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A.G. Cullen Construction, Inc. v. Travelers Casualty and Surety Co. of America

February 13, 2009

A.G. CULLEN CONSTRUCTION, INC., ARLENE CULLEN, AND PAUL CULLEN, PLAINTIFFS,
v.
TRAVELERS CASUALTY AND SURETY COMPANY OF AMERICA, ET AL., DEFENDANTS.



The opinion of the court was delivered by: Judge Nora Barry Fischer

MEMORANDUM OPINION

I. Introduction

On August 6, 2008, this matter was commenced by Plaintiffs A.G. Cullen Construction, Paul Cullen and Arlene Cullen ("Plaintiffs") in the Allegheny County Court of Common Pleas at Case No. GD 08-16178 . (Docket No. 1; Docket No. 1-3). Thereafter, on August 14, 2008, Plaintiffs filed an Amended Complaint. (Docket No. 1-3 at 23). On September 5, 2008, Defendants Travelers Casualty and Surety Company ("Travelers"), Shawn Pikas, David Dreifuss, Joann Bonacci, and Dreifuss, Bonacci, and Parker (collectively "Defendants") removed the action to this Court pursuant to 28 U.S.C. § 1332(a)(1) and § 1441(a).*fn1 (Docket No. 1 at 3). Plaintiffs seek damages incurred as a result of Defendants' alleged wrongful use of civil proceedings in the related case of Travelers Cas. & Sur. Co. v. A.G. Cullen Construction, et al., Civ. A. No. 07-765 (W.D. Pa. 2007) (the "underlying action"), in violation of 42 Pa. C.S.A. § 8351. (Docket No. 1-3, passim). Specifically, Plaintiffs claim that Defendants wrongfully and maliciously filed an Emergency Motion for Temporary Restraining Order and Motion for Preliminary Injunction in the underlying action (hereafter "underlying motion" or "emergency motion"). (See Docket No. 1-3 at 44-53; Civ. A. No. 07-765, Docket Nos. 5-6). Currently before the Court is Defendants' Motion to Dismiss the Amended Complaint in its entirety pursuant to Federal Rule of Civil Procedure 12(b)(6). (Docket No. 4). Based on the following, Defendants' Motion [4] is GRANTED, in part, and DENIED, in part.

II. Factual Background

A. Relevant Facts from the Underlying Action

This action arises out of the contractual relationship between Travelers and Plaintiffs pursuant to which Travelers is the surety on performance and payments bonds issued to Plaintiffs in connection with a general construction contract between Plaintiffs and Butler County. (Docket No.1-3 at 28, ¶¶ 14, 19).*fn2 In consideration of these bonds, the parties entered into a General Agreement of Indemnity ("GAI"). (Docket No. 1-5 at 4-11). Plaintiffs Arlene Cullen and Paul Cullen are the individual indemnitors under the terms of the bonds and the GAI, while A.G. Cullen Construction, Inc. stands as both Travelers' principal and indemnitor. (Docket No. 1-4 at 36; Docket No. 1-5 at 1, 6).

Plaintiffs were awarded a construction contract with Butler County on January 25, 2006, under which Plaintiffs were to serve as the general contractor for the construction of the Butler County prison (the "project"). (Docket No. 1-3 at 29, ¶ 21). Allegedly, due to shipment delays beyond Plaintiffs' control in receiving the steel supply for the project, Plaintiffs claim that they were unable to begin the project on time, thus delaying the overall completion date. (Id. at ¶¶ 23-26). Accordingly, Plaintiffs requested an extension of time in accordance with the terms of their contract with Butler County, to which the County refused. (Id. at 30, ¶¶ 28-30). As a result of this refusal, a dispute arose between Plaintiffs and Butler County wherein each accused the other of being in default on the project. (Civ. A. No. 07-765, Docket No. 82 at 4-5).

