Opinion
Civil Action No. 18-233
09-13-2018
DIANNE H. KING, trustee under the irrevocable trust dated December 1, 1981 for the benefit of KEELEY DIANE KING, (n/k/a KEELEY KING GOLDSMITH Plaintiff, v. KRG KINGS, LLC, Defendant and Third-Party Plaintiff, v. WEIRTON MEDICAL CENTER, INC. and AL.NEYER, LLC, Third-Party Defendants.
Judge Bissoon
REPORT AND RECOMMENDATION
I. Recommendation
It is respectfully recommended that the Motion to Dismiss Al.Neyer, LLC's Counterclaim Against KRG Kings, LLC, filed by Defendant and Third-Party Plaintiff KRG Kings, LLC (ECF No. 64) be granted.
II. Report
Plaintiff, Dianne H. King, trustee under irrevocable trust dated December 1, 1981 for the benefit of Keeley Diane King (n/k/a Keeley King Goldsmith) ("King Trust") filed this action in ejectment and for breach of contract against Defendant, KRG Kings, LLC ("KRG Kings"), in the Court of Common Pleas of Allegheny County, Pennsylvania. King Trust alleges that KRG Kings had entered into a lease on April 3, 2015 for the purpose of KRG Kings operating a family restaurant on certain property owned by King Trust located at 500 Marketplace Drive, Oakdale, Pennsylvania (the "Leased Property"), but that King Trust discovered that—in breach of the lease—KRG Kings was no longer operating a family restaurant on the premises. KRG Kings removed the action to this Court on the basis of diversity jurisdiction and filed an Answer with Counterclaims (ECF No. 4), asserting that King Trust breached its contractual obligations of quiet enjoyment (Count I) and good faith and fair dealing (Count II).
In an Amended Answer filed on May 10, 2018, KRG Kings added counterclaims against King Trust for aiding and abetting tortious conduct (Count III) and negligence (Count IV) and asserted third-party claims against Third-Party Defendants Weirton Medical Center, Inc. ("WMC") and Al.Neyer, LLC ("Al.Neyer") for trespass, conversion and tortious interference with contractual relations. These new claims arose out of the fact that, on April 19, 2018, KRG Kings' maintenance team, while inspecting the Leased Property, discovered that someone had entered the building, removed all the of the fixtures and equipment from within and began gutting its interior. KRG Kings alleges that it discovered that King Trust had entered into a letter of intent with WMC in January of 2018 and signed a lease with WMC on April 4, 2018 for WMC to be the new tenant with respect to the Leased Property (which KRG Kings alleges was improper because it was still the tenant under the lease). Al.Neyer is the contractor that performed the demolition work.
King Trust has filed a cross-claim against Al.Neyer (ECF No. 45), alleging claims of contribution (Count I) and indemnity (Count II). WMC has filed a cross-claim against Al.Neyer (ECF No. 48), alleging that, although it began discussions with Al.Neyer about demolishing the interior of the Leased Property, it did not authorize Al.Neyer to do so yet because it was awaiting confirmation from King Trust that it could deliver the premises free and clear of the prior tenant, KRG Kings. Finally, Al.Neyer has filed a counterclaim against KRG Kings and a cross-claim against King Trust (ECF No. 53). Al.Neyer alleges that, whichever entity becomes the ultimate owner and tenant of the Leased Property has been unjustly enriched by its demolition work.
Presently pending before the Court for disposition is KRG Kings' motion to dismiss the counterclaim filed against it by Al.Neyer (ECF No. 64). Al.Neyer has filed a brief in opposition (ECF No. 69) and KRG Kings has filed a reply brief (ECF No. 70) and the motion is now ripe for disposition. For the reasons that follow, the motion should be granted.
