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Patel v. Patel

September 28, 2007


The opinion of the court was delivered by: Judge Munley


Before the Court for disposition is counter-defendants Viresh Patel and Pravin Patel's Motion To Dismiss (Doc. 7). This matter has been briefed and is ripe for disposition.

I. Background

Defendants in the instant action responded to an advertisement for a sale of plaintiffs' property and businesses in Wilkes Barre, Pennsylvania by engaging in a purchase and stock purchase agreement. (See Defendants' Counterclaim) (hereinafter "Counterclaim") (Doc. 5)).*fn1 The property that defendants acquired in the transaction were seven limited-liability companies and the companies' real property holdings, which included a deli, grocery store and apartment building. (Complaint Ex. A) (hereinafter "Complaint") (Doc.1). The advertisement represented that all apartments were rented in the building for sale, and that they yielded a rental income of $30,000/year. (Amended Answers of the Defendants Ex. E)(Hereinafter "Defendants Answer")(Doc. 5). The advertisement averred the store offered an income of $90,000/year. The deli, the advertisement claimed, had a net income of $113,000/year. (Id.). In later conferences, plaintiffs told the defendants that the store had a gross income of $1600/day and a profit margin of 40%, and that the deli could eventually produce a similar profit margin. (Defendants Answer at ¶ 22).

In October 2005, the defendants entered into a stock purchase agreement and agreement of sale with the plaintiffs. (Complaint Ex. A). Defendants agreed to purchase seven separate limited liability companies the plaintiffs owned. (Id.). The total purchase price was $675,000. (Complaint Ex. B) At closing, the defendants paid plaintiffs $300,000 and executed a note for the rest of the purchase price. (Defendants Answer at ¶ 7). In December 2005, the defendants executed a mortgage with the plaintiffs as mortgagee for the various parcels of property. (Complaint Exs. B, C). At the plaintiffs' request, the defendants also executed a security agreement with the plaintiffs as the secured party. (Complaint Ex. C).

The defendants claim they relied on the representations and advertisements of the plaintiffs in entering into the transaction. The defendants made five monthly payments on the note, two of which fell below the $1500 dollars the agreement required. (Complaint at ¶ 12). After the defendants failed to make their June 2006 payment, the plaintiffs, by and through their attorney John P. Rogers, sent the defendants written notice that payment was demanded pursuant to the note. (Complaint at ¶ 13). When the defendants refused to pay, plaintiffs filed suit for breach of contract and to recover funds they allege the defendants fraudulently seized. On or about June 13, 2006, counsel for defendants tendered the return of all property sold under the sales agreement and demanded that plaintiffs return to the defendants all consideration paid and reimburse defendants for all expenses and costs. (Counterclaim at ¶ 17). Prior to the filing of the instant action, on June 30, 2006, the Defendants, Shilpa Patel and Chandrakant Patel, living in Wilkes Barre, Pennsylvania, filed a complaint in the Court of Common Pleas of Luzerne County, Pennsylvania.*fn2 (Brief in Support of Plaintiff's Motion to Dismiss (hereinafter "Plaintiff's Brief") at 2). The Plaintiffs filed a Notice of Removal in the United States District Court for the Middle District of Pennsylvania pursuant to 28 U.S.C. § 1441(a). Id. at 2-3. In July 2006, the Plaintiffs filed a motion to dismiss under Fed. R. Civ. Proc. 12(b)(6). Id. at 3. After oral argument before this court, the parties agreed the defendants would withdraw the action which they initially filed in Luzerne County against the plaintiffs. Id. An order was entered dismissing the defendants' complaint without prejudice. Id. In November 2006, the defendants filed an answer and counterclaim to the instant complaint with this court. Id. at 3-4.

The defendants argue that after completing the transaction, defendants received tax information from the plaintiffs that indicated that the deli and grocery store had lost money in 2005. (Counterclaim at ¶33)(Doc. 5). The defendants contend that the income generated by the business did not meet the advertised amounts in the months after the sale. The defendants postulate that the income from the properties does not justify the sale price, and the plaintiff knew this at the time of sale. The defendants argue that the exaggerations and misrepresentations of income earned by the properties constituted deceptive conduct which created a misunderstanding by defendants of the value of the businesses, and these exaggerations fraudulently induced defendants to enter into and execute the agreements and the related documents. The defendants also contend the plaintiff violated the Pennsylvania Unfair Trade Practices and Consumer Protection Law (hereinafter "UTPCPL").

