IN THE UNITED STATES DISTRICT COURT FOR THE EASTERN DISTRICT OF PENNSYLVANIA
August 24, 2010
MARVIN RAAB, PLAINTIFF,
HOWARD LANDER, ET AL., DEFENDANTS.
The opinion of the court was delivered by: Eduardo C. Robreno, J.
Before the Court is Defendants' motion for summary judgment as to Plaintiff's fraud, breach of contract, specific performance, accounting, unjust enrichment, and joint venture claims. After consideration of the parties' pleadings and for the reasons set forth below, Defendants' motion for summary judgment will be granted.
I. FACTUAL BACKGROUND
On August 28, 2008, Plaintiff Marvin Raab ("Raab" or "Plaintiff") initiated this action against Defendants Howard Lander ("Lander") and 929 South Street Associates, LP ("929 South St.") (collectively, "Defendants"),*fn1 alleging that Defendants wrongfully withheld profits from him under various counts of fraud, breach of contract, specific performance, accounting, unjust enrichment, and joint venture. Raab avers that the contract entitles him to these profits because he invested $30,000 with Defendants, allegedly in exchange for a long-term interest in the Property. Raab seeks damages in excess of $75,000 in satisfaction of his purported 10% ownership interest in the Property. See Compl. ¶ 42.
The following details the parties' rights and responsibilities under the portions of the Agreement that are in dispute.*fn2
On July 15, 1996, Raab and Lander entered into a "Preliminary Investment Agreement" ("Agreement"), which provided that Raab would lend Lander $30,000 for the "sole and exclusive purpose" of being used as a portion of Lander's down payment so that he could acquire a 50% interest ("Lander Interest") in a property identified in the Agreement as 939 South Street,*fn3 Philadelphia, Pennsylvania ("Property"). See Compl. ¶¶ 7-9. In order to ensure repayment of the $30,000 loan, the Agreement provided for a mortgage at which Lander would repay the $30,000 at a 6% interest rate per annum or, if unpaid within eighteen months, in the form of an ownership interest and limited partnership upon refinancing. Four days after the Agreement was executed, Lander used Raab's $30,000 as part of the $90,000 down payment to acquire the Property.
On April 2, 2001, Lander sent Raab a check in the amount of $45,000*fn4 with "Repayment Fresh Fields Loan"*fn5 in the memo line. See Defs.' Reply 1-2; see also Raab Dep. 226:16-19. In his deposition testimony, Raab stated that he called Lander to inquire as to the meaning of the words on the memo line and, following this call, Raab deposited the $45,000 check into his personal bank account.*fn6 See Raab Dep. 229:9-231:6.
In support, Raab avers that the Agreement made him a part owner of the Property because in exchange for the $30,000 down payment, Raab was to receive 20% of Lander's 50% share ("Lander Interest") that would result in a 10% interest in the entire Property. Specifically, Raab argues that, according to ¶ 4 of the Agreement (reproduced in note 2, supra), Lander was supposed to refinance Raab's interest in the Property within eighteen months (i.e., January 15, 1998), at which time Raab's interest was to be realized and a limited partnership among Lander, Raab, and two other investors established. See Pl.'s Opp'n 6.
Defendants argue that Raab's $30,000 contribution did not entitle him to an ownership interest, but rather that the money was merely a "loan" to Lander. Defendants contend the loan was secured by the property interest, which was allegedly extinguished when Raab was fully repaid the "loan" with interest and legal fees with the $45,000 check. In other words, the crux of Defendants' argument is that the mortgage and limited partnership mentioned in the Agreement were merely security for the $30,000 Raab loaned Lander. As such, Defendants aver that Lander never created the mortgage or the limited partnership because he repaid the loan with interest and legal fees. Id.
II. PROCEDURAL HISTORY
On August 28, 2008, Raab filed the complaint alleging six separate counts: (1) Count I for fraud; (2) Count II for breach of contract; (3) Count III for specific performance of the contract; (4) Count IV for accounting; (5) Count V for unjust enrichment; and (6) Count VI for joint venture.
