VALUE DRUG COMPANY v. ONLY ONE HUB, INC.

IN THE UNITED STATES DISTRICT COURT

FOR THE WESTERN DISTRICT OF PENNSYLVANIA

VALUE DRUG COMPANY, )

)

Plaintiff, )

v. ) Civil No. 3:23-cv-00263

) Judge Stephanie Haines

ONLY ONE HUB, INK. A/K/A ONLY )

ONE HUB D/B/A/ PRIMUS )

HEALTHCARE AND RICHARD )

HERSPERGER, )

)

Defendants. )

OPINION

Value Drug Company (“VDC”) filed a Complaint in civil action (ECF No. 1) in Blair

County, Pennsylvania against defendants Only One Hub, Inc. also known as Only One Hub doing

business as Primus Healthcare (“OOH”), and against Richard Hersperger (“Hersperger”)

(collectively “Defendants”). Hersperger is the owner and Chief Executive Officer of OOH as well

as a shareholder of OOH. On October 26, 2023, OOH filed a Notice of Removal with the United

States District Court for the Western District of Pennsylvania (ECF No. 1; ECF No. 1-2, pp. 95-

206 (Exhibit A — Complaint and civil documents)) and the case was placed with this Federal Court.

After deficient attempts to file Motions to Dismiss by Defendants (ECF Nos. 8,13,16,17),

OOH filed a Second Motion to Dismiss (ECF No. 29) and Brief (ECF No. 30) and Hersperger did

the same (ECF Nos. 31, 32). Value Drug responded to OOH (ECF No. 38) and Hersperger (ECF

No. 37). In the interim, the Court granted a Motion for Preliminary Injunction in the form of a

limited receiver (ECF Nos. 11, 24, 25), and assigned the limited receiver on February 13, 2024

(ECF No. 40). The Court will now address the Motions to Dismiss filed by defendant OOH and

defendant Hersperger in turn. When Defendants’ arguments are duplicative, the Court will address

the issues applying the analysis to both Defendants.

1. FACTS!

VDC is a cooperative of independent pharmacies. ECF No. 12, p. 2. It entered a

collaborative with OOH that was intended to be mutually beneficial to OOH, VDC, and the

member pharmacies of VDC. The First Project Agreement commemorating the collaborative was

in June 2021, and it provided that all physicians involved in the collaborative would be clients of

Triple B Billing & Consulting, Inc. (“BBB”). ECF No. 1-2, p. 16, {4 29-31. In general, BBB

would conduct all accounting matters and would be overseen by OOH. VDC complains of various

problems that occurred under the First Project Agreement yet entered into the Second Project

Agreement on October 28, 2021. ECF No. 1-2, pp. 11-12, 9] 58-62. Under the Second Project

Agreement, all physicians were clients of Medical Service Associates (“MSA”) or OOH, instead

of BBB. All other terms of the First Project Agreement remained the same.” The Second Project

Agreement states the term as “One Year from the date of Execution “Execution Date” and

continues in full force and effect for a period of one year. Agreement will renew for another year

provided all parties agree no less than 30 days prior to the anniversary date.” > ECF No. 1-2, p. 73.

According to the Agreements, VDC’s member pharmacies would conduct interviews with

patients, provide instructions to patients for test sampling procedures, collect COVID-19 test

samples, and submit the test samples to Genotox Laboratories utilizing packing provided by OOH.

ECF No. 1-2, p. 15, § 22. The pharmacies (and in turn VDC and OOH) would be paid through an

! The facts derive from VDC’s Complaint (ECF No. 1-2).

2 See Complaint for complete description of the responsibilities of the parties to the agreement and the representative

shares of the profits (ECF No. 1-2, p, 21-22, J] 64-70). See also Second Project Agreement (ECF No. 1-2, Exhibit C,

argues that the Second Project Agreement was renewed by participation and did not require a signed writing.

This Court need not determine whether the Second Project Agreement is expired. Termination of a contract does not

excuse the parties from past performance that arose under a valid contract. ECF No. 19, p. 5.

arrangement in which a physician or other qualified nonphysician practitioner would bill for the

services provided by pharmacies, then provide the pharmacies with the agreed-upon

reimbursement. Jd. §20. VDC and OOH were to provide relevant software, and OOH was to

provide the COVID-19 tests to VDC, which VDC then provided to the pharmacies. Jd. { 23.

OOH managed and oversaw the project, as well as retained, managed, and oversaw the

third-party billing company that would submit and collect payments on project claims. /d. § 21.

