland through a share purchase agreement, Curtiss-Wright U.K. assumed ACRA Ireland's obligations to Mr. Kolb under the PICP." Id. ¶ 20.

Paragraph 20 appears to be a conclusory legal assertion [7] that is not sufficient to state a claim for breach of contract under Iqbal. 556 U.S. at 678-79; see Papasan v. Allain, 478 U.S. 265, 286, 106 S.Ct. 2932, 92 L.Ed.2d 209 (1986) (stating that the Court is not required to accept as true " a legal conclusion couched as a factual allegation" ); Veney v. Wyche, 293 F.3d 726, 730 (4th Cir. 2002) (stating that the court is not required to accept as true " allegations that are merely conclusory, unwarranted deductions of fact or unreasonable inferences" ). Given the previously cited case law, it certainly is not a " reasonable inference" to conclude that Curtiss-Wright UK has a contractual obligation to Plaintiff that makes it " liable for the misconduct alleged" simply by virtue of that fact that it acquired ACRA Ireland through the SPA. See Iqbal, 556 U.S. at 663; Bezmonova, 2013 WL 3863948, at *3. Indeed, Plaintiff argues to

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the contrary in his First Motion to Amend, citing SPA cl. 2.1's provision that Curtiss-Wright UK " agrees to purchase all of such Shares free from all Encumbrances," and asserting that ACRA Ireland's liabilities were not transferred under the SPA. See Pl.'s 1st Mot. to Am. 3 (emphasis added). Plaintiff contends that, instead of liability transferring, ACRA Ireland's " shareholders, namely Curtiss-Wright UK," retained liability. See id. Yet, Plaintiff does not provide any legal authority or contractual provision for the proposition that any of the shareholders, let alone Curtiss-Wright UK, ever had any liability for ACRA Ireland.

Plaintiff also argues, alternatively, that Curtiss-Wright UK acquired ACRA Ireland's liability when it acquired its predecessor's shares, " under the 'mere continuation' exception." See Pl.'s 1st Mot. to Am. 3. However, as Defendants note, " [t]he traditional rule with regard to the 'mere continuation' exception is that a corporation is not to be considered the continuation of a predecessor unless, after the transfer of assets, only one corporation remains, and there is an identity of stock, stockholders, and directors between the two corporations." United States v. Carolina Transformer Co., 978 F.2d 832, 838 (4th Cir. 1992). Here, prior to and after the stock purchase, ACRA Ireland and Curtiss-Wright UK remained separate entities. See Pl.'s 1st Mot. to Am. 3; Defs.' Opp'n to Pl.'s 1st Mot. to Am. 7. Therefore, Curtiss-Wright UK did not acquire ACRA Ireland's liability under the " mere continuation" exception. See Carolina Transformer Co., 978 F.2d at 838. Consequently, Plaintiff's proposed amendment to state a claim for ...


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