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Claret Capital Nominees v. Benett

November 30, 2009


The opinion of the court was delivered by: Joyner, J.


This case is now before the Court on Defendants' Motion to Dismiss (Doc. No. 6) and Plaintiffs' Cross-Motion for Summary Judgment (Doc. No. 8). For the reasons set forth below, Defendants' Motion to Dismiss is DENIED, and we will decline to rule on Plaintiffs' Cross-Motion for Summary Judgment at this time.

Factual Background*fn1 This is not the first visit to court for these parties. In 2008, Plaintiffs brought suit against Defendants in an attempt to collect damages of $11 million. That suit was settled for $5 million pursuant to a Settlement Agreement that was signed on December 15, 2008. At the same time, Defendants executed a Promissory Note that established a schedule for Defendants to pay the amount due. Following the settlement, Defendants made arrangements to borrow money from the Wilmington Savings Fund Society, FSB ("WSFS") in order to pay Plaintiffs. On December 23, 2008, Plaintiff Claret Capital Nominees, Defendant Devon IT, Inc., and WSFS entered into an Intercreditor and Subordination Agreement ("ISA"). Under this contract, Plaintiff agreed to make its interest subordinate to WSFS's loan, both Plaintiff and WSFS agreed to notify the other if Defendant defaulted on its payments to either, WSFS was provided an option to cure any deficiency in Defendant's payments to Plaintiff, or, alternatively, to purchase Plaintiff's interest in the event of a default by Defendant, and Plaintiff was required to wait a period of sixty days following written notice of default to WSFS before pursuing any "enforcement remedies" against Defendant.

After Defendants made one payment according to the terms of the Settlement Agreement, they informed Plaintiffs that they would be unable to make the second scheduled payment on time. The parties then negotiated an Amended Settlement Agreement, which was signed on March 31, 2009. The Amended Settlement Agreement explicitly states that it "in no way modifies, amends, extends, discharges, terminates or waives any provision of the Security Agreement referenced in the Settlement Agreement; the [Promissory] Note; and/or the Intercreditor and Subordination Agreement." (Ex. B to Defs.' Mot. to Dismiss at 2.) Defendants again made their first payment under the Amended Settlement Agreement, but did not make any subsequent payments. Due to an acceleration clause in the Amended Settlement Agreement, Defendants currently owe Plaintiffs $3,449,000.

Plaintiffs filed suit on August 3, 2009. On September 2, 2009, Plaintiffs sent written notice of Defendants' default to WSFS. Defendants claim that this notice was a condition precedent for seeking an enforcement remedy, and that filing a suit to recover for breach of contract constitutes an enforcement remedy. They, therefore, request that this Court dismiss Plaintiffs' suit as premature. Plaintiffs contest this argument on numerous grounds: first, they claim that the ISA was not incorporated into the Settlement Agreement or the Amended Settlement Agreement and, therefore, cannot provide a condition precedent to recovery under these contracts; second, Plaintiffs note that even if written notice to WSFS was a condition precedent, this is an affirmative defense and not something that can be raised by a 12(b)(6) challenge; third, Plaintiffs allege that Defendants lack standing to challenge the failure to follow the condition because the condition was for the benefit of WSFS; and, finally, Plaintiffs allege that this argument is moot, as sixty days have now passed since WSFS received notice and WSFS has made clear that it does not intend to cure Defendants' default or exercise its option.

Plaintiffs further assert that because Defendants attached the ISA, which is outside the scope of Plaintiffs' Complaint, to their Motion to Dismiss, this Motion should be considered a Motion for Summary Judgment pursuant to Federal Rule of Civil Procedure 12(d). Plaintiffs, therefore, filed a Cross-Motion for Summary Judgment as permitted by Federal Rule of Civil Procedure 56(a)(2). Defendants, however, contest this characterization of their filing, and maintain that the ISA that is attached to their Motion to Dismiss forms the basis for Plaintiffs' Complaint, and, therefore, is properly before this Court on their Motion to Dismiss.