On December 12, 2008, Defendants filed their answer, averring that: (1) Raab misconstrues their obligations, if any, under the Agreement; (2) Raab never was "entitled to an ownership interest of any kind in the Property;" and (3) the Raab Loan was repaid in full in 2001 when Raab deposited a $45,000 check that Lander had given him. As an affirmative defense, Defendants argue that, even if the check did not constitute repayment of the $30,000 and even if Defendants had outstanding obligations under the contract, the statutes of limitations for all of Raab's claims have expired prior to Raab filing the instant action. See Defs.' Mot. Summ. J. 7, 14, 19.
On December 18, 2009, Defendants filed the instant motion for summary judgment, to which Raab responded on January 15, 2010. On February 1, 2010, Defendants filed a reply. Defendants' motion for summary judgment is now ripe for adjudication.
III. LEGAL STANDARD
Summary judgment is appropriate if there are no genuine issues of material fact and the moving party is entitled to judgment as a matter of law. Fed. R. Civ. P. 56(c). The "mere existence" of disputed facts will not result in denial of a motion for summary judgment; rather[,] there must be "a genuine issue of material fact." Am. Eagle Outfitters v. Lyle & Scott Ltd., 584 F.3d 575, 581 (3d Cir. 2009) (quoting Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247-248 (1986)). A fact is "material" if proof of its existence or non-existence might affect the outcome of the litigation, and a dispute is "genuine" if "the evidence is such that a reasonable jury could return a verdict for the nonmoving party." Liberty Lobby, 477 U.S. at 248.
"After making all reasonable inferences in the nonmoving party's favor, there is a genuine issue of material fact if a reasonable jury could find for the nonmoving party." Pignataro v. Port Auth. of N.Y. & N.J., 593 F.3d 265, 268 (3d Cir. 2010) (citing Reliance Ins. Co. v. Moessner, 121 F.3d 895, 900 (3d Cir. 1997)). While the moving party bears the initial burden of showing the absence of a genuine issue of material fact, the non-moving party "may not rely merely on allegations or denials in its own pleading; rather[,] its response must . . . by affidavits or as otherwise provided in [Rule 56] . . . set out specific facts showing a genuine issue for trial." Fed. R. Civ. P. 56(e)(2).
Further, "[s]ummary judgment is appropriate in a contract case where the contract terms are clear and unambiguous, despite disagreement between the parties as to what the agreement provides." Paul Revere Protective Life Ins. Co. v. Weis, 535 F. Supp. 379, 383 (E.D. Pa. 1981), aff'd, 707 F.2d 1403 (3rd Cir. 1982).
A. Applicable Law
"A federal court exercising diversity jurisdiction is obligated to apply state statutes of limitation." Malta v. Schulmerich Carillons, Inc., 1988 U.S. Dist. LEXIS 8426, at *3 (E.D. Pa. 1988) (citing Guaranty Trust Co. v. York, 326 U.S. 99 (1945); see also McGowan v. University of Scranton, 759 F.2d 287, 290 (3d Cir. 1985); Firestone & Parson, Inc. v. Union League, 672 F. Supp. 819, 821 (E.D. Pa. 1987), aff'd, 833 F.2d 304 (3d Cir. 1987)).*fn7
In Pennsylvania, pursuant to 42 Pa. C.S. § 5525(a)(7), there is a four-year statute of limitations for:
[a]n action upon a negotiable or nonnegotiable bond, note or other similar instrument in writing. Where such an instrument is payable upon demand, the time within which an action on it must be commenced shall be computed from the later of either demand or any payment of principal of or interest on the instrument.
42 Pa. C.S. § 5525(a)(7) (2010).*fn8 Further, where the instrument is not payable upon demand, the cause of action for a breach of contract accrues upon "[t]he failure of a party to a contract to perform in accordance with its terms." Christopher v. First Mut. Corp., 2006 U.S. Dist. LEXIS 2255, at *15 (E.D. Pa. Jan. 20, 2006); see also id. ("In a contract case, a cause of action accrues when the breach occurs.") (citing Romeo & Sons v. P.C. Yezbak & Son, 652 A.2d 830, 832 (Pa. 1995)).
