Opinion
2:21-CV-00925-CRE
05-10-2022
JAMES R. BERKLEY, Plaintiff, v. MATINA REALTY, LLC, Defendant,
REPORT AND RECOMMENDATION
Cynthia Reed Eddy, Chief United States Magistrate Judge.
I. RECOMMENDATION
This civil action was initiated by Plaintiffs James R. Berkley and 3540 Washington, LLC (collectively “Plaintiffs”) alleging that Defendant Matina Realty, LLC (“Matina”) breached a letter of intent and purchase and sales agreement involving real properties owned by Matina located in Canonsburg, Pennsylvania and Pittsburgh, Pennsylvania. The Court has subject matter jurisdiction over this matter under 28 U.S.C. § 1332(a), as complete diversity exists between the parties and the amount in controversy exceeds $75,000.
Presently before the Court is a motion to dismiss pursuant to Federal Rule of Civil Procedure 12(b)(6) for failure to state a claim. (ECF No. 12). The motion is fully briefed and ripe for consideration. (ECF Nos. 14, 18, 21).
For the reasons that follow, it is respectfully recommended that Matina's motion be denied.
II. REPORT
a. Background
Matina is the owner of certain commercial realty located at 3540 Washington Road, Canonsburg, PA 15317 and 9000 Perry Highway, Pittsburgh, Pennsylvania 15237 (collectively the “Property”). Compl. (ECF No. 1) at ¶ 6. Prior to the events giving rise to this lawsuit, Matina, as a landlord, leased several portions of the Property to Legacy Medical Centers, LLC (“Legacy”), as tenant under several commercial lease agreements between Matina and Legacy. Id. at ¶ 7. Plaintiffs allege that both Matina and Legacy are owned by Dr. Matthew Burnett, a chiropractor practicing in the greater Pittsburgh area and provided chiropractic and physical medicine services at the leased premises. Id. at ¶¶ 9-10. In 2020, Legacy was acquired by Fountain Life Holdings, LLC (“Fountain Life”) and Dr. Burnett joined Fountain Life as its Chief Operating Officer. Id. at ¶¶ 10-14. As a result of the acquisition, Legacy transferred the leased premises to Fountain Life and in late 2020, Fountain Life began occupying the leased premises. Id. at ¶ 15.
In early 2021, Plaintiffs and Matina discussed and negotiated a framework agreement for the purchase and sale of the Property through oral and written communications and drafted a term sheet. Id. at ¶ 25. Berkley maintains that Fountain Life's tenancy at the Property was a “basic element of the transaction” because it was a key tenant at the Property and Fountain Life's financial information “would be critical for Plaintiffs' due diligence analysis and financing.” Id. at ¶ 28. On March 25, 2021, Plaintiffs and Matina reached an agreement in a detailed letter of intent (“LOI”) and executed the LOI. Id. at ¶¶ 31; 44. The LOI identifies the Buyer as “James Berkley or Nominee” and sets the purchase price at $6.275 million. Id. at ¶ 32. The LOI recognizes Fountain Life as a tenant at the Property under the Leases and does not refer to Legacy as a tenant. Id. at ¶ 33. The LOI provided that Matina would be responsible for paying all transfer taxes and closing costs. Id. at ¶ 34. The LOI specified certain due diligence information that Matina agreed to provide to Plaintiffs, including “all information in [Matina's] possession or control regarding the Property, including but not limited to . . . financial statements from the new tenant, and the guarantors and other financial information regarding the building.” Id. at ¶ 36. The LOI provided Plaintiffs with forty-five days after receiving the information from Matina to conduct and complete all due diligence. Id. at ¶ 37. Further, the LOI indicated that Plaintiffs' purchase of the Property was contingent upon Plaintiffs' receipt of financing. Id. at ¶ 38. The LOI provided that if Fountain Life extended its lease, the lease term would be for no shorter than a five-year period at a fair market rental price. Id. at ¶ 39. The parties acknowledged that the LOI was a binding agreement to the terms therein, however recognized that it did not include all essential terms of the transaction and the parties agrees to negotiate the remaining essential terms. Id. at ¶¶ 40-42. Additionally, the parties acknowledged that Plaintiffs would incur substantial expense in connection with completing the transaction and in consideration, Matina agreed to withdraw the Property from the market and negotiate the purchase and sale to completion until either mutual revocation from the LOI or written disapproval of the sale by Plaintiffs during the inspection period. Id. at ¶ 41-42. Specifically, the LOI provided:
