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SEAL v. RIVERSIDE FED. SAV. BANK

March 11, 1993

JOHN S. SEAL, Jr.
v.
RIVERSIDE FEDERAL SAVINGS BANK, et al.



The opinion of the court was delivered by: LOUIS H. POLLAK

 Pollak, District Judge

 This case arises out of a failed joint venture partnership between companies controlled by plaintiff John S. Seal, Jr. [hereinafter "Seal"] and companies controlled by defendants Shant and Vahak Hovnanian. *fn1" Before me are (1) the Hovnanians' joint motion to dismiss the complaint for failure to prosecute or for failure to state a claim; (2) Vahak Hovnanian's motion to dismiss the complaint as to him due to untimely service of process; and (3) Seal's responses to these motions. For the reasons that follow, the complaint will be dismissed in its entirety as to Vahak Hovnanian and in part as to Shant Hovnanian.

  I.

 The Allegations of the Complaint

 The elaborate complaint consists of 165 paragraphs extending over fifty pages, as well as almost thirty exhibits. In reviewing a motion to dismiss, the well-pleaded allegations of the complaint are to be taken as true and viewed in a light most favorable to the non-moving party, and all reasonable inferences that can be drawn from the facts are to be drawn in favor of the non-moving party. Sturm v. Clark, 835 F.2d 1009, 1011 (3d Cir. 1987); Wisniewski v. Johns Manville Corp., 759 F.2d 271, 273 (3d Cir. 1985). In accordance with that standard, the following factual account is taken from the complaint.

 The story begins in 1986, when Seal obtained an option to purchase approximately seventy-two acres of vacant land in Warwick Township, Bucks County, Pennsylvania. On that property, Seal hoped to develop and build a number of residential units, later known as Victoria Place. In search of funds to finance the project, Seal contacted Michael Hogan, then Vice-President of New Jersey National Bank, and informed him of the type and amount of development loans he would require. Thereafter, Hogan advised Seal that New Jersey National Bank would not finance the project, and, with Seal's purchasing option approaching its expiration, Seal resolved to sell his option.

 Subsequently, Hogan left his employ at New Jersey National Bank and went to work for defendant Riverside Federal Savings Bank ("Riverside"), which is owned by defendants Vahak Hovnanian and Shant Hovnanian (Vahak Hovnanian's son). Interested in the Victoria Place development project, the Hovnanians instructed Hogan to contact Seal and persuade him to participate in a joint venture partnership with Riverside. To that end, Hogan promised Seal that they would meet a number of financial requirements spelled out by Seal.

 On January 17, 1986 Riverside executed a commitment letter under which Riverside agreed to be a joint venture partner with Jamison Development Corporation ("Jamison"), a real-estate development company controlled by Mr. Seal, and to provide $ 1,500,000 in equity capital as well as to provide or obtain some $ 40,000,000 in loans for the project. Riverside agreed to provide those loans on a non-recourse basis, meaning that neither Seal nor the Hovnanians would need personally to guarantee the loans. Relying upon the terms of this letter, Seal ceased all efforts to sell his option or obtain alternative funding.

 In April of 1986, Riverside issued a second commitment letter with similar terms to the first. (Riverside, however, was now to provide $ 2,250,000, rather than the original $ 1,500,000, in equity capital). Then, in a meeting on April 16, 1986, Riverside executed a Memorandum of Agreement summarizing the terms of the first two letters. Finally, on or about August 4, 1986, a limited partnership agreement was executed between Victoria Woods, Ltd., the managing partner and assignee of Seal Development Company, and Riverside Hovnanian Bucks County No. 1, Inc. ("RBC"), *fn2" forming Sovereign Estates, Ltd. ("Sovereign").

 Four days before the Victoria Place property was to be purchased, and five days before Seal's option was to expire, Hogan told Seal that (1) Riverside could not, consistent with state and local regulatory requirements, provide the $ 2,250,000 in equity, and (2) it could not provide or obtain the $ 40,000,000 loan without Seal's personal guarantees. Seal alleges that defendants were aware of these facts all along, and, by presenting Seal with this information only as his option to purchase was about to expire, they left Seal with no alternative but to accede to various unfavorable conditions in order to receive funds needed to purchase the property. Specifically, on October 7, 1986, the following transactions occurred: (1) in return for a loan of approximately $ 2,000,000 from Riverside for the purchase of the property, Sovereign executed a note and mortgage with Riverside, which Seal personally guaranteed for up to $ 1,000,000; (2) Sovereign executed a second note and mortgage for a $ 1,600,000 million loan from Riverside to start the development of the property; and (3) RBC obtained an option to purchase a thirty percent stock interest in Sovereign, which it later exercised. By these transactions, Seal alleges that Riverside breached its initial contractual obligations and managed to place all the partnership risk on Seal and Sovereign.