Facts
On April 3, 2015, King Trust entered into a lease with KRG Kings, which stated that KRG Kings would use the Leased Property solely for the business of a family restaurant and that failure to operate the Leased Property in accordance with this permitted use would constitute a material breach. The lease also required KRG Kings to maintain the Leased Property in "good order, condition and repair and in a safe, clean, orderly and sanitary condition" and to make all non-structural repairs, including plumbing, ceilings, windows, non-structural components of the roof and roof drainage systems. (Compl. ¶¶ 8-11 & Ex. A.) At some later date, King Trust discovered that KRG Kings was not operating the Leased Property as a family restaurant or in any manner. King Trust received a code violation from North Fayette Township because the grass on the Leased Property had been left unmowed and the weeds had grown to a height of over five feet, it received notice that a car had been abandoned in the parking lot and King Trust alleges that KRG Kings failed to repair or replace a window that had been broken and failed to keep the Leased Property clean and in operating condition. (Compl. ¶¶ 12-16.)
Notice of Removal (ECF No. 1) Ex. A. --------
On September 29, 2017, King Trust provided notice to KRG Kings that it was in breach and default of the lease. King Trust notified KRG Kings that it was electing to terminate the lease and to enforce a remedy to accelerate the base rent that was due for the remainder of the term of the lease, in the amount of $540,000.00. (Compl. ¶¶ 17-18 & Ex. C.) KRG Kings responded by letter dated October 2, 2017, denying that it had abandoned the Leased Property and King Trust replied by letter dated October 13, 2017, reiterating that KRG Kings was in default of the lease. (Compl. ¶¶ 19-20 & Exs. D, E.)
Procedural History
Plaintiff filed this action in the Court of Common Pleas of Allegheny County, Pennsylvania on or around January 22, 2018 and it was docketed at No. GD 18-1204. Count I seeks to eject KRG Kings from the Leased Property based on its alleged abandonment of the Leased Property and breach of the lease. Count II is a claim for breach of contract.
On February 26, 2018, KRG Kings filed a Notice of Removal with this Court based upon diversity of citizenship in that: Plaintiff is a resident of Pennsylvania (Diane H. King) and/or North Carolina (Keeley Diane King); Defendant is an LLC whose members are citizens of California; and the amount in controversy exceeds the sum of $75,000.00, exclusive of interest and costs. (Notice of Removal ¶¶ 6, 9-19.) 28 U.S.C. § 1332.
On March 2, 2018, KRG Kings filed an Answer and Counterclaim (ECF No. 4), alleging that King Trust breached its contractual duties of quiet enjoyment and good faith and fair dealing. On May 10, 2018, KRG Kings filed an Amended Answer, Counterclaim and Third-Party Complaint (ECF No. 31), thereby impleading WMC and Al.Neyer. KRG Kings alleges that, during the pendency of the lease and while it possessed exclusive possession and control of the Leased Property, King Trust commenced efforts to sell and/or lease the Leased Property to a third party, that King Trust signed a letter of intent with WMC in January of 2018 and that it signed a lease with WMC on April 4, 2018. (ECF No. 31 ¶ 71.) Further, KRG Kings alleges that, on April 19, 2018, its maintenance team discovered that someone had entered the building on the Leased Property, removed all of the fixtures and equipment owned from within and began gutting the interior. KRG Kings asserts that the building's interior ceiling, tiled floors, counter space and walls have all been gutted, as has the plumbing and electrical wiring. A further inspection on May 1, 2018 showed that all equipment belonging to KRG Kings had been cut up or removed from the Leased Property, all of the duct work for the HVAC and cooking equipment have been removed, there are open gas lines on the property, the fireplace has been removed leaving an open hole in the roof, tables and booths have been removed, all plumbing has been removed and damaged at floor level, there is construction debris in the back lot, the electrical wiring has been removed and the circuits cut, the hot water tank has been removed, all the walls and partitions have been removed, all restrooms and fixtures have been removed, the front and inner doors have been removed and all refrigeration units have been cut open with no visible pump down tags. (Id. ¶¶ 82-84.)