THIS LETTER IS INTENDED ONLY TO EXPRESS THE INTEREST OF THE PARTIES TO PURCHASE AND SELL THE PROPERTY. EXCEPT AS HEREINAFTER SET FORTH, NEITHER BUYER NOR SELLER SHALL BE LEGALLY OBLIGATED TO PURCHASE OR SELL THE PROPERTY UNLESS AND UNTIL THE CONTRACT IS EXECUTED BY THE PARTIES. THE PARTIES ACKNOWLEDGE THAT THIS NON-BINDING LETTER OF INTEREST DOES NOT ADDRESS ALL ESSENTIAL TERMS OF THE CONTRACT AND THAT SUCH ESSENTIAL TERMS WILL BE THE SUBJECT OF THE FURTHER NEGOTIATION. NOTWITHSTANDING THE FOREGOING, THE FOLLOWING PROVISIONS ARE INTENDED BY THE PARTIES TO BE A LEGALLY BINDING AGREEMENT AND ARE MADE IN CONSIDERATION OF ONE ANOTHER: SELLER ACKNOWLEDGES THAT BUYER HAS INCURRED AND WILL INCUR SUBSTANTIAL EXPENSE IN PERFORMING ITS PRELIMINARY UNDERWRITING AND
INVESTIGATIONS CONCERNING THE PROPERTY. IN CONSIDERATION OF THIS ACKNOWLEDGMENT, SELLER HEREBY AGREES NOT TO SOLICIT, ENTERTAIN OR ACCEPT ANY FORMAL OR INFORMAL OFFERS TO PURCHASE THE PROPERTY, OR ANY PART THEREOF, UNTIL THE FIRST TO OCCUR OF (A) MUTUAL WRITTEN REVOCATION OF THIS LETTER BY BOTH BUYER AND SELLER; OR (B) WRITTEN DISAPPROVAL OF THE PURCHASE OF THE PROPERTY BY PURCHASER DURING THE INSPECTIONS PERIOD.Id. at ¶ 42.
Following the execution of the LOI, the parties began drafting and exchanging various versions of a purchase and sale agreement consistent with the LOI. Id. at ¶ 47. During April 2021, the parties negotiated and agreed on the terms of a definitive Purchase and Sale Agreement (“P&S Agreement”) and identifies the purchaser as “3540 Washington, LLC or its permitted assigns.” Id. at ¶¶ 48-49. On April 21, 2021, after exchanging various draft purchase and sale agreements, Plaintiffs claim that the parties agreed on all relevant terms and that Matina's agent indicated that the P&S Agreement “looked good” with the exception of one term related to the Fountain Life lease and that when Plaintiffs made those changes, Matina's agent would “get [it] signed ASAP.” Id. at ¶¶ 57-59. The next day, on April 21, 2021, Plaintiffs' attorney emailed Matina's agent a copy of what they claim is the final, definitive agreed-upon version of the P&S Agreement (version 5) accepting Matina's requested changes. Id. at ¶ 59. However, on April 23, 2021, Matina's agent called Plaintiffs' agent to inform them that Matina was no longer willing to sell the Property to Plaintiffs, was no longer willing to sign the P&S Agreement and Matina was unilaterally terminating and abandoning the deal. Id. at ¶ 74. According to Plaintiffs, Dr. Burnett was at a conference in Florida and had spoken with a broker who convinced Dr. Burnett that the agreed-upon sales price was too low, and Dr. Burnett believed he would sell the Property for more money. Id. at ¶ 75.
Thereafter, on May 11, 2021, Matina emailed Plaintiffs indicating that it would continue with negotiations for the proposed sale and proposed negotiation topics with Plaintiffs, and in an effort to resolve the sale issues and avoid litigation, Plaintiffs agreed to enter into compromise negotiations with Matina. Id. at ¶¶ 91-95. Ultimately these negotiations were not fruitful, and this litigation ensued.
Plaintiffs levy the following claims under Pennsylvania law against Matina:
1. Specific performance (Count I);
2. Declaratory relief (Count II);
3. Breach of Contract (Count III);
4. Breach of the Covenant of Good Faith and Fair Dealing (Count IV);
5. Misrepresentation (Count V);
6. Fraudulent Concealment (Count VI);
7. Fraudulent Non-disclosure (Count VII);
8. Promissory Estoppel (Count VIII); and
9. Unjust Enrichment (Count IX).Id. at ¶¶ 129-169.
b. Standard of Review
i. Federal Rule of Civil Procedure 12(b)(6)
The applicable inquiry under Federal Rule of Civil Procedure 12(b)(6) is well settled. Under Federal Rule of Civil Procedure 8, a complaint must contain a “short and plain statement of the claim showing that the pleader is entitled to relief.” Fed.R.Civ.P. 8(a)(2). Rule 12(b)(6) provides that a complaint may be dismissed for “failure to state a claim upon which relief can be granted.” Fed.R.Civ.P. 12(b)(6). “To survive a motion to dismiss, a complaint must contain sufficient factual matter, accepted as true, to ‘state a claim to relief that is plausible on its face.'” Ashcroft v. Iqbal, 556 U.S. 662, 678, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007)). A complaint that merely alleges entitlement to relief, without alleging facts that show entitlement, must be dismissed. See Fowler v. UPMC Shadyside, 578 F.3d 203, 211 (3d Cir. 2009). This “‘does not impose a probability requirement at the pleading stage,' but instead ‘simply calls for enough facts to raise a reasonable expectation that discovery will reveal evidence of' the necessary elements.” Phillips v. Cnty. of Allegheny, 515 F.3d 224, 234 (3d Cir. 2008) (quoting Bell Atlantic Corp., 550 U.S. at 556). Yet the court need not accept as true “unsupported conclusions and unwarranted inferences,” Doug Grant, Inc. v. Greate Bay Casino Corp., 232 F.3d 173, 183-84 (3d Cir. 2000), or the plaintiff's “bald assertions” or “legal conclusions.” Morse v. Lower Merion Sch. Dist., 132 F.3d 902, 906 (3d Cir. 1997).