Federal Rule of Civil Procedure 12(b)(6) requires a court to dismiss a complaint if the plaintiff has failed to "state a claim on which relief can be granted." In evaluating a motion to dismiss, the court must take all well-pleaded factual allegations as true, but it is not required to blindly accept "a legal conclusion couched as a factual allegation." Papasan v. Allain, 478 U.S. 265, 283, 286 (1986). Although a plaintiff is not required to plead detailed factual allegations, the complaint must include enough facts to "raise a right to relief above the speculative level." Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007).

Under Federal Rule of Civil Procedure 12(d), when a party presents matters outside of the pleadings along with a motion to dismiss, the filing is treated as a motion for summary judgment and governed by Federal Rule of Civil Procedure 56. This is true unless the document is "undisputedly authentic" and the "plaintiff's claims are based on the document." Pension Benefit Guar. Corp. v. White Consol. Indus., Inc., 998 F.2d 1192, 1196 (3d Cir. 1993). Importantly, however, the Court is not required to accept the matters outside the pleadings. Rather, the district court has the discretion to confine its ruling to the complaint and the motion to dismiss, and if the trial judge chooses to rule on the motion to dismiss without consideration of the additional matters presented, Rule 12(d) does not apply. Kulwicki v. Dawson, 969 F.2d 1454, 1462 (3d Cir. 1992); see also Fed. R. Civ. P. 12(d) (providing that a motion to dismiss is converted into a motion for summary judgment only if "matters outside the pleadings are presented to and not excluded by the court").

If the Motion to Dismiss is converted into a Motion for Summary Judgment, "[t]he judgment sought should be rendered if the pleadings, the discovery and disclosure materials on file, and any affidavits show that there is no genuine issue as to any material fact and that the movant is entitled to judgment as a matter of law." Fed. R. Civ. P. 56©. In making a summary judgment determination, all inferences must be viewed in the light most favorable to the non-moving party. Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587 (1986). In order to survive a motion for summary judgment, the non-moving party cannot rely solely on the unsupported allegations found in the pleadings. Celotex Corp. v. Catrett, 477 U.S. 317, 324 (1986). Instead, the non-moving party must raise more than "some metaphysical doubt" as to a material fact. Matsushita, 475 U.S. at 586. In making a decision as to whether there is a "genuine" issue of fact, the court must determine "whether a fair-minded jury could return a verdict for the plaintiff on the evidence presented." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 252 (1986).


Rule 12(d)

As an initial matter, this Court must determine whether the ISA constitutes "matter outside the pleadings" that would convert Defendants' Motion to Dismiss into a Motion for Summary Judgment if considered by this Court. In order to make such a determination, we must examine the contents of the ISA and its relation to the Settlement Agreement and the Amended Settlement Agreement. Plaintiffs' Complaint is based on the Settlement Agreements, and Plaintiffs do not dispute the authenticity of the ISA. To the extent that the ISA is part of the Settlement Agreements, therefore, the ISA would not constitute matter outside the pleadings and consideration of the ISA would not implicate Rule 12(d). If, however, the ISA is separate from the Settlement Agreements, it would constitute matter outside the pleadings, and this Court would have to determine whether it wishes to consider this additional information and thereby convert Defendants' Motion to Dismiss into a Motion for Summary Judgment.

A close look at the Settlement Agreement, the Amended Settlement Agreement, and the ISA reveals that the ISA is not incorporated into either of the Settlement Agreements, but, instead, is a separate contract. First, nowhere in the ISA do the parties state or even imply that it is to be incorporated into the existing Settlement Agreement. Nor does an intent to incorporate the ISA appear in the Amended Settlement Agreement. Although the Amended Settlement Agreement does state that it in no way modifies or alters the ISA, this is not sufficient to incorporate all of the terms from this ancillary agreement into the Amended Settlement Agreement. Under Pennsylvania contract law,*fn2 contracts are to be interpreted according to the plain meaning of the language when the language is unambiguous. Seven Springs Farm, Inc. v. Croker, 748 A.2d 740, 744 (Pa. Super. Ct. 2000). This Court cannot accept the argument that the plain meaning of a statement that the Amended Settlement Agreement does not alter the ISA is that the Amended Settlement Agreement incorporates the ISA. Nor can we accept the argument that a statement incorporating the Amended Settlement Agreement ...

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