The opinion of the court was delivered by: Judge Munley
Before the court is Defendant Edward G. Lang's motion to dismiss. Having been fully briefed, the matter is ripe for disposition.
This case arises out of a real-estate deal between the Plaintiff The Bur-Cam Group, Inc. ("Bur-Cam") and Defendants John and Debra Reckling ("the Recklings"). (See Complaint (hereinafter "Complt.") Exh. A to Notice of Removal (Doc. 1)). On or about January 30, 2008 plaintiff purchased real estate located at 1451 North Elmira Street in Athens Township, Pennsylvania. (Id. at ¶ 7). Plaintiff paid the Recklings $1,300,000 for this property. (Id.). The property contained an improved commercial structure where a Jiffy Lube operated. (Id. at ¶ 8).
At the time of plaintiff's purchase, the Jiffy Lube on the premises was operated by Peanut Oil, LLC, a Pennsylvania limited liability company. (Id. at ¶ 9). Peanut Oil operated Jiffy Lube stores in New York and Pennsylvania. (Id. at ¶ 10). The company has three members: Defendants Samuel Pearson and Edward Lang and Deborah L. Pickett. (Id.). Pickett has filed a Chapter 7 bankruptcy petition in the United States District Court for the Middle District of Pennsylvania and is not named in the instant lawsuit. (Id.).
Plaintiff financed the real estate purchase through a $1,300,000 mortgage with Indiana First Savings Bank of Indiana, Pennsylvania. (Id. at ¶ 12). A twenty-year lease between Bur-Cam and Peanut Oil was part of this real estate transaction. (Id. at ¶ 11). Monthly lease payments started at $10,833.33 at the beginning of the lease. (Id.). Peanut Oil paid the first monthly lease payment to plaintiff, though substantially later than the lease agreement required. (Id. at ¶ 13). Beginning in March 2008, Peanut Oil did not make another lease payment. (Id. at ¶ 14). On June 16, 2008, Peanut Oil filed for Chapter 7 bankruptcy protection in the United States District Court for the Middle District of Pennsylvania. (Id.). The property remained vacant at the time plaintiff filed its complaint. (Id. at ¶ 15). Plaintiff has been unable to sell or lease the property. (Id.).
Plaintiff alleges that Bur-Cam became interested in purchasing the property in question in late 2007, when the Recklings owned the property. (Id. at ¶ 16). The Recklings had recently purchased the site, paying $1,100,000 in October 2007. (Id.). The proposed real estate transaction was coordinated by Defendant Andrew M. Bronsac, the president of Defendant Commercial Concepts, a firm specializing in commercial real estate. (Id. at ¶ 17). Commercial Concepts had an extensive business relationship with Defendants Pearson "and/or" Lang, as well as with Pickett. (Id. at ¶ 18). This relationship also involved various business entities, such as Peanut Oil, Vipergas, LLC and JDSK Oil, LLC. (Id.). Commercial Concepts was directly involved in the purchase and sale of these businesses. (Id.).
Commercial Concepts and Bronsac were involved directly in the transaction here in question. (Id. at ¶ 19). Plaintiff alleges that "Brosnac and Commercial Concepts acted as a conduit for passing information from and to the Plaintiff and Indiana First from and to the Recklings and Peanut Oil, LLC." (Id.). These actions included, "deliver[ing] financial and other information from Peanut Oil to Bur-Cam and Indiana First, assist[ing] in getting the Lease Agreement signed between BurCam and Peanut Oil and coordinat[ing] getting documents approved and signed by the Recklings." (Id.). Plaintiff also contends that a similar relationship existed between Pearson, Pickett and/or Lang and Commercial Concepts in other financial transactions. (Id. at ¶ 20). Bronsac "had direct contact with Pearson and Pickett and had access to financial information" shared with potential purchasers in this deal. (Id. at ¶ 21). A similar relationship existed between Commercial Concepts and the Recklings. (Id. at ¶ 21).