Although a complaint does not need detailed factual allegations to survive a Fed.R.Civ.P. 12(b)(6) motion, a complaint must provide more than labels and conclusions. Bell Atlantic Corp., 550 U.S. at 555. A “formulaic recitation of the elements of a cause of action will not do.” Id. (citing Papasan v. Allain, 478 U.S. 265, 286, 106 S.Ct. 2932, 92 L.Ed.2d 209 (1986)). “Factual allegations must be enough to raise a right to relief above the speculative level” and “sufficient to state a claim for relief that is plausible on its face.” Bell Atlantic Corp., 550 U.S. at 555. Facial plausibility exists “when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.” Ashcroft, 556 U.S. at 678 (citing Bell Atlantic Corp., 550 U.S. at 556).
The plausibility standard is not akin to a “probability requirement,' but it asks for more than a sheer possibility that a defendant has acted unlawfully.... Where a complaint pleads facts that are “merely consistent with” a defendant's liability, it “stops short of the line between possibility and plausibility of ‘entitlement to relief.'” Id. (quoting Bell Atlantic Corp., 550 U.S. at 556) (internal citations omitted).
When considering a Rule 12(b)(6) motion, the court's role is limited to determining whether a plaintiff is entitled to offer evidence in support of his claims. See Scheuer v. Rhodes, 416 U.S. 232, 236, 94 S.Ct. 1683, 40 L.Ed.2d 90 (1974). The court does not consider whether a plaintiff will ultimately prevail. Id. A defendant bears the burden of establishing that a plaintiff's complaint fails to state a claim. Gould Elecs. Inc. v. United States, 220 F.3d 169, 178 (3d Cir. 2000).
As a general rule, if a court “consider[s] matters extraneous to the pleadings” on a motion for judgment on the pleadings, the motion must be converted into one for summary judgment. In re Burlington Coat Factory Sec. Litig., 114 F.3d 1410, 1426 (3d Cir. 1997). However, a court may consider (1) exhibits attached to the complaint, (2) matters of public record, and (3) all documents integral to or explicitly relied on in the complaint, even if they are not attached thereto, without converting the motion into one for summary judgment. Mele v. Fed. Rsrv. Bank of New York, 359 F.3d 251, 256 (3d Cir. 2004) n. 5 (3d Cir. 2004); Pension Ben. Guar. Corp. v. White Consol. Indus., Inc., 998 F.2d 1192, 1196 (3d Cir. 1993).
c. Discussion
Matina raises myriad arguments in support of dismissal. Each will be addressed seriatim.
i. Federal Rule of Civil Procedure 17 - “Real Party in Interest”
Matina first argues that Plaintiff 3540 Washington, LLC is not a “real party in interest” under Federal Rule of Civil Procedure 17. (ECF No. 14 at 9). It argues that because 3540 Washington, LLC was not incorporated until July 14, 2021, and because it was not registered as a foreign entity in the Commonwealth of Pennsylvania until July 15, 2021, it was not a legal entity and does not have standing to be a party in this action. Id. at 10.
Plaintiffs respond that the plain language of the LOI defining the “Buyer” as “James Berkley or Nominee” allows 3540 Washington, LLC to sue to enforce the LOI and under Pennsylvania contract law, 3540 Washington, LLC can sue to enforce a contract made by a promoter on its behalf. (ECF No. 18 at 7-8).
Matina thereafter replies that Plaintiffs have not adequately alleged that Berkley assigned the interest in the P&S Agreement to 3540 Washington and further that the plain language of the LOI permits only one plaintiff to proceed, as it “identifies the potential buyer as ‘James Berkley or nominee.' ” (ECF No. 21 at 5) (emphasis in original).
Federal Rule of Civil Procedure 17(a) provides that suits “be prosecuted in the name of the real party in interest,” and permits a court to dismiss an action for failure to prosecute in the name of the real party in interest. Fed.R.Civ.P. 17(a)(1); (3). Rule 17 also allows a party to a contract for the benefit of another to sue in their own name. Fed.R.Civ.P. 17(a)(1)(F). The purpose of this rule is to assure that under the “governing substantive law, the plaintiffs are entitled to enforce the claim at issue[,]” Feriozzi Co. v. Ashworks, Inc., 130 Fed.Appx. 535, 539 (3d Cir. 2005) and “to protect the defendant against a subsequent action by the party actually entitled to recover, and to insure generally that the judgment will have its proper effect as res judicata.” Fed.R.Civ.P. 17 advisory committee's notes (1966).