Plaintiffs claim that Butler County then filed a claim against the performance bond with Travelers and a notice of intent to terminate its contract with Plaintiffs. (Docket No. 1-3 at 30, ¶ 31). Thereafter, Travelers filed the underlying action with this Court against Plaintiffs on June 6, 2007, claiming, inter alia, that Plaintiffs refused to deposit funds in a trust account in violation of the GAI. (Civ. A. No. 07-765, Docket No. 82 at 5). Subsequently, Travelers filed an Emergency Motion for Temporary Restraining Order and Preliminary Injunction (the "underlying motion") seeking the enforcement of the terms of GAI. (Docket No. 1-3 at 44-53). Specifically, Travelers sought to have the Court order Plaintiffs to deposit funds collected or received in connection with the project into a trust fund account, to adhere to their contractual obligations, and to prohibit any distributions or withdrawals from the account without the express consent of Travelers pursuant to § 9 of the GAI. (Id.). They further sought an order requiring Plaintiffs to provide Travelers with access to Plaintiffs' books, papers, records, documents, contracts, reports, financial information, accounts, and electronically stored information pursuant to § 10 of the GAI. (Id.). The Court then conducted an evidentiary hearing on Travelers' motion on July 16, 2007. (Civ. A. No. 07-765, Docket No. 34). Thereafter, the Court denied Travelers' motion, without prejudice, but ordered the parties to proceed to mediation to establish the operation and management of the trust fund account. (Civ. A. No. 07-765, Docket No. 40).

The mediation was held before a neutral approved by this Court, the Honorable Joseph Del Sole, on August 27, 2007. (Id.; Docket No. 44). As a result, the parties reached an agreement regarding the day-to-day operation and procedures of the trust fund account. Id. In accordance with the agreed upon procedures regarding the trust fund account, Travelers used the deposited funds to make payments to subcontractors and suppliers on the project, in addition to releasing funds to Plaintiffs to pay its own employees and expenses. Id.

B. Relevant Language in the Bonds and GAI

According to the terms of the GAI, Travelers, as the surety, possesses rights to funds received in connection with the project and has the right to demand that any contract funds owed on the project, for which Travelers as beneficiary may be liable under any bond, be held in a trust. (Docket No. 1-5 at 5). Thus, a trust fund was to be established by Plaintiffs, for the benefit of Travelers, to hold funds received on the project or due to subcontractors and suppliers in connection with the construction of the project. (Id.). The GAI further states that Travelers has the right to open a trust account to hold such funds and that Plaintiffs shall deposit funds received upon a demand made by Travelers. (Id.). Additionally, it provides that Travelers has a collateral security interest in all contract rights, accounts, rights of payment, and general intangibles of Plaintiffs. (Id.). Plaintiffs also agreed that, upon a demand made by Travelers, they would deposit additional sufficient funds to compensate Travelers for any loss suffered due to a default under the agreement. (Id.).

The terms of the GAI also provide that Travelers has the right to determine for itself and Plaintiffs whether any claim or demand made on the bonds shall be paid, compromised, or settled. (Docket No. 1-5 at 4). It further states that this determination made by Travelers shall be binding and conclusive upon Plaintiffs and that Travelers will be entitled to immediate reimbursement for any and all losses incurred as a result of Travelers' payments under the bonds. (Id.).

C. Plaintiffs' Instant Claims Related to the Underlying Action

In late February 2007, before Travelers filed the underlying action, Plaintiffs claim that Travelers "coerced Plaintiffs" to allow Travelers' accountants unabated access for 3 days to Plaintiffs' financial information relating to A.G. Cullen Construction, Inc. (Docket No. 1-3 at 30, ¶ 34). Plaintiffs also claim that as of this point in time, they had satisfied their financial liabilities and that they were continuing to work on the project. (Id.). Thereafter, on or about April 17, 2007, Travelers allegedly informed Plaintiffs that it would not issue them any future bonds and that it would spend two days in Plaintiffs' offices inspecting their financial data. (Id. at 31, ¶¶ 35-36). Travelers subsequently demanded that Plaintiffs send further financial information, to which demand Plaintiffs claim they complied. (Id. at 31, ¶ 38).

