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finding the veil should be pierced after noting allegations that the stockholder-defendant converted corporate funds and failed to account for other corporate funds
Summary of this case from 18 KT.TV, LLC v. Entest Biomedical, Inc.Opinion
Civil Action 04-1986.
September 22, 2004
ORDER
AND NOW, this day of September, 2004, upon consideration of Defendants' Motion to Dismiss Plaintiff's Complaint (Document No. 6), it is hereby ORDERED that the Motion is DENIED in part and GRANTED in part, as follows:
(1) The Motion to Dismiss for failure to join an indispensible party pursuant to Fed.R.Civ.P. 12(b)(1) and 12(b)(7)is DENIED;
Defendants argue, pursuant to Fed.R.Civ.P. 12(b)(1) and 12(b)(7), that Plaintiffs have failed to join Thomas and Emma Ginley, Plaintiff Vanessa Noel Ginley's parents and citizens of Pennsylvania, and that the joinder of these necessary parties would divest the Court of subject matter jurisdiction.
A person should be joined under Fed.R.Civ.P. 19(a) if: (1) complete relief cannot be afforded in the person's absence, or (2) the person claims an interest in the subject of the action and (i) disposition of the action in their absence would impede their ability to protect this interest, or (ii) would leave current parties subject to multiple obligations. If the joinder of a necessary person under Fed.R.Civ.P. 19(a) is impossible, the action may be dismissed if the court cannot, in equity and good conscience, proceed without him. Factors the court must consider in determining whether the person is indispensable include: the extent to which a judgment rendered in the person's absence might be prejudicial to the person or those already parties; the extent to which the prejudice can be lessened through protective measures in the judgment; the adequacy of a judgment rendered in the person's absence; the adequacy of the plaintiff's remedy if the action is dismissed for nonjoinder. Fed.R.Civ.P. 19(b).
Defendants argue that Dr. Thomas Ginley and Mrs. Emma Ginley have an interest in this case by virtue of their payment of $100,000 to E.B. Mahoney Builders towards the completion of Plaintiffs' project. However, Plaintiffs' Complaint alleges only that Defendants, in an effort to coerce payment from Plaintiffs, "converted $11,463 or more of monies which had been entrusted to them" by Thomas Ginley for work on a project on behalf of Dr. and Mrs. Ginley "separate and apart from the 5 Chestnut Street Project," the subject of the present action. Dr. and Mrs. Ginley have filed suit against Defendants in the Court of Common Pleas of Montgomery Country, Pennsylvania for conversion of the $11,463, and make no claims as to the $100,000 paid in connection with Plaintiffs' project. Indeed, in letters from Dr. and Mrs. Ginleys' agent, Vito J. Secundo, to Defendant Edwin B. Mahoney, the Ginleys deny any further interest or involvement in Plaintiff's alleged contract with Defendants, insisting that "Dr. Ginley's invoices and payments not be commingled with those of his daughter," and that "[a]ny issues with the Vanessa Noel Nantucket Hotel be directed to Vanessa Noel Ginley." (May 9, 2003 letter). Plaintiffs, in their Response to Defendant's Motion to Dismiss (Doc. No. 8), further assert that any references to Dr. and Mrs. Ginley are "peripheral to the main counts in the Complaint," and are willing to give up Count IV, alleging intentional interference with prospective business relationships with the Ginleys. Furthermore, this Court finds that Count IV, the only Count directly referring to Dr. And Mrs. Ginley, does not state a claim upon which relief can be granted (see footnote 5, below).
Considering the above, particularly Dr. and Mrs. Ginley's pending claim against Defendants in state court and the Plaintiffs' willingness to give up Count IV, this Court remains unmoved by Defendants' arguments that failure to join the Ginleys would impede the protection of any interests they might have, or be prejudicial to Plaintiffs. While Defendants present a legitimate concern that they may be subject to multiple, possibly conflicting obligations, this Court is confident that protective measures will serve to adequately assuage those concerns. Because this Court can proceed in this case in equity and good conscience without joining Thomas and Emma Ginley, Defendant's motion to dismiss for lack of subject matter jurisdiction is DENIED.