As a preliminary matter, Matina conflates the legal principals of real party in interest and capacity with standing. See In re Tylenol (Acetaminophen) Mktg., Sales Pracs. & Prod. Liab. Litig., No. 2436, 2015 WL 7075812, at *4 (E.D. Pa. Nov. 13, 2015) (“the real party in interest principle is a means to identify the person who possesses the right sought to be enforced [and] capacity is conceived to be a party's personal right to litigate in a federal court.... Standing involves determination whether the plaintiff can show an injury in fact traceable to the conduct of the defendant.”) (internal quotations and citation marks omitted); see also Knit With v. Knitting Fever, Inc., 742 F.Supp.2d 568, 577 (E.D. Pa. 2010) (explaining difference between legal principals of standing and real party in interest). Because Matina explicitly argues that 3540 Washington is not a “real party in interest,” and seeks its dismissal pursuant to Rule 17, only that argument will be addressed, and no recommendation will be made with respect to Article III standing.
In actions based on diversity jurisdiction, like this one, under Erie R. Co. v. Tompkins, 304 U.S. 64 (1938), federal courts must apply state substantive law “creating the right being sued upon to see if the action has been instituted by the party possessing the substantive right to relief.” Governing Law, 6A Fed. Prac. & Proc. Civ. (Wright & Miller) § 1544 (3d ed.). In other words, “[w]hether a plaintiff is the real party in interest is to be determined by reference to the applicable substantive state law.” Governing Law, 6A Fed. Prac. & Proc. Civ. (Wright & Miller) § 1543 (3d ed.). The parties do not dispute that Pennsylvania law applies here and generally under Pennsylvania law, a real party in interest must be in such command of the action as to be legally entitled to give a complete acquittal or discharge to the other party upon performance. Spires v. Hanover Fire Ins. Co., 364 Pa. 52, 70 A.2d 828 (1950).
As to Matina's primary argument that 3540 Washington, LLC is not a proper party because it was not incorporated prior to the execution of the LOI, it is of no legal significance that 3540 Washington, LLC did not exist as a legal entity until July 14 or 15, 2021, because under Pennsylvania law, “while it is true that in general a corporation does not exist as a legal entity until incorporated, and therefore cannot have agents before its organization, . . . the pre-incorporation activities of a promoter may form the basis for corporate liability when they have been ratified by post-incorporation acts of the corporation.” Rees v. Mosaic Techs., Inc., 742 F.2d 765, 768-69 (3d Cir. 1984) (citations omitted). “This rationale has been applied to allow a corporation to enforce rights under a contract entered into by a pre-incorporation promoter.” Knop v. McMahan, 872 F.2d 1132, 1142 (3d Cir. 1989) (citations omitted). Because the LOI provides that the “Buyer” is “James Berkley or Nominee” and Plaintiffs claim that 3540 Washington, LLC was James Berkley's nominee, 3540 Washington, LLC can sue to enforce the LOI. As for Matina's arguments that only one entity can sue for the P&S Agreement because it included an “or” clause, and whether and to the extent that 3540 Washington, LLC ratified Berkley's pre-incorporation acts is an issue to be determined upon a completed record. Accordingly, it is respectfully recommended that Matina's motion to dismiss be denied in this respect.
ii. Breach of LOI
In Count III, Plaintiffs assert a breach of contract claim alleging that Matina breached the LOI and P&S Agreement. Compl. (ECF No. 1) at ¶¶ 139-142. In Count IV, Plaintiffs assert a breach of the covenant of good faith and fair dealing claim alleging that Matina under the express and implied terms of the LOI had an obligation to negotiate in good faith and deal with Plaintiffs fairly and that Matina breached this obligation by failing and refusing to agree to execute the P&S Agreement or other purchase agreement in accordance with the LOI's terms and when Matina knew it would not provide the Fountain Life financial statements and other due diligence information agreed in the LOI and P&S Agreement. Compl. (ECF No. 1) at ¶¶ 143-147.
Matina argues that Plaintiffs' claims fail because their complaint contains no allegation that Matina has breached the “binding” portion of the LOI by soliciting or entertaining or accepting formally or informally, any other offers to purpose the property. (ECF No. 14 at 11).
Plaintiffs respond that related to Counts III and IV, Defendants had an “express and implied” obligation to “negotiate in good faith and deal with Plaintiffs fairly and that Matina breached the LOI and its duty of good faith and fair dealing by failing and refusing to execute the P&S Agreement, or other purchase and sales agreement, in accordance with the agreed-upon terms of the LOI.” (ECF No. 18 at 9). Plaintiffs claim that Matina breached the LOI by purporting to negotiate with Plaintiffs when it “knew it would not provide Fountain Life financial information and other due diligence information as agreed to in the LOI and by misrepresenting, concealing and failing to disclose” that it had no intent of effecting the transaction because it was unhappy with the agreed-upon sales price. Id.