VDC states that neither it nor its member pharmacies were responsible for, or had control over,

claims submission, processing, or payment. ECF No. 12, p. 3. VDC asserts that Defendants

engaged in misconduct, mismanagement, and fraud in the following ways:

a) failing to properly submit Project claims;

b) failing to obtain reimbursements for Covid-19 tests performed as part of the

Project;

c) using improper billing codes to submit claims for the Project;

d) failing to properly segregate and place into escrow Project payments

received;

e) failing to properly distribute Project funds;

f) failing to provide adequate reports, updates and information to Value Drug

and other Project participants;

g) making numerous misrepresentations and material omissions to both Value

Drug and Value Drug’s member pharmacies related to the Project; and

h) failing to pay both Value Drug and Value Drug’s member pharmacies for

Covid-19 tests performed as part of the Project.

ECF No. 12, pp. 3-4.

Il. STANDARD

A motion to dismiss pursuant to Federal Rule of Civil Procedure 12(b)(6) tests the legal

sufficiency of the complaint. See Kost v. Kozakiewicz, | F.3d 176, 183 (3d Cir. 1993). In deciding

a motion to dismiss, the Court is not opining on whether the plaintiff will likely prevail on the

merits; rather, the plaintiff must only present factual allegations sufficient “to raise a right to relief

above the speculative level.” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007) (citing 5 C.

Wright & A. Miller, Federal Practice, and Procedure § 1216, pp. 235-236 (3d ed. 2004)); see also

Ashcroft v. Iqbal, 556 U.S. 662 (2009). A complaint should only be dismissed pursuant to Rule

12(b)(6) if it fails to allege “enough facts to state a claim to relief that is plausible on its face.”

Twombly, 550 U.S. at 570 (rejecting the traditional 12(b)(6) standard established in Conley vy.

Gibson, 355 U.S. 41 (1957)). In making this determination, the court must accept as true all well-

pled factual allegations in the complaint and views them in a light most favorable to the plaintiff.

See U.S. Express Lines Ltd. v. Higgins, 281 F.3d 383, 388 (3d Cir. 2002).

While a complaint does not need detailed factual allegations to survive a motion to dismiss,

a complaint must provide more than labels and conclusions. See Twombly, 550 U.S. at 555. A

“formulaic recitation of the elements of a cause of action will not do.” Jd. (citing Papasan v.

Allain, 478 U.S. 265, 286 (1986)). Moreover, a court need not accept inferences drawn by a

plaintiff if they are unsupported by the facts as set forth in the complaint. See California Pub.

Emp. Ret. Sys. v. The Chubb Corp., 394 F.3d 126, 143 (3d Cir. 2004) (citing Morse v. Lower

Merion Sch. Dist., 132 F.3d 902, 906 (3d Cir. 1997)). Nor must the Court accept legal conclusions

disguised as factual allegations. See Twombly, 550 U.S. at 555. See also McTernan v. City of

York, Pennsylvania, 577 F.3d 521, 531 (3d Cir. 2009) (“The tenet that a court must accept as true

all of the allegations contained in a complaint is inapplicable to legal conclusions.”).

Expounding on the Twombly/Iqbal line of cases, the Third Circuit has articulated the

following three-step approach:

First, the court must ‘tak[e] note of the elements a plaintiff must

plead to state a claim.’ Second, the court should identify allegations

that, ‘because they are no more than conclusions, are not entitled to

the assumption of truth.’ Finally, ‘where there are well-pleaded

factual allegations, a court should assume their veracity and then

determine whether they plausibly give rise to an entitlement for

relief.’

Burtch y. Milberg Factors, Inc., 662 F.3d 212, 221 (3d Cir. 2011) (quoting Santiago v. Warminster

Twp., 629 F.3d 121, 130 (3d Cir. 2010)). This determination is “a context-specific task that

requires the reviewing court to draw on its judicial experience and common sense.” Iqbal, 556

USS. at 679.

When ruling on a motion to dismiss under Rule 12(b)(6), the court must generally consider

only the allegations in the complaint, exhibits attached to the complaint, matters of public record,

and documents that form the basis of a claim. See In re Burlington Coat Factory Sec. Litig., 114

F.3d 1410, 1426 (3d Cir. 1997)). A court may take judicial notice of documents filed in other

court proceedings because they are matters of public record. See Liberty Int'l Underwriters Can.

v. Scottsdale Ins. Co., 955 F. Supp. 2d 317, 325 (D.N.J. 2013).

Hi. DISCUSSION

VDC’s Complaint contains six causes of action. (1) Breach of Contract — Second Project

Agreement as to OOH. (2) Breach of Contract — First Project Agreement as to OOH. (3) Unjust

Enrichment (in the alternative) as to OOH. (4) Negligent Misrepresentation as to both Defendants.