KRG Kings alleges that this demolition was contemplated by King Trust and carried out by WMC and/or its contractor, Al.Neyer. It states that it did not authorize this activity, that it keeps the building locked at all times and that the only other party that possesses a key is King Trust. (Id. ¶¶ 87-91.) Therefore, it alleges claims against King Trust for aiding and abetting tortious conduct and negligence; and it alleges claims against WMC and Al.Neyer for trespass, conversion, tortious interference with contractual relations and negligence.
On June 20, 2018, Al.Neyer filed an Answer to the Third-Party Complaint (ECF No. 53). Included in the Answer is a counterclaim against KRG Kings, which states in its entirety:
1. KRG Kings, LLC has denied that Plaintiff's claims are proper and it denies that it should be evicted from the property and/or that it breached the lease agreement between Plaintiff and KRG Kings, LLC.
2. The condition of the property at issue prior to any work by Al.Neyer and/or its subcontractor would not have supported the operation of a successful
family restaurant or any other business.(Id. at 16-17, ¶¶ 1-7.) Al.Neyer asserts the same allegations in a cross-claim against King Trust.
3. Demolition of the property would have occurred ultimately for use of the property as a family restaurant, other restaurant or establishment, a medical center, or otherwise.
4. There is a real and substantial value to the demolition work, as Al.Neyer incurred an expense and/or cost for such work in an amount in excess of $100,000.
5. Al.Neyer is entitled to recover against the ultimate occupant and/or property owner for the value of the demolition work performed at the property, as such demolition work would be ultimately necessary for operation of a successful business at this property.
6. As KRG Kings asserts that it should remain the occupant and/or even become the owner of the property at issue, and therefore receive the benefit of this demolition work, a judgment should be entered against KRG Kings and in favor of Al.Neyer for the value of this demolition work, as the cost and expense of the work has been incurred by Al.Neyer, and, as such, Al.Neyer has conferred such a benefit upon the occupant and/or owner of the property.
7. To permit KRG Kings to benefit from this demolition work without payment to Al.Neyer would constitute an unjust enrichment of KRG Kings.
WHEREFORE, Al.Neyer, LLC respectfully requests that judgment be entered in its favor and against KRG Kings, LLC for an amount of the value of the demolition work performed at the property, which is in excess of $100,000, with interest and costs sustained.
On July 27, 2018, KRG Kings filed a motion to dismiss the counterclaim asserted against it by Al.Neyer (ECF No. 64). On August 23, 2018, Al.Neyer filed a brief in opposition (ECF No. 69) and on September 6, 2018, KRG Kings filed a reply brief (ECF No. 70).
Standard of Review
The Supreme Court has issued two decisions that pertain to the standard of review for failure to state a claim upon which relief could be granted. The Court held that a complaint must include factual allegations that "state a claim to relief that is plausible on its face." Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (citing Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007)). "[W]ithout some factual allegation in the complaint, a claimant cannot satisfy the requirement that he or she provide not only 'fair notice' but also the 'grounds' on which the claim rests." Phillips v. County of Allegheny, 515 F.3d 224, 232 (3d Cir. 2008). In determining whether a plaintiff has met this standard, a court must reject legal conclusions unsupported by factual allegations, "[t]hreadbare recitals of the elements of a cause of action, supported by mere conclusory statements;" "labels and conclusions;" and "'naked assertion[s]' devoid of 'further factual enhancement.'" Iqbal, 556 U.S. at 678 (citations omitted). Mere "possibilities" of misconduct are insufficient. Id. at 679. The Court of Appeals has summarized the inquiry as follows:
To determine the sufficiency of a complaint, a court must take three steps. First, the court must "tak[e] note of the elements a plaintiff must plead to state a claim." Ashcroft v. Iqbal, 556 U.S. 662, 129 S.Ct. 1937, 1947, 173 L.Ed.2d 868 (2009). Second, the court should identify allegations that, "because they are no more than conclusions, are not entitled to the assumption of truth." Id. at 1950. Third, "whe[n] 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." Id. This means that our inquiry is normally broken into three parts: (1) identifying the elements of the claim, (2) reviewing the complaint to strike conclusory allegations, and then (3) looking at the well-pleaded components of the complaint and evaluating whether all of the elements identified in part one of the inquiry are sufficiently alleged.Malleus v. George, 641 F.3d 560, 563 (3d Cir. 2011).