In its reply, Matina seemingly abandons its primary argument and instead argues that Pennsylvania law does not recognize an independent cause of action for a duty to negotiate in good faith or fair dealing and does not recognize a separate cause of action for a “breach-of-covenant” where the claim is subsumed within a breach of contract claim. (ECF No. 21 at 5).
As to Matina's first argument that “Pennsylvania courts have not recognized an independent cause of action for a breach of the duty to negotiate in good faith or fair dealing,” (ECF No. 21 at 5) (emphasis in original), while this explanation of applicable law is not entirely untrue, it does not serve as a basis for dismissal. The Pennsylvania Supreme Court has not affirmatively decided whether a cause of action for a breach of a duty to negotiate in good faith exists in Pennsylvania; however, federal courts interpreting Pennsylvania law have consistently predicted that Pennsylvania would recognize such an action where the agreement otherwise meets the requisites of an enforceable contract. See Channel Home Centers, Div. of Grace Retail Corp. v. Grossman, 795 F.2d 291, 299 (3d Cir. 1986); Flight Sys., Inc. v. Elec. Data Sys. Corp., 112 F.3d 124, 130-31 (3d Cir. 1997); CKSJB Holdings LLC v. EPAM Sys., Inc., 837 Fed.Appx. 901, 904 (3d Cir. 2020) (unpublished). Because Matina does not argue the lack of an enforceable contract under the LOI and simply argues the right of action does not exist, it is respectfully recommended that Matina's motion to dismiss be denied in this respect. Further, Matina argues that Plaintiffs cannot maintain an action for both a breach of contract and a breach of the covenant of good faith and fair dealing where “the allegations in support of both claims ‘are essentially the same[,]' ” and an adequate remedy exists under the breach of contract claim. (ECF No. 21 at 5) (quoting Cessna v. REA Energy Coop., Inc., 258 F.Supp.3d 566 (W.D. Pa. 2017)). Notwithstanding that Matina fails to support this argument by analogizing what allegations of Plaintiffs' breach of contract and breach of the duty to negotiate in good faith claims are “essentially the same” or what adequate remedy exists under Plaintiffs' breach of contract claim supplanting Plaintiffs' breach of the duty to negotiate in good faith claim, Plaintiffs' cause of action is for a breach of a duty to negotiate in good faith, and not a general claim for a breach of the covenant of good faith and fair dealing, making Matina's argument inapposite. See Pls' Resp. Br. (ECF No. 18 at 9-17) (applying legal standard for breach of duty to negotiate in good faith). See also Landan v. Wal-Mart Real Est. Bus. Tr., 775 Fed.Appx. 39, 43 (3d Cir. 2019) (unpublished) (differentiating a claim for breach of the implied covenant of good faith and fair dealing and a claim for a breach of the duty to negotiate in good faith). Accordingly, it is respectfully recommended that Matina's motion to dismiss be denied in this respect.
Matina also argues that “the breach of duty does not ‘create a separate cause of action.' ” (ECF No. 21 at 5) (citing Hanaway v. Parkesburg Grp., LP, 641 Pa. 367, 168 A.3d 146, 157 (2017)). While Hanaway did so state, it did so while explaining causes of actions available under the Uniform Commercial Code (“UCC”) and while explicitly citing the UCC. The UCC does not generally apply to real estate transactions like the current cause of action and therefore Defendants' argument is not persuasive. Duffee v. Judson, 251 Pa. Super. 406, 380 A.2d 843, 846 (1977) (“Generally, under the UCC, ‘goods' has a very extensive meaning and embraces every species of property which is not real estate, choses in action, or investment securities or the like.”); Glob. Ground Support, LLC v. Glazer Enterprises, Inc., No. CIV.A. 05-4373, 2006 WL 208639, at *4 (E.D. Pa. Jan. 24, 2006) (same).
