920 F.Supp. 566 (D.N.J. 1996), Civ. 95-2405, Gannon v. Continental Ins. Co.

Docket Nº:Civ. 95-2405
Citation:920 F.Supp. 566
Party Name:Gannon v. Continental Ins. Co.
Case Date:April 01, 1996
Court:United States District Courts, 3th Circuit, District of New Jersey
 
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920 F.Supp. 566 (D.N.J. 1996)

Michael R. GANNON, Plaintiff,

v.

With regard to Count One through Count Five: CONTINENTAL INSURANCE COMPANY, Continental Corporation, Kenneth B. Ziegler, Individually and as an Agent of Continental Insurance, John P. Mascotte, Individually and as an Agent of Continental Insurance, Steven J. Smith, Individually and as an Agent of Continental Insurance, Adrian M. Tocklin, Individually and as an Agent of Continental Insurance, Marie E. Curatolo, Plan Administrator ERISA Plan and Ann M. Pauker, John and Jane Doe Corporations (1-100), John and Jane Does (1-100); With regard to Count Six Through Count Eighteen: Continental Insurance Company, Continental Corporation, CNA Financial Corporation, Chicago Acquisition Corp., John and Jane Doe Corporations (1-100), John and Jane Does (1-100), (Board of Directors) Ivan A. Burns, Alec Flamm, Irvine O. Hockaday, Jr., John E. Jacob, John P. Mascotte, John F. McGillicuddy, Richard de J. Osborne, Charles A. Parker, John W. Rowe, L. Edwin Smart, Patricia Carry-Stewart, Francis T. Vincent, Jr., Michael Weintraub, Anne Wexler, (Executive Officers) John P. Mascotte, Wayne H. Fisher, Fredric G. Marziano, Charles A. Parker, Steven J. Smith, Adrian M. Tocklin, Bruce M. Brodie, J. Heath Fitzsimmons, James P. Flood, William F. Gleason, Jr., John F. Kirby, Arthur J. O'Connor, Sheldon Rosenberg, Kenneth B. Ziegler, Francis M. Colalucci, William A. Robbie, and KPMG Peat Marwick, Defendants.

Civ. No. 95-2405.

United States District Court, D. New Jersey.

April 1, 1996

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Law Offices of Linda B. Kenney, Red Bank, N.J. (Linda B. Kenney, of counsel; Gregory S. Schaer, on the brief), for plaintiff.

Cindy Nan Vogelman, Chasan, Leyner, Tarrant & Lamparello, P.C., Secaucus, N.J., and Richard L. Bond, Stewart D. Aaron, Thomas M. Skelton, Dorsey & Whitney P.L.L.P, New York City, for defendants The Continental Corporation; The Continental Insurance Company; CNA Financial Corporation; Bruce M. Brodie; Ivan A. Burns; Patricia Carry-Stewart; Francis M. Colalucci; Maria E. Curatolo, as Plan Administrator, ERISA; Wayne H. Fisher; J. Heath Fitzsimmons; Alec Flamm; James P. Flood; William F. Gleason, Jr.; Irvine O. Hockaday, Jr.; John E. Jacob; John F. Kirby; Frederic G. Marziano; John P. Mascotte; John F. McGillicuddy; Arthur J. O'Conner; Richard de J. Osborne; Charles A. Parker; Ann M. Pauker; William A. Robbie; Sheldon Rosenberg; John W. Rowe; L. Edwin Smart; Steven J. Smith; Adrian M. Tocklin; Francis T. Vincent, Jr.; Michael Weintraub; Anne Wexler; and Kenneth B. Zeigler.

John E. Caruso, C. Alexa Abowitz, Montgomery, McCracken, Walker & Rhoads, Cherry Hill, N.J., for Defendant KPMG Peat Marwick LLP.

OPINION

DEBEVOISE, Senior District Judge.

I. Introduction

Plaintiff in this action, Michael Gannon (sometimes referred to as "Gannon"), is a former employee of Continental Insurance Company ("Continental Insurance") and a former stockholder of Continental Corporation ("Continental Corp."), Continental Insurance's parent company. Gannon's complaint alleges two sets of wrongs arising out of two separate sets of facts. In the first five counts of the complaint Gannon seeks money damages and equitable relief for himself as a former employee of Continental Insurance as remedies for his allegedly wrongful termination on May 20, 1994. In the last thirteen counts of the complaint Gannon sues on behalf of himself and on behalf of a class of stockholders who purchased publicly traded securities of Continental Corp. during a period prior to 1993 and who held such securities at the time of the merger agreement between Continental Corp. and CNA Financial Corporation ("CNA"). As class representative, plaintiff seeks monetary and equitable relief for alleged state common law wrongs, corporate mismanagement and securities fraud perpetrated by the Continental Corp., its officers and board of directors during the year and a half preceding Continental Corp.'s merger with CNA on May 9, 1995.