The Court of Appeals has explained that: "In deciding a Rule 12(b)(6) motion, a court must consider only the complaint, exhibits attached to the complaint, matters of public record, as well as undisputedly authentic documents if the complainant's claims are based upon these documents." Mayer v. Belichick, 605 F.3d 223, 230 (3d Cir. 2010) (citation omitted). Therefore, the Lease Agreement and other documents attached to the Complaint may be considered without converting the motion into a motion for summary judgment.
KRG Kings argues that Al.Neyer cannot state a claim against it for unjust enrichment based on its unauthorized, unsolicited demolition of the interior of the building on the Leased Property. Al.Neyer responds that Pennsylvania law is not as limited in scope with respect to unjust enrichment as KRG Kings contends. KRG Kings replies that Al.Neyer cites no authority that would acknowledge a claim of unjust enrichment under these circumstances.
Unjust Enrichment
Under Pennsylvania law, "Unjust enrichment is ... an equitable doctrine [with the following elements:] benefits conferred on one party by another, appreciation of such benefits by the recipient, and acceptance and retention of these benefits under such circumstances that it would be inequitable [or unjust] for the recipient to retain the benefits without payment of value." Allegheny Gen. Hosp. v. Philip Morris, Inc., 228 F.3d 429, 447 (3d Cir. 2000) (citation omitted). KRG Kings cites a case which states that:
Unjust enrichment claims under Pennsylvania law appear to fall into one of two categories: (1) a quasi-contract theory of liability, in which case the unjust enrichment claim is brought as an alternative to a breach of contract claim; or (2) a theory based on unlawful or improper conduct established by an underlying claim, such as fraud, in which case the unjust enrichment claim is a companion to the underlying claim. See, e.g., Zafarana v. Pfizer, Inc., 724 F. Supp. 2d 545, 561 (E.D. Pa. 2010) (dismissing the plaintiff's unjust enrichment claim because (1) the plaintiff did not allege that the defendant refused to provide a service or good after securing a benefit, and (2) the plaintiff did not "plead a separate tort, the damages from which could be supported by a theory of unjust enrichment"); Torchia v. Torchia, 346 Pa. Super. 229, 499 A.2d 581, 582 (1985) ("To sustain a claim of unjust enrichment, a claimant must show that the party against whom recovery is sought either 'wrongfully secured or passively received a benefit that it would be unconscionable for her to retain.'" (quoting Roman Mosaic & Tile Co. v. Vollrath, 226 Pa. Super. 215, 313 A.2d 305, 307 (1973) (emphasis added)). Under either theory, the requisite circumstances exist to establish that the defendant has been "unjustly enriched."Whitaker v. Herr Foods, Inc., 198 F. Supp. 3d 476, 492-93 (E.D. Pa. 2016). It argues that Al.Neyer's allegations do not meet either category: it cannot plead unjust enrichment as an alternative to a breach of contract claim because the parties did not know each other and had no contractual relationship; and it cannot plead that KRG Kings engaged in some sort of "unlawful or improper conduct as defined by law—e.g., a tort claim." Indeed, it is Al.Neyer that entered the Leased Property and demolished the interior, which forms the basis of KRG Kings' claims against Al.Neyer for trespass, conversion, tortious interference with contractual relations and negligence.