 By the beginning of 1987, Sovereign was running out of construction funds. At a February 1, 1987 meeting, Shant Hovnanian, in addition to refusing to provide additional capital or loans at that time, convinced Seal to provide supplementary collateral and sign an agreement purportedly relieving Riverside, RSL and RBC of any obligation to provide the $ 40,000,000 in non-recourse construction financing. Seal claims that he agreed to these terms "otherwise Sovereign would be forced into bankruptcy as it was without funds." Complaint at P 45. Subsequently, at a meeting sometime in March, 1987, and then at a settlement of April 27, 1987, Seal was, as he sees it, forced to restructure the $ 2,000,000 and $ 1,600,000 loans, resulting in an increase in his personal liability. Most notably, in return for Riverside's agreement to lend Sovereign $ 1,700,000 as a replacement for the $ 1,600,000 loan of October 7, 1986, which would soon come due, Seal agreed to provide a personal guarantee of $ 1,700,000 as well as additional mortgages to Riverside through two companies under his control. *fn3"

 Despite the agreement allegedly waiving their obligation to do so, defendants continued to represent to Seal that they would obtain the funding as originally agreed to and would not let the project die. Trusting these representations, Seal personally obtained or guaranteed loans from other sources to finance the continuation of the project. Despite these efforts, funds were still insufficient, and Seal decided to sell the Warwick property, as well as the unfinished Victoria Place, to the LinPro Company ("LinPro") for approximately $ 10,000,000. However, Shant Hovnanian agreed to purchase Seal's interest in Victoria Place and the Warwick property if Sovereign would call off the sale to LinPro. Seal terminated Sovereign's agreement of sale to LinPro, but defendants delayed the completion of their purchase. LinPro offered again to purchase the properties, but Seal, once more at Shant Hovnanian's request, turned down the offer.

 Ultimately, Riverside decided not to purchase Seal's interests in the properties, citing newly-discovered problems with the development project. On October 13, 1988, a group of creditors filed an involuntary Chapter 7 Petition in Bankruptcy against Sovereign. That petition, which was converted into a Chapter 11 proceeding in April 7, 1989, is still pending before the bankruptcy court.

 The instant complaint consists of eight counts. Four of those counts-- comprising all of the claims asserted against one or both of the Hovnanians-- are at issue today: Count II (Breach of Contract for Third-Party Beneficiary); Count III (Breach of Implied Covenant of Good Faith and Fair Dealing); Count VII (Civil Conspiracy); and Count VIII (Aiding and Abetting). *fn4"

 II.

 The Procedural History

 The complaint was filed on March 28, 1991. The Hovnanians, although they had not yet filed an answer, *fn5" served discovery requests on Seal on June 7, 1991. Shortly thereafter, at a July 10, 1991 status conference held in my chambers, Seal's attorney, P. Stephen Lerario, Esq., expressed his desire to withdraw from the case due to a heart attack he had recently suffered, and the case was placed in civil suspense for three months. Seal was unable to find substitute counsel, and Lerario moved, on October 3, 1991, to withdraw from the case. In an October 13, 1991 letter to the court, Seal voiced various objections to Lerario's being allowed to withdraw from the case; most prominently, Seal reported a financial inability to obtain a replacement attorney. Still, in December of 1991, Lerario was granted permission to withdraw. *fn6" Seal subsequently filed a motion to reconsider that order, which was denied.

 At a February 12, 1992 status conference, in response to the Hovnanians' request that the action be dismissed due to Seal's inability to retain replacement counsel, Seal was asked to report to the court within a month on his efforts to retain replacement counsel. Seal did not do so. On October 21, 1992, a scheduling order was filed, directing that all discovery be completed by the end of November, 1992. On November 12, 1992, the Hovnanians filed the instant motion to dismiss for failure to prosecute or failure to state a claim. *fn7" Approximately one week later, John Randolph Prince, Esq., entered his appearance on behalf of Seal.

 III.

 Claims Directed to Plaintiff's ...


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