Named as defendants with respect to Count 1 through 5 are Continental Insurance; Continental Corp.; Kenneth B. Zeigler, Senior Vice President, Human Resources for Continental Corp.; John P. Mascotte, Chairman and Chief Executive Officer of Continental Corp.; Steven J. Smith, Executive Vice President of Continental Corp.; Adrian Tocklin, Executive Vice President of Continental Corp.; Marie E. Curalto, Plan Administrator Erisa Plan; Ann M. Pauker, Plan Administrator The Reduction in Force Plan of the Continental Corp.; John and Jane Doe Corporations (1-100) and John and Jane Does (1-100).

Named as defendants with respect to Counts 6 through 18 are Continental Insurance; Continental Corp.; CNA; Chicago Acquisition

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Corp. 1; John and Jane Doe Corporations (1-100); John and Jane Does (1-100); the fourteen individuals constituting the board of directors of Continental Corp.; the sixteen individuals characterized as executive officers of Continental Corp. (two of whom were also director-defendants); and KPMG Peat Marwick ("Peat Marwick"), certified public accountants who were the auditors of Continental Corp. and its subsidiaries during the years pertinent to this litigation.

The Continental defendants (all defendants other than Peat Marwick, Chicago Acquisition Corp., the John and Jane Doe Corporations and the John and Jane Does) moved to dismiss the complaint pursuant to Fed.R.Civ.P. 12(b)(6). After the hearing on the motion and after submission of additional papers by the Continental defendants and plaintiff, Peat Marwick moved for the same relief. For the reasons that follow, the motions to dismiss will be granted with respect to the Plaintiff's federal law claims. Plaintiff's state law claims will be remanded to the state court.

II. Procedural History

On May 2, 1995 Gannon filed a complaint in the Superior Court of New Jersey. His five count complaint alleged that Gannon had been wrongfully terminated from his position as Vice President of Continental Insurance. On May 9, 1995 Gannon filed a First Amended Complaint which amended the original complaint to assert class action claims against Continental Insurance, Continental Corp. and its executive officers and members of its Board of Directors. The additional counts alleged various forms of corporate mismanagement and violations of federal law.

On May 19, 1995 the action was removed to Federal Court. On August 23, 1995 Gannon filed another complaint, incorrectly captioned as a Third Amended Complaint (since there was no Second Amended Complaint). That complaint added numerous factual allegations, added further allegations of violations of federal law and added other defendants.

On September 29, 1995 the Continental defendants filed their motion to dismiss. At the hearing on the motion I declined the invitation to treat it as one for summary judgement and stated that I would consider only the allegations of the complaint together with documents referred to in the complaint which a court may consider on a Rule 12(b)(6) motion. Because the dates which plaintiff acquired his stock in Continental Corp. were material and were not alleged in the Third Amended Complaint, I asked plaintiff's counsel to file a Fourth Amended Complaint setting forth that information. That has been done, and the factual statement which follows is derived from the Fourth Amended Complaint (hereinafter referred to as the "Complaint") and the documents which may be considered on this motion.

III. Factual Allegations

The following is an overview of the facts as presented in the Complaint, and is not intended to be comprehensive. Additional facts pertinent to specific claims will be set forth in the appropriate portions of the Discussion below. In addition, although the two sets of charges in the complaint involve facts occurring during roughly the same time period, they involve the plaintiff in different capacities (as employee and as stockholder) and therefore will be recounted separately.

A. The Termination Issue

At the time of his termination in 1993, Gannon was employed by Continental Insurance in its Cranbury, New Jersey facility as Vice President, NBC/Residual Market Center. (Complaint at ¶ 1) Continental Insurance is in the business of writing property and casualty insurance. ( Id. at ¶ 2.) Gannon had been employed by Continental Insurance since February of 1969 ( Id. at ¶ 6.) and is more than forty years old. ( Id. at ¶ 22.)

In August/September 1993, Gannon was assigned the responsibility of overseeing the Residual Market Center in Glen Falls, New York ("Glen Falls RMC"). ( Id. at ¶ 14.) Among the people who reported to Gannon at the Glen Falls RMC was Doreen Horvath ("Horvath"), Vice President of the Glen Falls RMC. ( Id. at ¶ 15.) Upon taking over the Glen Falls RMC Gannon noticed problems

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with an underwriting audit for which Horvath was responsible. ( Id. at ¶ 16.) In addition Gannon was not comfortable with the accuracy of other numbers coming out of Horvath's unit and pet pressure on her to improve the quality of her work. ( Id. at ¶ 17.)

Before taking over Glen Falls RMC Gannon had been warned by Robert Reinke ("Reinke"), Senior Vice President and Horvath's supervisor, to "watch his back" as there was a "special relationship" between Horvath and Frederic Marziano ("Marziano"), President of Continental Insurance. ( Id. at ¶ 14.) After taking over the Glen Falls RMC Gannon continued to hear rumors about the relationship between Horvath and Marziano. ( Id.) He heard some cafeteria gossip about Horvath having her hand on Marziano's leg and was told by Glen Tippy ("Tippy"), another Vice President that there were rumors all over Glen Falls that Horvath and Marziano...

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