The defendants as counter-plaintiffs on their first count seek recession of the stock purchase agreement, the agreement of sale, the promissory note, the mortgage, security agreements, and all other documents related to the sales transaction. Further, the counter-plaintiffs seek restitution from the counter-defendants for the full purchase price paid as well as costs, losses, and expenses incurred by the counter-plaintiffs including court costs and attorneys fees and any other relief the court may deem necessary and proper. The counter-plaintiffs ask for the same relief for in Count II as they asked for in Count I. In Count III, which alleges a violation of the UTPCPL, the counter-plaintiffs ask for the same relief as above with the addition of a request for treble damages. The counter-defendants filed a motion to dismiss pursuant to Fed. R. Civ. Proc., 12(b)(6).

II. Jurisdiction

This court has jurisdiction under 28 U.S.C.§ 1332. ("The district court shall have original jurisdiction of all civil actions where the matter in controversy exceeds the sum or value of $75,000, exclusive of interest and costs, and is between. . . citizens of different states.") The counter-plaintiffs are citizens of Pennsylvania*fn3 and the counter-defendants are citizens of New Jersey. The amount in controversy, exclusive of interests and costs, exceeds $75,000.

III. Standard

When analyzing a 12(b)(6) motion to dismiss, all well-pleaded allegations of the complainant must be viewed as true and in the light most favorable to the non-movant to determine whether "under any reasonable reading of the pleadings, the plaintiff may be entitled to relief." Colburn v. Upper Darby Township, 838 F.2d 663, 665-666 (3d Cir. 1988) (citing Estate of Bailey by Oare v. County of York, 768 F.3d 503, 506 (3d Cir. 1985), (quoting Helstoski v. Goldstein, 552 F.2d 564, 565 (3d Cir. 1977) (per curiam)). The court may also consider "matters of public record, orders, exhibits attached to the complaint and items appearing in the record of the case." Oshiver v. Levin Fishbein, Sedran & Berman, 38 F.3d 1380, 1384 n.2 (3d Cir. 1994)(citations omitted). The court does not have to accept legal conclusions or unwarranted factual inferences. See Curay-Cramer v. Ursuline Acad. of Wilmington, Del., Inc., 450 F.3d 130, 133 (3d Cir. 2006) (citing Morse v. Lower Merion Sch. Dist., 132 F.3d 902, 906 (3d Cir. 1997)). The complaint is properly dismissed "if it appears beyond doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief." Haines v. Kerner, 404 U.S. 519, 520-521 (1972)(quoting Conley v. Gibson, 355 U.S. 41, 45-46 (1957)).

IV. Discussion

The counter-defendants move for dismissal on several grounds, each of which is discussed fully below.

A. The Gist of the Action Doctrine

The counter-defendants argue that the counter-plaintiff's suit is barred by the gist of the action doctrine. Under this doctrine a plaintiff may not plead a tort action as a means of stating a breach of contract action. If a party brings a claim that "arises solely from the contract between the parties, where the duties allegedly breached were created and grounded in the contract, where liability stems from the contract, or where the tort claims essentially duplicates a breach of contract claim or the success of which is wholly dependent on the contract," the claim is barred under the doctrine. eToll Inc. v. Elias/Savion Advertising, Inc., 811 A.2d 10, 19 (Pa. Super. Ct. 2002) (internal citations and quotation marks omitted).The counter-defendants contend that the allegations in the counter-plaintiffs' complaint are based upon conduct that amounts to breach of contract. They postulate the allegations that the income earned by the businesses do not match the promises that the counter-defendants made prior to the agreement, are a complaint about adequacy of consideration and not about the counter-defendants' conduct. Concurrently, complaints by the counter-plaintiff that counter-defendants fraudulently misrepresented the income the business earned are complaints about the negotiations that lead to the contract and should be barred under the doctrine.

The counter-plaintiffs respond that the fraud the counter-plaintiffs claim is not barred by the rule because the fraud alleged in the complaint is not fraud in the performance of the contract but fraud in the creation of the contract. Under this theory, the contract should be voided by the court and the counter-plaintiffs entitled to restitution. Counter-plaintiffs argue that a party that purchases property ...

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