(5) Fraud as to both Defendants. (6) Legal Accounting as to OOH. The Court will address each

claim and Defendants’ responses in turn. The Court will not address OOH’s request for dismissal

of the Preliminary Injunction for Appointment of a Limited Receiver. That issue has been fully

briefed, considered, and decided by the Court. See ECF Nos. 24, 34, 36, 40.

A. Breach of Second Project Agreement as to OOH

OOH asserts that VDC’s Breach of Contract claim for Second Project Agreement (ECF

No. 1-2, Exhibit C, pp. 68-75) should be dismissed for failure to state a claim upon which relief

can be granted. In general, VDC claimed that billing was overseen or conducted by OOH, and it

was performed improperly, and therefore OOH is liable for breach of contract. “A plaintiff must

generally establish three elements to support a breach of contract claim: (1) ‘the existence of a

contract, including its essential terms’; (2) ‘a breach of a duty imposed by the contract’; and (3)

‘resultant damages.’” Fortunato v. CGA L. Firm, No. 1:17-CV-00201, 2018 WL 4635963, at *3

(M.D. Pa. Sept. 27, 2018) (citing Gorski v. Smith, 812 A.2d 683, 692 (Pa. Super. Ct. 2002)).

OOH states that VDC’s claims of breach are based on legal conclusions rather than actual

terms of the contract. From OOH’s argument, the Court perceives that OOH contests element two

because according to the Second Project Agreement OOH was not in charge of billing or payments,

therefore there was no breach of a duty imposed by the contract. ECF No. 30, p. 3. OOH also

relies on the fact that billing was part of BBB or MSA’s responsibilities and assignment of billing

to OOH was not allowable without written consent per the Second Project Agreement. ECF No.

1-2, p. 161.4 OOH asserts a valid assignment was never made to OOH from BBB or MSA.

As stated in the Court’s last Opinion (ECF No. 24), even if OOH’s involvement in billing

were not commemorated in the Second Project Agreement or by assignment, OOH’s agreement to

manage the billing and collections from the start of the Project is plausible given the factual

assertions made by VDC. VDC states Defendants voluntarily assumed control over and

responsibility for Project billings and collections. ECF No. 19, p. 4. The Second Project

Agreement provides that MSA, who is overseen by OOH, was responsible for account

maintenance and reporting. ECF No. 11-1, p. 63 (d). Therefore, accounting responsibilities were

at least partly the responsibility of OOH.°

4 OOH’s and Hersperger’s arguments seeking dismissal of VDC’s claims because it did not attach a copy of the

executed Agreement is misplaced and will be ignored by the Court. It is based on a Pennsylvania Rule of Civil

Procedure that is not required in a Federal District Court, where this case is being litigated.

5 The Court acknowledges VDC’s argument that it has already opined on certain issues in the context of its Preliminary

Injunction for a Limited Receiver opinion. It is noteworthy to state that the rule of law under which the Court evaluates

the issues in a preliminary injunction motion is different from the rule of law for a motion to dismiss so that the law

of the case doctrine may not necessarily apply.

The Court finds that by the contract terms OOH was not responsible for billing and there

was no assignment of responsibility of billing to it by MSA, the party responsible for billing. That

said, the Court also finds that there are plausible arguments that actions that occurred during the

course of the business venture that indicate that OOH had at least some responsibility for billing

and related responsibilities. “[I]t is well settled under Pennsylvania law that a written agreement

can be modified or amended by a subsequent agreement.” Crown Coal & Coke Co. v. Powhatan

Mid-Vol Coal Sales, L.L.C., 929 F. Supp. 2d 460, 467 (W.D. Pa. 2013). A contractual provision

prohibiting any modification unless it is in writing is not fatal to amending a contract because such

provision can be waived. See Wagner y. Graziano Constr. Co., 136 A.2d 82, 84 (1957) (“Even

where the contract specifically states that no non-written modification will be recognized, the

parties may yet alter their agreement by parol negotiation.”) (“It is always competent for the parties

to a written contract to show that it was subsequently abandoned in whole or in part, modified,

changed, or a new one substituted. And this may be shown by parol, by showing either an express

agreement or actions necessarily involving the alterations.”(citation omitted)); First Nat'l Bank v.