Before purchasing the property, plaintiff and Indiana First Bank performed a detailed financial analysis of the business. (Id. at ¶ 23). They did so based on the information provided by Peanut Oil through Commercial Concepts. (Id.). Their analysis convinced plaintiff that the deal was financially sound. (Id.). The deal ended up being a bad one; Peanut Oil had misrepresented its financial condition, as well as the financial condition of the Jiffy Lube on the site. (Id. at ¶ 24). The Jiffy Lube could not sustain enough business to pay the rent charged by plaintiffs, making the property worth much less than the sale price of $1.3 million. (Id. at ¶ 25).
Plaintiff points to several misrepresentations made about Peanut Oil's financial condition before the sale. (Id. at ¶ 26). First, balance sheets for December 24, 2007 and December 31, 2007 provided by Peanut Oil list real estate assets of $4.48 million and cash on hand at $342,332. (Id. at ¶ 26A). When Peanut Oil filed for bankruptcy, no real estate assets were listed, and cash on hand amounted to only $4,000. (Id.). The company's balance sheet for December 31, 2007 shows accounts receivable of $45,765; the bankruptcy schedules show accounts receivable of $8,823.31. (Id. at 26B). The balance sheet from December 31, 2007 shows equipment valued at more than $1.7 million, but the bankruptcy schedules show machinery and equipment of $12,000. (Id. at ¶ 26C). Income statements from the Jiffy Lube showed an annual net operating profit of no less than $82,000 and rent payments of $112,500. (Id. at ¶ 26D). These statements did not reflect the truth, since the Jiffy Lube could not and did not ever generate sales which would justify such statements. (Id.). Plaintiff alleges that Bur-Cam relied on the information provided by defendants and their agents in deciding to purchase the property in question. (Id. at ¶ 30). Plaintiff paid substantially more than the real estate was worth. (Id.). Though plaintiff paid $1,300,000 for the property, its actual value was approximately $250,000. (Id. at ¶ 31).
Plaintiff also alleges that Pearson and Lang, Peanut Oil principals, knew of the company's poor financial position. (Id. at ¶ 33). Despite this knowledge, they provided plaintiffs with false financial information about the business and agreed to lease premises from plaintiffs when they knew they could not afford the rent. (Id. at ¶ 34). Pearson and Lang made these statements to ensure that the deal went through. (Id.). Plaintiff alleges that Pearson and Lang benefitted directly from the sale, as did the Recklings, because the Recklings owed Peanut Oil more than $400,000 from past real estate transactions. (Id. at ¶ 35). The Recklings repaid their debt to Peanut Oil after selling the subject property. (Id. at ¶ 36). Plaintiff also contends that the fraudulent actions by Pearson and Lang were the "substantial and proximate reasons" for the sale of the real estate. (Id. at ¶ 37). Plaintiff would not have purchased the property but for the actions and promises of Pearson and Lang. (Id. at ¶ 38).
Plaintiff filed the initial complaint in this action in the Court of Common Pleas of Bradford County, Pennsylvania on November 25, 2009. The complaint raises three counts of fraud. Count I is raised against Defendants Lang and Pearson, alleging that they knew of Peanut Oil's poor financial condition, yet supplied false financial information to plaintiff and plaintiff's lender to convince them to approve of the real estate transaction. Lang and Pearson benefitted from this agreement by having the debt repaid to them by Peanut Oil after the sale. Count II alleges that Brosnac and Commercial Concepts engaged in fraud by participating in the defendants' scheme to sell property at inflated prices. Count III alleges that Defendants John and Debra Reckling likewise engaged in fraud in these transactions. Before Lang was formally served with the complaint, and before other defendants were served, Lang removed the case to this court. (See Notice of Removal (Doc. 1) at ¶¶ 5-6). Lang then filed the instant motion to dismiss. (Doc. 2). The parties briefed the issue, bringing the case to its present posture.
Plaintiff Bur-Cam Group, LLC is a limited liability company organized and based in Pennsylvania. The individual members of that company are all Pennsylvania citizens. The individual defendants are citizens of other states. Defendant Commercial Concepts, Ltd. is a dissolved corporation that was incorporated in California and had its principal place of business in that state. The amount in controversy exceeds $75,000. As such, the court has jurisdiction pursuant to 28 U.S.C. § 1332. The court is sitting in diversity, and therefore the substantive law of ...