On or about June 1, 2007, Plaintiffs contend that Travelers' attorneys, Defendants Shawn Pikas, David Dreifuss, and Joann Bonacci, contacted their attorney, Richard Kalson, stating that Travelers was concerned because Plaintiffs had purchased a residence in St. Maarten and "would move there with as much money as possible." (Id. at 31, ¶ 39). Plaintiffs claim that this was an unfounded rumor with no basis in fact and that the residence was purchased well before the project began. (Id. at 31, ¶ 40-41). Plaintiffs also aver that the ownership of the St. Maarten residence was verbally disclosed in Plaintiffs' pre-bond meeting and in a financial statement dated February 22, 2007 completed and provided to Travelers' accountant during his February visit. (Id. at ¶ 40). Further, Plaintiffs state that the property was purchased well before Travelers decided to issue bonding to them. (Id.). In fact, in the pre-bonding period when Travelers was evaluating Plaintiffs' financial records to decide whether to issue bonds to them, Plaintiffs had already paid forty-five percent of the purchase price of the St. Maarten residence. (Docket No. 4-3 at 19: 2-7). Thus, Travelers was aware of this purchase before their relationship began. (Id.). Also, Plaintiffs' attorney, Richard Kalson, repeatedly requested information concerning the person(s) spreading the "rumor" that Plaintiffs were going to flee to St. Maarten with contract funds, but Travelers refused to advise. (Docket No. 1-3 at 31, ¶ 41).

As described above, Travelers thereafter filed the underlying action on June 6, 2007 alleging breach of the contract between Plaintiff and Travelers. It then filed a motion to suspend case activity during settlement negotiations on June 8, 2007. (Civ. A. No. 07-765, Docket No. 11). On June 21, 2007, Travelers moved for a hearing on the underlying motion. (Id.; Docket No. 13). A status conference was held on June 28, 2007 wherein the Court addressed the parties' positions as to the motion and the need for a evidentiary hearing. (Id.; Docket No. 23)

In support of its motion, Travelers' attorney Defendant Pikas executed a supporting affidavit stating that Travelers was aware of the fact that Plaintiffs owned a residence outside the country and that she heard "rumors" that Plaintiffs were moving documents and money received on the project there. (Docket No. 1-3 at 32, ¶ 44; Docket No. 1-4 at 26). Plaintiffs claim that these statements "were rumor mongering without a factual basis." (Docket No. 1-3 at 32, ¶ 44). Defendant Dreifuss also executed an affidavit in support of the underlying motion for temporary restraining order and preliminary injunction in which he set forth similar concerns, in addition to concerns about the injury Travelers would suffer if Plaintiffs were not required to deposit funds in a trust account. (Docket No. 1-5 at 36). Specifically, Mr. Dreifuss stated that according to his experience, the situation was "ripe for the surety's indemnitors to seize as much money as they possibly [could] in connection with the bonded projects and to essentially flee to St. Maarten and/or place the money in accounts where the surety would not be able to recover the funds." (Docket No. 1-3 at 38, ¶ 69).

It is Plaintiffs' contention that Travelers' concerns, which served as the basis for its motion, "were at best nothing more than unfounded, unsubstantiated rumors without a basis in fact." (Docket No. 1-3 at 33, ¶ 46). They further argue that Travelers and its attorneys, the individually named Defendants, maliciously published these false rumors with the intent to harm Plaintiffs.*fn3 (Docket No. 1-3 at 33, ¶ 47-48). Thus, they maintain that Travelers brought the underlying motion in a grossly negligent manner, without probable cause, and without a legitimate purpose. (Id. at ¶ 49). Further, Plaintiffs claim that this Court terminated the underlying motion in their favor and acknowledged that the only evidence that Plaintiffs may have wrongfully dissipated funds was "unsubstantiated rumors" that Plaintiffs planned to flee to St. Maarten. (Id. at 34, ¶¶ 50-51). With this factual background, Plaintiffs claim damages for wrongful use of civil proceedings, i.e. the prosecution of the underlying motion, against Travelers and individually against each of Travelers' attorneys.

III. Procedural History

On September 26, 2008, Defendants filed the instant Motion to Dismiss pursuant to Federal Rule of Civil Procedure 12(b)(6) (Docket No. 4) and brief in support (Docket No. 5). Plaintiffs filed their brief in opposition on November 14, 2008.*fn4 (Docket No. 15). Thereafter, on December 23, 2008, Defendants filed their reply to Plaintiffs' opposition.*fn5 (Docket No. 22). As the motion has been fully briefed, it is now ripe for disposition.