Lincoln Nat'l Life Ins. Co., 824 F.2d 277, 280 (3d Cir. 1987) (a modification to a contract that is

proven by clear, precise, and convincing evidence “is valid despite a provision in the original

written agreement prohibiting non-written modifications”); Universal Builders, Inc. v. Moon

Motor Lodge, Inc., 244 A.2d 10, 15 (Pa. 1968) (a “contract can be modified orally although it

provides that it can be modified only in writing.”).°

6 “The parol evidence rule does not bar evidence of a subsequent change from admission because the rule “does not

apply to or prohibit a subsequent modification by parol; it applies only to prior or contemporaneous statements or

agreements which induced the written agreement in question.” Elliott—Lewis Corp. v. York-Shipley, Inc., 94 A.2d 47,

49 (Pa. 1953) (citing Grubb v. Rockey, 79 A.2d 255, 258 (Pa. 1951)).

Here, although the contract provides only for assignment with written agreement, VDC has

asserted a plausible claim that OOH assumed responsibility for billing and oversight and that

would be enough to modify the contract to allow for a breach of contract claim. The Motion to

Dismiss the Breach of Contract claim for the Second Project Agreement as to OOH will be denied.

B. Breach of First Project Agreement as to OOH

OOH asks the Court to dismiss the claim of beach of the First Project Agreement because

VDC has not attached a valid First Project Agreement to the pleading. As stated in fn 2 above,

this is a wholly invalid argument relying on Pennsylvania Rules of Civil Procedure in a Federal

proceeding and it is summarily denied.

C. Unjust Enrichment as to OOH (in the alternative)

VDC argues that it has conferred benefits to OOH by fulfilling its obligations according to

the contract and OOH accepted the benefits without fulfilling its obligations. VDC claims it would

be unjust and inequitable for OOH to keep those benefits without due compensation to VDC. ECF

No. 1-2, §§ 186-89. An unjust enrichment claim may be brought in the alternative should the

validity of a contract be in question. See Crown Coal & Coke Co., 929 F. Supp. 2d at 467 (“The

unjust enrichment claim properly has been raised as a form of alternative pleading because Crown

disputes the validity of the amendment and the elements can be satisfied if Powhatan cannot

recover on its breach of contract claim.”). “By its nature, the doctrine of quasicontract, or unjust

enrichment, is inapplicable where a written or express contract exists.” Lackner v. Glosser, 892

A.2d 21, 34 (Pa. Super.2006) (citing Mitchell v. Moore, 729 A.2d 1200, 1203 (Pa. Super.1999)).

Here it cannot be said that OOH challenges the validity of the existence ofa contract. OOH

disputes that it assumed the responsibility of billing and collections and thus claims it is not liable

for a breach of that specific duty. Because the factual determinations that will necessarily be made

pursuant to VDC’s breach of contract claims have the potential to provide it with complete relief,

an unjust enrichment claim currently cannot be maintained against OOH. Therefore, OOH’s

motion to dismiss the unjust enrichment claim will be dismissed without prejudice to its

reinstatement in the event further proceedings lead to an equitable basis for asserting the claim.

See Crown Coal & Coke Co., 929 F. Supp. 2d at 474.

D. Negligent Misrepresentation as to Defendants

VDC asserts a negligent misrepresentation claim against Defendants because it relied on

misrepresented facts related to the Project when entering into the joint venture. ECF No. 1-2,

4 192. Pennsylvania has adopted the Restatement (Second) of Torts § 552 governing negligent

misrepresentation. See Gibbs v. Ernst, 647 A.2d 882, 890 (Pa. 1994) (discussing and adopting §

552). That section provides that

liability exists for negligent misrepresentation where: (1) the defendant, in the

course of his business or in a transaction in which he has a pecuniary interest,

supplied false information with respect to that transaction or business; (2) the

plaintiff justifiably relied on the false information in making a decision; and (3) the

defendant was negligent in failing to exercise the reasonable care necessary in

providing the information, that is, he either knew or should have known the truth

or falsity of his representation.

State Coll. Area Sch. Dist. v. Royal Bank of Canada, 825 F. Supp. 2d 573, 584 (M.D. Pa. 2011).

VDC states that “OOH and Hersperger later reversed course, ignored their prior representations,

or made completely different contradictory representations. [They] made a myriad [of] material

misrepresentations to [VDC] under circumstances in which OOH and Hersperger should have

known their falsity.” ECF No. 1-2, 4 192-94. The Court rejects Defendants arguments below

and finds that VDC has made a plausible claim of negligent misrepresentation against Defendants

and the claim will not be dismissed.

1. Gist of the Action Doctrine

OOH counters stating that the nature of VDC’s claim sounds in contract, not tort, and therefore,

gist of the action doctrine applies barring this tort claim. ECF No. 30, p. 7.

Under Pennsylvania law, the gist of the action doctrine acts to foreclose tort and

fraud claims: (1) arising solely from the contractual relationship between the

parties; (2) when the alleged duties breached were grounded in the contract itself;

(3) where any liability stems from the contract; and (4) when the tort claim

essentially duplicates the breach of contract claim or where the success of the tort

claim is dependent on the success of the breach of contract claim. [See] Hart v.