Al.Neyer responds that Pennsylvania law regarding unjust enrichment is not so limited as KRG Kings contends. It argues that: 1) there was a real and substantial value to its demolition work, as it incurred an expense or cost for such work in amount in excess of $100,000; 2) the demolition work would ultimately be necessary for the operation of a successful business on the property, and thus KRG Kings benefitted from the demolition work; and 3) it would be unjust to allow KRG Kings to retain the benefit without payment to Al.Neyer. Al.Neyer cites case law holding that "a showing of knowledge or wrongful intent on the part of the benefited party is not necessary to show unjust enrichment. Rather, the focus is on the resultant unjust enrichment, not on the party's intention." Vautar v. First Nat'l Bank of Pa., 133 A.3d 6, 13 (Pa. Super. 2016) (en banc) (citation omitted). In Vautar, the court held that First National Bank, which had been sued by Vautar (surviving sister of Frances Sakmar, and co-beneficiary with Sakmar of CDs that their other sister had deposited with FNB) for mistakenly releasing the entire proceeds to Sakmar, could implead Sakmar's three children, who had inherited the funds upon their mother's death. Even though the children had not engaged in any misleading or wrongful conduct, the court held that FNB merely needed to show that the retention of the money by the three children would result in an injustice. It also cites Zvonik v. Zvonik, 435 A.2d 1236 (Pa. Super. 1981). In that case, George Zvonik entered into an oral agreement with his mother to build an addition to her home, in exchange for which she would allow him and his family to live in the home and would convey it to him before her death. Instead, however, she conveyed it to her other son's wife (Pauline), who ejected George and his family from the home and then conveyed the home to her son (Paul) and retained a life estate therein. The court noted that Pauline and Paul had not "wrongfully secured" the property, but they had passively received a benefit that would be unconscionable for them to keep.
However, there is a significant distinction between Vautar and Zvonik and this case in that it was clear that the three children in Vautar "passively received a benefit" by receiving more than their share of the proceeds and that Pauline and Paul in Zvonik "passively received a benefit" by receiving the home that had been promised to George. In this case, Al.Neyer's contention that KRG Kings obtained a "benefit" from its demolition work relies upon its curious allegation to that effect. However, whether or not KRG Kings received a "benefit" from having the interior of the building demolished is a legal conclusion, not a fact, because it is an element of the cause of action of unjust enrichment. Therefore, the Court is not bound to accept Al.Neyer's allegation for purposes of the motion to dismiss.
Al.Neyer also relies upon a citation to a deposition of KRG Kings' designee, Michael Kelly, in which it contends he indicated that KRG Kings was considering a different restaurant for the space. (ECF No. 69 & Ex. 1 at 21-22.) First, this material should not be considered as it outside of the pleadings. However, even if the Court were to consider it, Mr. Kelly's actual testimony was that, in order to transition from one "brand" to another, "you've got to change the common areas to fit the brand, seating, paint, signage, menus, and that's pretty much it." He did not state that KRG Kings would have gutted the interior of the space as Al.Neyer did. Moreover, KRG Kings notes that it was merely considering alternatives and had not decided upon any action yet, including rebranding.
As KRG Kings notes, Al.Neyer has not cited a case in which a contractor performed an uncontracted-for demolition on property occupied by one party (possibly at the request of another party) and then attempted to claim that the party whose property had been gutted was unjustly enriched thereby. Nor has it cited any case in which there was a dispute about whether the action taken by the plaintiff conferred a "benefit" upon the defendant. Whether or not WMC contracted for Al.Neyer to perform this demolition (or there was a misunderstanding about it) and whatever involvement the King Trust had in this matter, it cannot be said that KRG Kings—which had nothing to do with and had no knowledge of the demolition—received a "benefit" from this act.
For these reasons, it is recommended that the Motion to Dismiss Al.Neyer, LLC's Counterclaim Against KRG Kings, LLC, filed by Defendant and Third-Party Plaintiff KRG Kings, LLC (ECF No. 64) be granted.
Litigants who seek to challenge this Report and Recommendation must seek review by the district judge by filing objections by September 27, 2018. Any party opposing the objections shall file a response by October 11, 2018. Failure to file timely objections will waive the right of appeal.
Respectfully submitted,
s/Robert C. Mitchell
ROBERT C. MITCHELL
United States Magistrate Judge Dated: September 13, 2018