Assuming Matina properly argued that Plaintiffs have not stated a claim for a breach of a duty to negotiate in good faith, such an argument would fail. “An agreement to negotiate in good faith is a contract.... Therefore, the plaintiff states a cause of action for breach of this duty when he alleges facts which, if proven, demonstrate that (1) both parties manifested an intention to be bound by an agreement to negotiate in good faith; (2) the terms of the agreement were sufficiently definite to be enforced; (3) consideration was conferred, . . . and (4) the agreement was breached by bad faith conduct.” Flight Systems, Inc., 112 F.3d at 130 (internal citations and quotation marks omitted). Here, Plaintiffs allege that the parties manifested an intention to be bound by an agreement to negotiate in good faith and that the terms were sufficiently definite when they entered into the LOI on March 25, 2021. The LOI's explicit terms obligated Matina to remove the property from the market while the parties negotiated a P&S Agreement, provided for sales terms of the Property including its purchase price, closing and closing costs, financing, due diligence, access and inspection, the Fountain Life Leases, and duties of both parties providing consideration. Matina acknowledged that Plaintiffs had incurred and would incur substantial expense in connection with the sale and Matina conferred consideration when it agreed to withdraw the Property from the market and negotiate the purchase and sale to completion until either mutual revocation of the LOI or written disapproval of the sale by Plaintiffs during the inspection period. (ECF No. 1 at ¶ 41). Further, the LOI provides that the parties acknowledged the LOI addressed some essential terms of the transaction but not all essential terms and that the outstanding essential terms of the transaction “will be the subject of further negotiation[.]” (ECF No. 1 at ¶ 42) (emphasis in original omitted). Following the parties executing the LOI, during April 2021, Plaintiffs allege that Matina further manifested its intent to be bound by negotiating the terms of a P&S Agreement according to the terms set forth in the LOI and when it exchanged approximately five versions of the P&S Agreement. Id. at ¶¶ 47-59. Lastly, Plaintiffs allege that Matina acted in bad faith when it informed Plaintiffs on April 23, 2021 that Matina was no longer willing to sell the Property on the terms contained in the LOI and negotiated P&S Agreement and that Matina was unilaterally terminating the deal because Matina believed that the agreed-upon sale price was too low and that it could be sold for more money than what the parties had agreed to in the LOI and negotiated P&S Agreement. Id. at ¶¶ 74-75. These allegations are sufficient to state a cause of action for a breach of a duty to negotiate in good faith. See accord. Flight Sys., Inc. v. Elec. Data Sys. Corp., 112 F.3d 124, 131 (3d Cir. 1997).
This argument is understandable, as Plaintiffs termed this claim “breach of the covenant of good faith and fair dealing.” See Compl. (ECF No. 1) at p.29; ¶¶ 143-147. Should Plaintiffs intend to assert such a claim, and not merely one for a breach of the duty to negotiate in good faith, it is respectfully recommended that denial of this motion be made without prejudice for Matina to reassert at the appropriate juncture, if necessary.
iii. Breach of the P&S Agreement
Matina next argues that Plaintiffs' claims fail because their complaint contains no allegation that the parties executed a mutually agreed upon written purchase and sales agreement. Specifically, Matina argues that pursuant to the LOI, Matina is not obligated to sell the property unless and until a purchase and sales agreement has been executed by both parties. Matina further argues that Plaintiffs' allegations that the parties entered into a mutually agreed upon written purchase and sales agreement on or about April 22, 2021 is belied by the parties' subsequent negotiations. (ECF No. 14 at 13; 16).
Plaintiffs respond that under Pennsylvania law, “the failure to sign an agreement is not a bar to enforceability, particularly where the non-signing party acts in a way that suggests it intended to be bound[,]” (ECF No. 18 at 17) (citing Am. Eagle Outfitters v. Lyle & Scott Ltd., 584 F.3d 575, 584 (3d Cir. 2009)), and the parties were involved in reviewing and revising the terms of the P&S Agreement that eventually led to the version that was accepted by Matina's agent and was to be executed by Matina. As to Matina's second argument, Plaintiffs argue that Matina mischaracterizes the post-repudiation negotiations because Plaintiffs were not attempting to reach an enforceable agreement, but rather were attempting to reach an out-of-court business resolution instead of resorting to litigation. Id. at 21-22.
Matina replies that the plain language of the LOI provides that the sale of the Property is not legally binding unless and until the contract is executed by the parties. (ECF No. 21 at 6). It further argues that there is nothing inappropriate about a party's effort to renegotiate the financial terms of a “non-binding LOI if the party has a legitimate business justification for its conduct.” (ECF No. 21 at 7).
Under Pennsylvania law, “the test for enforceability of an agreement is whether both parties have manifested an intention to be bound by its terms and whether the terms are sufficiently definite to be specifically enforced.” Channel Home Centers, Div. of Grace Retail Corp., 795 F.2d at 298-99 (citing Lombardo v. Gasparini Excavating Co., 385 Pa. 388, 123 A.2d 663, 666 (1956)). Agreements or documents “having the surface appearance of contracts may be in fact evidence of mere negotiating by parties with a view toward executing a binding contract in the future.” Goldman v. McShain, 432 Pa. 61, 247 A.2d 455, 458 (1968). Mere evidence of parties' negotiations or “a general agreement to enter a binding contract in the future” alone does not constitute a binding contract “because the parties themselves have not come to an agreement on the essential terms of the bargain and therefore there is nothing for the court to enforce.” ATACS Corp. v. Trans World Commc'ns, Inc., 155 F.3d 659, 666 (3d Cir. 1998)-67.