Arnold, 884 A.2d 316, 340 (Pa. Super. 2005); eToll, Inc. v. Elias/Savion

Advertising, Inc., 811 A.2d 10, 19 (Pa. Super. 2002).

ECF No. 30, pp. 7-8. The gist of the doctrine is inapplicable because the actions that VDC

complains of were not terms of the contract, specifically. VDC states that it relied on Defendants’

expertise in managing billing; Defendants creation of a functional HIPAA-compliant patient

database; Defendants use of proper billing codes; Defendants transparency in matters pertaining

to billing; Defendants proper handling and safeguarding of Project funds; and Defendants

willingness to work collaboratively with VCD and member pharmacies. ECF No. 1-2, pp. 41-42.

Defendants themselves argue that none of these responsibilities were designated to Defendants in

the contracts, but these assurances were relied upon by VDC to enter into and remain compliant

with the contract. Defendants cannot on one hand state that they were not responsible because it

was not in the contract (see above) and then later state they are not responsible because the action

was covered in the contract.

“In general, the difference between contract claims and tort claims depends upon the origin

of the duties alleged to have been breached by the defendant's conduct. ‘Tort actions lie for

breaches of duties imposed by law as a matter of social policy, while contract actions lie only for

breaches of duties imposed by mutual consensus agreements between particular individuals.’”

Crown Coal & Coke Co., 929 F. Supp. 2d 460, 474 (quoting eToll, Inc., 811 A.2d at 14)). “To be

10

sure, the two causes of action are not mutually distinct. To the contrary, it is quite possible that

breach of contract also gives rise to an actionable tort.” /d. (internal citations omitted).

In general, the courts have applied the gist of the action doctrine to bar tort claims

in four separate settings: (1) were the claims arise from a contract between the

parties; (2) where the duties allegedly breached were created and grounded in the

contract itself; (3) where the liability stems from a contract; or (4) where a tort claim

essentially duplicates a breach of contract claim or its success is wholly dependent

on the terms of a contract.

Id. at 475. The alleged negligent actions do not arise or stem from the contract nor are they duties

that were laid out in writing. The Court does not find that the negligent misrepresentation claims

made against Defendants for their promises as they relate to the Project duplicate the breach of

contract claim that Defendants breached the contract in failing to make payments to VDC and its

member pharmacies.

2. Economic Loss Doctrine

OOH also argues that a claim for negligent misrepresentation fails because of the economic

loss doctrine. “The Economic Loss Doctrine is intended to prohibit a plaintiff from ‘recovering in

tort economic losses to which [his] entitlement flows only from a contract.’” Brock v. Thomas, 782

F. Supp. 2d 133, 143 (E.D. Pa. 2011) (citing Duquesne Light Co. v. Westinghouse Elec. Corp., 66

F.3d 604, 618 (3d Cir.1995)). “[N]o cause of action exists for negligence that causes only

economic loss.” Aikens v. Baltimore and Ohio R. Co., 501 A.2d 277, 279 (Pa. 1985). Citing

Dittman v. UPMC, 196 A.3d 1036 (Pa. 2018), VDC retorts that this doctrine does not apply.

Dittman focus on this Court's decisions in Bilt-Rite Contractors, Inc. v. The Architectural Studio,

866 A.2d 270 (Pa. 2005) and Excavation Techs., Inc. v. Columbia Gas Co. of Pennsylvania, 985

A.2d 840 (Pa. 2009). It used the “reasoned approach rule.”

[The] 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,

11

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.

Dittman, 196 A.3d at 1052. After consideration of previous caselaw, the Dittman Court held “that

those cases do not stand for the proposition that the economic loss doctrine, as applied in

Pennsylvania, precludes all negligence claims seeking solely economic damages.” Jd. at 1054.

Instead, the Court’s analysis “turns on the determination of the source of the duty plaintiff claims

the defendant owed.” Id. ((citation omitted) quoting Tommy L. Griffin Plumbing & Heating Co.

v. Jordan, Jones & Goulding, Inc., 463 S.E.2d 85, 88 (S.C. 1995). “Specifically, if the duty arises

under a contract between the parties, a tort action will not lie from a breach of that duty. However,

if the duty arises independently of any contractual duties between the parties, then a breach of that

duty may support a tort action.” Jd.