(2) The Motion to Dismiss Plaintiff's breach of contract claim pursuant to Fed.R.Civ.P. 12(b)(6)is DENIED;
In considering a motion to dismiss filed pursuant to Fed.R.Civ.P. 12(b)(6), a court must accept as true all facts alleged in a complaint and view them in the light most favorable to the plaintiff. See Morse v. Lower Merion Sch. Dist., 132 F.3d 902, 906 (3d Cir. 1997). A motion to dismiss may only be granted where the allegations fail to state any claim upon which relief can be granted. See id. The liberal requirements of federal notice pleading require only that a complaint put the defendant on notice of the claims against him. Fed.R.Civ.P. 8(a); see also Seville Indus. Mach. Corp. v. Southmost Mach. Corp., 742 F.2d 786, 790 (3d Cir. 1984) ("It is the function of discovery to fill in the details, and of trial to establish fully each element of the cause of action.).
To survive this motion to dismiss, Plaintiffs must properly plead the elements of a cause of action for breach of contract: (1) the existence of a contract, including its essential terms; (2) a breach of a duty imposed by the contract; and (3) resultant damages. McAllister v. Royal Caribbean Cruises, Ltd., No. 02-2393, 2003 WL 23192102, *4 (E.D. Pa. 2003); see also Bristol Twp. v. Independence Blue Cross, No. 01-4323, 2001 U.S. Dist. LEXIS 16594, *4-5 (E.D. Pa. 2001). We find that Plaintiffs' pleadings satisfy the liberal requirements of Fed.R.Civ.P. 8(a) as to their breach of contract claim. Plaintiffs' allegation that Defendants promised to remodel and rehabilitate the premises in an "appropriate, timely, and cost-effective manner," in conjunction with the specific allegations of breach in paragraph 10(a-k), is sufficient to put Defendants on notice of the nature of this claim. Defendants' Motion to Dismiss for failure to state a claim for breach of contract is DENIED.
(3) The Motion to Dismiss Plaintiff's fraud claim pursuant to Fed.R.Civ.P. 12(b)(6)is GRANTED;
Plaintiffs pleading fraud must comply with the provisions of Fed.R.Civ.P. 9(b), which requires that the circumstances constituting fraud or mistake be stated with particularity. This court has held that Rule 9(b) requires more than mere conclusory allegations or a "thin elixir of 'information and belief.'" HCB Contractors v. Rouse Assoc., Inc., No. 91-5350, 1992 WL 176142, *4 (E.D. Pa. 1992).
Where, as here, a plaintiff's allegations of fraud are grounded exclusively in "information and belief" that the defendant did not have the intent to comply with a contract (see Complaint, par. 22), the plaintiff has failed to satisfy the requirements of Rule 9(b). "A complaint alleging fraud should be filed only after a fraud is reasonably believed to have occurred; it should serve to seek redress for a wrong, not to find one." Clinton, Hudson Sons v. LeHigh Valley Co-op Farms, Inc., 73 F.R.D. 420, 424 (E.D. Pa. 1977).
Furthermore, Plaintiffs' present claim of fraud is barred by the "gist of the action" doctrine, which prohibits conversion of a breach of contract claim into a tort claim unless the gravaman of the action sounds in tort. See Sunquest Indo. Sys., Inc. V. Dean Witter Reynolds, Inc., 40 F.Supp.2d 644, 651 (W.D. Pa. 1999); Oxford Indus., Inc. V. Luminco, Inc., No. 86-6417, 1991 WL 87928 *4 (E.D. Pa. 1991). While Plaintiffs here allege inherent fraudulent intent arising from Defendants' failure to comply with the contract, this court has held that "[a]n unperformed promise does not give rise to a presumption that the promisor intended not to perform when the promise was made, and a fraudulent intention will not be inferred merely from its nonperformance." Oxford, 1991 WL 87928 *4. In light of the above, Plaintiffs have failed to state a valid claim for fraud, and Defendants' Motion to Dismiss this claim is GRANTED.
(4) The Motion to Dismiss Plaintiff's breach of fiduciary duty claim pursuant to Fed.R.Civ.P. 12(b)(6)is GRANTED;
Under Pennsylvania law, a fiduciary relationship exists "when one person has reposed a special confidence in another to the extent that the parties do not deal with each other on equal terms, either because of an overmastering dominance on one side or weakness, dependence or justifiable trust, on the other."PennDOT v. E-Z Parks Inc., 620 A.2d 712, 717 (Pa.Commw.Ct. 1993). A fiduciary duty is the highest standard of any duty implied by law, and will not be automatically inferred from the existence of a simple contract. Zaborowski v. Hospitality Care Ctr. of Hermitage, Inc., 60 Pa. D. C.4th 474, 488 (Pa. Com. Pl. 2002).