Here, Plaintiffs do not argue that the LOI is a binding sales contract for the Property; instead, they argue that Matina manifested an intention to be bound by the terms of the P&S Agreement through its negotiations and their agent's acceptance of the terms of the fifth version of the P&S Agreement, despite Matina not having executed the P&S Agreement. Under Pennsylvania law, a party's “manifestation of assent” may be found even in instances where a binding contract is not signed, “unless such signing is expressly required by law or by the intent of the parties.” Shovel Transfer & Storage, Inc. v. Pennsylvania Liquor Control Bd., 559 Pa. 56, 739 A.2d 133, 136 (1999).
At bottom, the parties are arguing whether the parties intended for the fifth version of the P&S Agreement to constitute a binding contract. This question of whether intent exists to form a binding contact “is a question of fact. Determining whether the terms are sufficiently definite to be specifically enforced is a question of law.” Dck/Ttec, LLC. v. Postel Indus., Inc., No. CV 111198, 2013 WL 12141377, at *2 (W.D. Pa. June 27, 2013) (citing Am. Eagle Outfitters v. Lyle & Scott Ltd., 584 F.3d 575, 582-85 (3d Cir. 2009)). At the motion to dismiss stage, the proper inquiry for the court is to determine whether Plaintiffs have alleged sufficient facts to support an inference that the parties manifested intent to be bound by the P&S Agreement. And Plaintiffs have adequately alleged enough facts to support a finding that “a reasonable person would apprehend in considering the parties[']s behavior” that they intended to enter into a binding contract. Dck/Ttec, LLC., 2013 WL 12141377, at *2. For example, Plaintiffs allege that the fifth version of the P&S Agreement was the product of back-and-forth discussions and negotiations between the parties and both parties were involved in reviewing and revising the terms of the transaction. Compl. (ECF No. 1 at ¶¶ 24-26). Plaintiffs allege that on April 20, 2021, they emailed a revised version of the P&S Agreement incorporating most of Matina's requested revisions and the next day in response, Matina requested a provision be removed concerning a Fountain Life lease extension and stated once the agreed-upon chances were made, the P&S Agreement would be signed “ASAP.” Id. at ¶¶ 56-58. On April 22, 2021, Plaintiffs emailed Matina's agent a copy of the final, definitive agreed-upon version of the P&S Agreement accepting Matina's requested changes. Id. at ¶¶ 59-60.
While Matina would have the court only consider the plain language of the LOI indicating that the LOI did not obligate either party to buy or sell the Property until a contract was executed by the parties, that fact is only one piece of evidence in its favor to consider in determining the intent of the parties. In arguing that the Court should only rely on the LOI language to infer intent, it relies on the Court of Appeals for the Third Circuit's decision in W. Palm Beach Hotel, LLC v. Atlanta Underground. (ECF No. 21 at 6) (citing W. Palm Beach Hotel, LLC v. Atlanta Underground, LLC, 626 Fed.Appx. 37, 42 (3d Cir. 2015) (unpublished)). This decision is inapplicable, however, because the Court of Appeals applied Florida contract law in making its determination, whereas Pennsylvania law is applicable here, and the question at issue in W. Palm Beach Hotel, LLC was whether the LOI was a binding contract, and not whether a mutually negotiated but unexecuted sales agreement following an undisputedly valid LOI is binding. Moreover, Matina's arguments regarding the parties' negotiations following April 22, 2021, and propriety of their conduct in attempting to increase the sales price, like the LOI, is simply evidence in its favor to consider in determining the intent of the parties and does not require the Court to dismiss Plaintiffs' breach of contract claim as a matter of law. Accordingly, it is respectfully recommended that Matina's motion to dismiss Plaintiffs' breach of contract claim be denied in this respect.
iv. Fountain Life Financial Documentation
Matina next argues that Plaintiffs' premise that Matina was obligated to provide financial documentation for “Fountain Life,” as an alleged “new tenant” or “successor tenant” to legacy Medical Centers, LLC, is without foundation “in law or in fact.” (ECF No. 14 at 19). Matina argues that Plaintiffs' complaint “begins from a series of false premises” regarding the relationship between certain Fountain Life entities, quotes certain paragraphs of the complaint that it generally disputes and argues that Legacy Medical was never assigned, transferred, or merged with Fountain Life and therefore it was never obligated to provide Plaintiffs with financial documentation. (ECF No. 14 at 19-21).
Plaintiff responds that its allegations “regarding Matina's refusal to recognize Fountain Life as a tenant and refusal to provide the Fountain Life information as agreed in the LOI and the P&S Agreement support Plaintiffs' claims that Matina breached its obligation to negotiate in good faith.” (ECF No. 18 at 24).
Matina's arguments are inappropriate to consider at the motion to dismiss stage, where the court must consider all well-pleaded allegations as true in making its determination. Ignoring this standard, Matina argues that the Court should believe its version of events - which may very well be true - and urges the Court to rule as a matter of law on the relationship between Fountain Life entities and Legacy Medical and what entity was a tenant of the Property and dismiss Plaintiffs' complaint “in its entirety.” Matina may dispute the factual basis of Plaintiffs' allegations, which it no doubt does, but it may not seek dismissal of claims at this procedural juncture by arguing the Court should not believe a plaintiff's well-pleaded allegations. Ashcroft, 556 U.S. at 678 (quoting Bell Atlantic Corp., 550 U.S. at 570).