The determination of whether a duty exists in a particular case involves the

weighing of several discrete factors which include: (1) the relationship between the

parties; (2) the social utility of the actor's conduct; (3) the nature of the risk imposed

and foreseeability of the harm incurred; (4) the consequences of imposing a duty

upon the actor; and (5) the overall public interest in the proposed solution. See

generally Dumanski v. City of Erie, 348 Pa. 505, 507, 34 A.2d 508, 509 (1943)

(relationship between the parties), Forster v. Manchester, 410 Pa. 192, 197, 189

_A.2d 147, 150 (1963) (social utility), Clewell v. Pummer, 384 Pa. 515, 520, 121

A.2d 459, 463 (1956) (nature of risk), Witthoeft v. Kiskaddon, 557 Pa. 340, 353,

733 A.2d 623, 630 (1999) (foreseeability of harm), Cruet v. Certain-Teed Corp.,

432 Pa.Super. 554, 558, 639 A.2d 478, 479 (1994) (relationship, nature of risk and

public interest in the proposed solution).

Althaus ex rel. Althaus v. Cohen, 756 A.2d 1166, 1169 (Pa. 2000). The Court finds the factors

support assigning OOH a duty to VDC to conduct business in a transparent and honest manner.

OOH and VDC were parties to a joint venture and as such owed a fiduciary duty to one another

12

which incurs all the factors. This fiduciary duty is independent of the terms of the contract.

Therefore, the economic loss doctrine does not apply.

It is appropriate now to address Hersperger’s defense that he was not a party to the Project

Agreements here. The allegations against Hersperger are based in tort, not founded on the contract

as evident in the analysis above. In fact, for the allegations to stand, as the Court determined, they

must have a basis outside the allegations for breach. The Court found that they have and so

Hersperger’s defense that he was not party to the contract is inapplicable and unpersuasive as a

defense to VDC’s tort claims.

3. Insufficient Service of Process (Hersperger)

Hersperger claims that he was never properly served the Complaint and paperwork for this

case. ECF No. 32, p. 2. He states that acceptance of service was filed by counsel for OOH for

him and he never authorized counsel to accept or waive service of original process on his behalf.

Id. He also states that counsel for OOH has never represented him in his individual capacity in

this matter and therefore the court lacks personal jurisdiction and cannot enter judgment against

him. /d. at 3.

VDC responds that Hersperger is the CEO and an owner of OOH and that it is very common

for the same attorney to represent a company and any executives that are sued in their individual

capacity. ECF No. 37, p. 7. Plaintiff was not told that OOH’s counsel was not representing

Hersperger until October 19, 2023. Furthermore, counsel accepted service and so service was

properly effectuated before October 19. Jd. at 8. It is undisputed that Hersperger was aware of

the lawsuit, and he claims he learned of it when he reviewed a copy of VDC’s Affidavit of Default

filed on November 6, 2023. ECF No. 32, p. 3 (ECF No. 5).

13

A party may move for dismissal based on insufficient process under Rule 12(b)(5) of the

Federal Rules of Civil Procedure which attacks the manner in which a summons and complaint

were, or were not, served. When a Rule 12(b)(5) motion is raised by a defendant, the burden shifts

to the plaintiff to prove that service was properly effectuated. If service was ineffective, courts

should allow a plaintiff an opportunity to cure service, as long as such efforts would not be futile.

See Phillips v. Woodforest Constr., LLC, 2023 VI SUPER 42U, {9 (V.I. Super. July 31, 2023). A

plaintiff must serve a defendant with a summons and a copy of the complaint within 90 days of

filing the complaint. Fed. R. Civ. P. 4(c), (m). Ifa plaintiff fails to do so, the court must dismiss

the case without prejudice or order that the plaintiff serve the defendant within a specified time,

absent good cause for that failure. Id. 4(m). “Even absent good cause, the court must consider

whether to grant a discretionary extension.” Huerta v. Green, Tweed & Co., No. CV 18-1776,

2019 WL 13273155, at *2 (E.D. Pa. Feb. 15, 2019) (citing MK. by & through Barlowe K. vy.

Prestige Acad. Charter Sch., No. 17-2575, 2018 WL 4922796, at *2 (3d Cir. Oct. 10, 2018)

(internal citations omitted)).

Given the miscommunication that occurred as to representation of Hersperger, and the fact that

service was accepted by counsel for OOH, the Court exercises its discretion and extends the

deadline in which to carry out service to Hersperger. Service must be effectuated according to the

Federal Rules of Civil Procedure and it must be done on or before August 2, 2024. The Court

declines to dismiss the civil action on the basis of improper service, especially given that

Hersperger is aware of the case and has been able to respond to pleadings with knowledge of the

claims and timely.