IV. Standard of Review

In light of the Supreme Court's decision in Bell Atlantic Corp. v. Twombly, 550 U.S. 544 (2007), a complaint may be dismissed pursuant to Federal Rule of Civil Procedure 12(b)(6) if it does not allege "enough facts to state a claim to relief that is plausible on its face." Phillips v. County of Allegheny, 515 F.3d 224, 234 (3d Cir. 2008)(quoting Twombly, 550 U.S. at 570). While Conley v. Gibson, 355 U.S. 41, 45-46 (1957), allowed dismissal of a claim only if "no set of facts" could support it, under Twombly, a claim for relief 12(b)(6)) now "requires more than labels and conclusions" or "a formulaic recitation of the elements of a cause of action." Twombly, 550 U.S. at 555. In order to satisfy the requirement of Rule 8(a)(2) that a plaintiff include a "short and plain statement of the claim showing that the pleader is entitled to relief," a plaintiff must aver sufficient factual allegations in order "to raise a right to relief above the speculative level." Ayers v. Osram Sylvania, Inc., Civ. A. No. 07-1780, 2008 U.S. Dist. LEXIS 72644, at *6 (M.D. Pa. Sept. 24, 2008) (citing Twombly, 550 U.S. at 556).

In considering a Rule 12(b)(6) motion, a court accepts all of the plaintiff's allegations as true and construes all inferences in the light most favorable to the non-moving party. Umland v. Planco Fin. Servs., Civ. A. No. 06-4688, 2008 U.S. App. LEXIS 19225, at *10 (3d Cir. Sept. 9, 2008) (citing Buck v. Hampton Twp. Sch. Dist., 452 F.3d 256, 260 (3d Cir. 2006)). However, a court will not accept bald assertions, unwarranted inferences, or sweeping legal conclusions cast in the form of factual allegations. See In re Rockefeller Ctr. Props., Inc. Sec. Litig., 311 F.3d 198, 215 (3d Cir. 2002); Morse v. Lower Merion Sch. Dist., 132 F.3d 902, 906 n. 8 (3d Cir.1997). A court is not required to consider legal conclusions; rather, it should determine whether the plaintiff should be permitted to offer evidence in support of the allegations. Maio v. Aetna, 221 F.3d 472, 482 (3d Cir. 2000). The failure-to-state-a-claim standard of Rule 12(b)(6) seeks to promote judicial economy by eliminating unwarranted discovery and fact-finding. United States ex. rel. Repko v. Guthrie Clinic, P.C., 557 F.Supp.2d 522, 525 (M.D. Pa. 2008). Therefore, a plaintiff must put forth sufficient facts that, when taken as true, suggest the required elements of a particular legal theory. See Wilkerson v. New Media Tech. Charter Sch., Inc., 522 F.3d 315 (3d Cir. 2008) (citing Phillips, 515 F.3d 224; Twombly, 550 U.S. at 562). Generally, this does not impose a heightened burden on the claimant above that already required by Rule 8, but instead calls for fair notice of the factual basis of a claim while "rais[ing] a reasonable expectation that discovery will reveal evidence of the necessary element." Weaver v. UPMC, Civ. A. No. 08-411, 2008 U.S. Dist. LEXIS 57988, at * 7 (W.D. Pa. July 30, 2008) (citing Phillips, 515 F.3d at 234; and Twombly, 550 U.S. at 556).

In evaluating a Rule 12(b)(6) motion, a court "may look beyond the complaint to matters of public record, including court files and records ... and documents referenced in the complaint or essential to a plaintiff's claim which are attached to either the [c]omplaint or the defendant's motion." Spence v. Brownsville Area Sch. Dist., Civ. A. No. 08-0626, 2008 U.S. Dist. LEXIS 55026, at *7 (W.D. Pa. July 15, 2008)(citing Pension Benefit Guar. Corp. v. White Consol. Indus., 998 F.2d 1192, 1196 (3d Cir. 1993)). A court may also take judicial notice of adjudicative facts contained in court records, whether requested or not, at any stage of a proceeding. See FED. R. E. 201(b).

Additionally, a court may consider "an undisputedly authentic document that a defendant attaches as an exhibit to a motion to dismiss if the plaintiff's claims are based on the document." Pension Benefit Guar. Corp., 998 F.2d at 1196 (citations omitted). Otherwise, a plaintiff with a legally insufficient claim could survive a motion to dismiss "simply by failing to attach a dispositive document on which it relied." Id.

V. Discussion

In this diversity action, this Court must apply the substantive law as decided by Pennsylvania's highest court. Travelers Indem. Co. of Illinois v. DiBartolo, 131 F.3d 343, 348 (3d Cir. 1997) (citations omitted). The parties do not dispute the application of Pennsylvania law to this matter. Thus, the Court need not ...


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