Matina further argues that even if Fountain Life was a tenant on the Property, because the parties never executed the P&S Agreement, there was no obligation to provide Plaintiffs with financial information under the LOI.
The LOI includes a provision entitled “Information to be Provided to Buyer” which provides “that to assist Buyer in performing its Due Diligence, Seller shall provide to Buyer, within five (5) business days of the full execution of the Purchase Agreement” financial information related to the Property including leases, rent rolls, subleases and other financial information regarding the building. LOI (ECF No. 1-1) at ¶ 8.
Matina's argument is rejected because, as explained supra, Plaintiffs have adequately alleged that the P&S Agreement was a binding contract, and by extension have also adequately alleged that Matina had an obligation to provide Plaintiffs with financial information and it is reasonable to infer that it breached that agreement by not providing Plaintiffs with financial information.
Accordingly, it is respectfully recommended that Matina's motion to dismiss be denied in this respect.
v. Gist of the Action Doctrine
Lastly, Matina argues that Plaintiffs' claims for misrepresentation, fraudulent concealment and fraudulent non-disclosure should be dismissed because they are barred by the gist of the action doctrine. (ECF No. 14 at 22).
Matina does not move to dismiss Plaintiffs' claims for promissory estoppel (Count VIII) and unjust enrichment (Count IX) and only argue that Plaintiffs' “tort claims, for misrepresentation, fraudulent concealment and fraudulent non-disclosure” should be dismissed under the gist of the action doctrine. (ECF No. 14 at 23). No recommendation on this point will be made, as Matina failed to address it in their opening brief and the undersigned declines to make those arguments on the parties' behalf.
The gist of the action doctrine acts to foreclose tort 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.Reardon v. Allegheny Coll., 2007 PA Super 160, 926 A.2d 477, 486 (2007) (citations omitted). In practice, the gist of the action doctrine precludes plaintiffs from “recasting ordinary breach of contract claims into tort claims[,]” because “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.” Williams v. Hilton Grp. PLC, 93 Fed.Appx. 384 (3d Cir. 2004).
As for Plaintiffs' claims for breach of contract under the P&S Agreement, because it is disputed that the P&S Agreement constituted a binding agreement, Plaintiffs are correct that they are permitted to plead tort claims in the alternative should no binding P&S Agreement be found. See Fed.R.Civ.P. 8(d)(2)-(3); Odgers v. Progressive N. Ins. Co., 112 F.Supp.3d 286, 292 (M.D. Pa. 2015) (under Pennsylvania law, “caution should be exercised in determining the ‘gist of the action' at the motion to dismiss stage.”). Accordingly, the gist of the action doctrine should not serve as a basis to dismiss Plaintiffs' claims for misrepresentation, fraudulent concealment or fraudulent non-disclosure as it relates to the P&S Agreement.
As for Plaintiffs' claims for misrepresentation, fraudulent concealment, or fraudulent nondisclosure related to the LOI, while it is undisputed that the parties entered into a valid contract, because Plaintiffs' claims are based on fraud and “quite clearly implicate the broader societal duty to not affirmatively mislead or advise without a factual basis[,]” Crum & Forster Indem. Co. v. Sidelines Tree Serv., LLC, 557 F.Supp.3d 616, 628 (W.D. Pa. 2021) (collecting cases), it is not clear as a matter of law that these claims should be dismissed under the gist of the action doctrine. See Graham Packaging Co., L.P. v. Transplace Texas, L.P., No. 1:15-CV-01186, 2015 WL 8012970, at *4 (M.D. Pa. Dec. 7, 2015) (gist of the action doctrine does not bar fraudulent misrepresentation and negligent misrepresentation claims); H Contractors, LLC v. E.J.H. Constr., Inc., No. CV 16-368, 2017 WL 658240, at *6 (W.D. Pa. Feb. 16, 2017) (finding gist of the action doctrine did not bar fraudulent inducement claims at the motion to dismiss stage); Morrison v. AccuWeather, Inc., No. 4:14-CV-0209, 2015 WL 4357346, at *6 (M.D. Pa. July 14, 2015) (gist of the action doctrine does not bar fraud in the inducement claim).
Accordingly, it is respectfully recommended that Matina's motion to dismiss be denied in this respect.
d. Conclusion
Therefore, pursuant to 28 U.S.C. § 636(b)(1)(B) and (C), Federal Rule of Civil Procedure 72, and the Local Rules for Magistrates, the parties have until May 24, 2022 to file objections to this report and recommendation. Unless otherwise ordered by the District Judge, responses to objections are due fourteen days after the service of the objections. Failure to file timely objections will constitute a waiver of any appellate rights. Brightwell v. Lehman, 637 F.3d 187, 193 n.7 (3d Cir. 2011).