4, Executive Capacity (Hersperger)

14

Hersperger defends that he cannot be held liable in his individual capacity for any wrongdoing

pertaining to the joint venture. As stated above, he is the Chief Executive Officer of OOH and a

shareholder, and he depends on these titles to exempt him from liability. First, he states, “Any

alleged representations made by Mr. Hersperger related to the Covid-19 Testing Project were done

in his capacity as an executive officer and/or shareholder of [OOH] and not in his individual

capacity.” Jd. In support of this defense, he points to the Indemnification Section of the Project

Agreements.’ But Hersperger misunderstands the indemnification provisions which only protects

indemnified parties against liability incurred in third-party actions, not lawsuits involving the

parties to the contract. Thus, this argument is not persuasive to this case and is rejected.

Second, Hersperger proffers that VDC cannot pierce the corporate veil and attach liability to

an individual shareholder for the wrongs of the company. ECF No. 32, p. 5. VDC counters by

saying that it sues Hersperger for his own actions and wrongful conduct, under the “participation

theory,” not for the wrongdoing of the corporation itself. ECF No. 37, pp. 10-11. “Under the

Parties agree to indemnify and hold harmless its officers, directors, employees,

agents, affiliates, successors, and permitted assignees (collectively ‘Indemnified

Party’) against any and all losses, damages, liabilities, deficiencies, claims, actions,

judgments, settlements, interest, awards penalties, fines, costs, or expenses of

whatever kind including [reasonable] attorneys’ fees, that are incurred by

Indemnified Party (collectively, ‘Losses’), arising out of or related to any

third-party claim alleging:

(a) Breach or non-fulfillment of any provision of this Agreement by Indemnifying

Party or Indemnifying Parties Personnel.

(b) Any negligent or more culpable act or omission of Indemnifying Party or its

Personnel (including any reckless or willful misconduct) in connection with the

performance of its obligations under this Agreement.

(c) Any bodily injury, death of any person, or damage to real or tangible personal

property caused by the negligent or more culpable acts or omissions of

Indemnifying Party or its Personnel (including any reckless or willful misconduct);

or

(d) Any failure by Indemnifying Party or its Personnel to comply with any applicable

federal, state, or local laws, regulations, or codes in the performance of its

obligations under this Agreement. ECF No. 1-2, pp. 147-48, 161 (emphasis added).

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participation theory, the court imposes liability on the individual as an actor rather than an owner.

Such liability is not predicated on a finding that the corporation is a sham and mere alter ego of

the individual corporate officer. Instead, liability attaches where the record establishes the

individual’s participation in the tortious activity.” Wicks v. Milzoco Builders, Inc., 470 A.2d 86,

90 (Pa. 1983) (citation omitted).

“(Piercing the corporate veil is an equitable remedy whereby ‘a court disregards the existence

of the corporation to make the corporation's individual principals and their personal assets liable

for the debts of the corporation.’” Jn re Blatstein, 192 F.3d 88, 100 (3d Cir.1999) (internal

quotation and citation omitted). The corporate veil is pierced only when it is determined that the

corporation is ‘an artifice and a sham to execute illegitimate purposes and [an] abuse of the

corporate fiction and immunity that it carries.’” Kaplan v. First Options of Chicago, Inc., 19 F.3d

1503, 1521 (3d Cir. 1994) (internal quotation and citations omitted). The doctrine allows a litigant

to charge a person or entity controlling a corporation with ‘derivative liability.” United States v.

Bestfoods, 524 U.S. 51, 64 (1998). This is not the type of litigation in front of this Court as it

pertains to Hersperger. VDC is not suing OOH and claiming that it is a sham company so that it

may go after its representative. VDC’s claims of Negligent Misrepresentation (and Fraud) are

claims sounded in tort against Hersperger himself and OOH.

“The participation doctrine is ‘a theory which imposes personal liability on corporate officers

or shareholders where they have personally taken part in the actions of the corporation.’” Oldcastle

Precast, Inc. v. VPMC, Ltd, 2013 WL 1952090, at *14 (E.D.Pa. May 13, 2013) (quoting First

Realvest, Inc. v. Avery Builders, Inc., 600 A.2d 601, 604 (Pa.Super.1991)). See also Wicks v.

Milzoco Builders, Inc., 470 A.2d 86, 90 (Pa. 1983) (“[A]n officer of a corporation who takes part

in the commission of a tort by the corporation is personally liable therefor;”); Guzzi v. Morano,

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2013 WL 4042511, at *9 (E.D.Pa. Aug. 8, 2013) (“[A] corporate officer can be held personally

liable for a tort committed by the corporation when [he] or she is sufficiently involved in the

commission of the tort.”) (citations omitted) (finding no merit to the participation theory where

plaintiff offered not “an iota of evidence that [defendant] personally or individually promised

[plaintiff] anything”); Shay v. Flight C. Helicopter Servs., Inc., 822 A.2d 1, 17 (Pa.Super.Ct.2003)

(“To impose liability on a corporate officer pursuant to the participation theory, a plaintiff must

establish that the corporate officer engaged in misfeasance, i.e. the improper performance of an

act.’’) (citations and internal quotations omitted).