Plaintiffs claim that Defendants held themselves out as able to rehabilitate the premises in accordance with Plaintiff's design concepts, and that Plaintiffs were "utterly dependent and reliant" upon Defendants for performance of the alleged contract. However, Plaintiffs have not alleged that they reposed any special confidence in Defendants, nor have they pled any facts sufficient to convince this court that their trust and dependence on Defendants was justifiable, given the nature of the alleged remodeling contract. Even admitting all of the well-pleaded facts and reasonable inferences in the Complaint as true (Morse, 132 F.3d at 906), there is no evidence that Plaintiffs were owed a fiduciary duty by Defendants.
(5) The Motion to Dismiss Plaintiff's claim of intentional interference with contractual relations pursuant to Fed.R.Civ.P. 12(b)(6)is GRANTED;
To establish a claim for intentional interference with contractual relations under Pennsylvania law, a plaintiff must show: (1) the existence of a contractual or prospective contractual relationship between the plaintiff and a third party; (2) a purpose or intent to harm an existing relationship or to prevent a prospective relationship from accruing; (3) the absence of privilege or justification on part of the defendant; and (4) the occurrence of actual harm or damage to the plaintiff as a result of the defendant's conduct. Fresh Made, Inc. v. Lifeway Foods, Inc., No. 01-4254, 2002 U.S. Dist. LEXIS 15098, *42 (E.D. Pa. 2002). Where, as here, a plaintiff claims interference with prospective contractual relations, he must allege facts giving rise to an "objectively reasonable probability" that such a contract would arise from the parties' current dealings.Schulman v. J.P. Morgan Inv. Mgmt., 35 F.3d 799, 808 (3rd Cir. 1994)
Plaintiffs do not claim an existing contractual relationship between themselves and Dr. And Mrs. Ginley, and have not pled any facts suggesting a reasonable probability that such a contract will arise in the future. As such, Plaintiffs have failed to state a valid claim for intentional interference with contractual relations.
(6) The Motion to Dismiss all claims against Defendant Edwin B. Mahoney in his individual capacity is DENIED.
Defendants move that Plaintiffs' claims against Defendant Edwin B. Mahoney in his individual capacity be dismissed because Plaintiffs' Complaint does not support a claim for piercing the corporate veil.
Pennsylvania courts generally find that "the corporate entity should be upheld unless specific, unusual circumstances call for the application of an exception." Zubik v. Zubik, 384 F.2d 267, 273 (3rd Cir. 1967). In McGovern v. Jack D'S, Inc., No. 03-5547, 2004 U.S. Dist. LEXIS 1985, *5 (E.D. Pa. 2004), this Court held that "existence of tortious and criminal conduct" by a corporation alone is not sufficient grounds for piercing the corporate veil, and that mere allegations of such conduct are insufficient to oppose a motion to dismiss a plaintiff in his individual capacity. A corporate officer may, however, be held personally liable if he has taken some affirmative act in furtherance of the alleged tort. McGovern, 2004 U.S. Dist. LEXIS 1985 at *7.
In order to withstand this motion, Plaintiff must set forth the conduct which Defendant Mahoney allegedly engaged in that would bring his actions within the parameters of a cause of action based on a theory of piercing the corporate veil. City of Philadelphia v. Human Services Consultants, Inc., No. 03-950, 2004 WL 717240, *1 (Pa. Com. Pl. 2004). Given the liberal requirements of federal notice pleading (see Fed.R.Civ.P. 8(a)), and viewing the facts of the Complaint in the light most favorable to Plaintiffs (see Morse, 132 F.3d at 906), the allegations of tortious activity committed by Defendant Mahoney in his personal capacity, particularly the allegations of paragraphs 10 and 14 regarding conversion of funds and failures of accounting, arguably support a cause of action against Mahoney individually under a theory of piercing the corporate veil. Although this Court has some doubts about Plaintiffs' claims under this theory, it would be premature to dismiss them without allowing Plaintiff to proceed with discovery. On this basis we DENY Defendants' Motion to Dismiss the claims against Edwin B. Mahoney individually.
IT IS FURTHER ORDERED that Plaintiffs are given leave to file an Amended Pleading within thirty (30) days from the entry of this Order.