Hersperger’s defense is unpersuasive and _ off-point. The claim for Negligent

Misrepresentation will not be dismissed.

E. Fraud as to Defendants

Defendants made the same arguments to dismiss the Fraud claim as they did to the

Negligent Misrepresentation claim. The Court addressed these defenses above and need not

address them again here. The result is the same that VDC has pled a plausible claim. The Fraud

claim falls outside the contract terms and thus it will not be dismissed. Hersperger’s defenses are

inapplicable.

F. Legal and Equitable Accounting as to OOH

VDC seeks a legal and equitable accounting of “the payment status of all Project claims,

the amount of Project claims submitted to third-party payers, the amount of outstanding Project

claims not yet submitted to third-party payers, the payments that have been collected, and how

such payments have been distributed, both in total and at the pharmacy level, as well as costs.”

ECE No. 1-2, pp. 134, 135-36. OOH responds that there is no fiduciary duty relationship between

the parties because VDC already has an adequate remedy at law. ECF No. 30, p. 11. VDC replies

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that a joint venture, such as the one at hand, causes the parties to owe each other a fiduciary duty

and that there is no adequate remedy at law to replace the accounting. ECF No. 38, pp. 13-14.

Pennsylvania Rule of Civil Procedure 1021(a)® provides for the right to demand an

accounting at law. Pa. R. Civ. P. 1021 (a). “The right to relief in the form of an accounting pursuant

to Rule 1021 is merely an incident to a proper assumpsit claim.” Buczek v. First Nat’l Bank of

Mifflintown, 531 A.2d 1122, 1123 (Pa. 1987). A legal accounting is “not a claim, but a demand

for relief.” Canfield v. Statoil USA Onshore Properties Inc., No. CV 3:16-0085, 2017 WL

1078184, at *25 (M.D. Pa. Mar. 22, 2017) (citing Pa. R. Civ. P. 1021(a)). To state a claim that

will support a legal accounting, a plaintiff must allege that:

(1) there was a valid contract, express or implied, between the parties whereby the

defendant

(a) received monies as agent, trustee or in any other capacity whereby the

relationship created by the contract imposed a legal obligation upon the defendant

to account to the plaintiff for the monies received by the defendant, or

(b) if the relationship created by the contract between the plaintiff and defendant

created a legal duty upon the defendant to account and the defendant failed to

account and the plaintiff is unable, by reason of the defendant's failure to account,

to state the exact amount due him, and

(2) the defendant breached or was in dereliction of his duty under the contract.

Bordoni v. Chase Home Fin. LLC, 374 F. Supp. 3d 378, 387 (E.D. Pa. 2019). It is the Court’s

opinion that VDC and OOH were engaged in a joint venture in which they owed each other a

fiduciary duty. At this stage of litigation, the Court is uncertain of whether there is an adequate

remedy at law.

VDC has plausibly plead facts to support that there was a valid contract; that OOH received

or oversaw the entity that received monies as part of the joint venture; that OOH had a legal duty

§ The Court addresses this Pennsylvania statute because it is a substantive statute, not procedural, and it has been

addressed by other Federal Courts in the Third Circuit.

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to account to VDC and failed to do so; and that this failure was in dereliction to OOH’s duty under

the contract. The Motion to dismiss will be denied.

TV. Conclusion

IT IS ORDERED that OOH’s Motion to Dismiss (ECF No. 29) is GRANTED in part and

DENIED in part and Hersperger’s Motion to Dismiss (ECF No. 31) is DENIED. The Court Orders

as follows:

e Motion to Dismiss Breach of Contract claim for Second Project Agreement as to OOH is

DENIED;

e Motion to Dismiss Breach of Contract claim for First Project Agreement as to OOH is

DENIED;

e Motion to Dismiss Unjust Enrichment claim as to OOH is GRANTED, this claim is

dismissed without prejudice;

e Motion to Dismiss Negligent Misrepresentation claim as to Defendants 1s DENIED;

e Motion to Dismiss Fraud claim as to Defendants is DENIED;

e Motion to Dismiss Legal Accounting as to OOH is DENIED;

e VDC must effectuate proper service on Hersperger according to the Federal Rules of Civil

Procedure on or before August 2, 2024.

Dated: July 3, 2024 A f LA oN

; tephanie L. Haines

” United States District Judge

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