Here, where the parties entered into the Agreement whereby Raab lent Defendant money in exchange for an interest (either in the form of a monetary repayment plus interest or, if unpaid within eighteen months, in the form of an ownership interest or limited partnership upon refinancing), § 5525(a)(7) applies as to all of Raab's claims arising from the Agreement.*fn9
Therefore, there is an applicable four-year statute of limitations for Counts I-VI.
However, since the Agreement does not provide payment upon demand,*fn10 Raab's cause of action accrued from the date Defendants allegedly failed to perform under the terms of the contract.
In their motion for summary judgment, Defendants argue that, in accordance with the applicable four-year statute of limitations, all of Raab's claims are time-barred. See Hahnemann Univ. Hosp. v. All Shore, Inc., 514 F.3d 300, 306 (3d Cir. 2008)
Here, the Agreement is reasonably read as stating that Raab was to loan Lander $30,000 in exchange for repayment plus 6% interest per annum or, if repayment was not made within eighteen months, Raab's 10% ownership interest or formation of a limited partnership would be triggered upon refinancing. See e.g., Firstbank P.R. v. Jaymo Props. (In re Firstbank P.R.), 2010 U.S. App. LEXIS 9768, *1-2 (3d Cir. May 12, 2010) (finding that a promissory note existed where the transaction included a bank loan in exchange for repayment of a principal sum plus interest and a security executed in the form of a mortgage on particular property); see also note 7, supra. ("In Pennsylvania, a breach of contract claim has a statute of limitations of four years."); see also Allen v. Stewart Title Guar. Co., 2007 U.S. Dist. LEXIS 20846, at *7 (E.D. Pa. Mar. 20, 2007) (noting that the plaintiff's contract claims were time-barred by the applicable four-year statute of limitations, pursuant to 42 Pa. C.S. § 5525). Specifically, Defendants argue that all of Raab's claims have expired because the complaint was filed on August 28, 2008 and (1) the cause of action accrued on January 15, 1998; (2) the discovery rule is not applicable to toll the statute of limitations based on Raab's knowledge on January 15, 1998; and (3) in the alternative, the cause of action accrued, at the latest, on April 2, 2001.
In response, Raab contends that the statutes of limitations have not run on his claims as the causes of actions accrued at different points in time than when Defendants allege. See Pl.'s Opp'n 2. First, Raab argues that the Agreement was a divisible contract, such that the alleged creation of Raab's original ownership interest was separate from Lander's subsequent alleged failure to convert Raab's interest into a partnership interest. See id. at 7. Additionally, Raab argues that the contract was a continuing one, such that he was entitled to waive and has waived any breach by Lander and to wait until the termination of their contractual relationship before the statutes of limitation began running. Id. at 9. Lastly, Raab avers that Lander is estopped from invoking a statute of limitations defense based on his intentional actions. Plaintiff's arguments have no merit. See note 7, supra.
On August 28, 2008, Raab filed his complaint. Therein, Raab claimed that Defendants did not fully perform their obligations under the Agreement by failing to document and ultimately pay him for his 10% ownership interest that was to be triggered no later than eighteen months following the closing of the Agreement. The parties closed the Agreement on July 15, 1996. As such, the latest date by which Raab's cause of action could begin to accrue for failure to have his alleged 10% interest recognized was January 15, 1998, when Defendants failed to recognize Raab's alleged 10% interest in the Property.
There is no genuine issue of fact as, by this time, Raab was acutely aware of Defendants' failure to document his 10% interest once the eighteen month period had concluded. In fact, he admitted at deposition that he was in constant contact with Defendants from 1996 through 2001, seeking fulfillment of this alleged obligation.*fn11 Therefore, where Raab failed to initiate this action until August 28, 2008, as a matter of law his claims are time-barred, pursuant to § 5525(a)(7).
However, two exceptions to a rigid application of a statute of limitations that may toll the applicable time period exist. Neither of the applicable exceptions apply here.
1. Discovery Rule
A statute of limitations may be tolled by the discovery rule exception. Under the "discovery rule," the accrual of Raab's claims may be delayed based on Defendants' fraudulent conduct that delayed Raab's ability to know of his injury or, through the exercise of reasonable diligence, "discover" his injury. Compuwill Express, Inc. v. ATX Telcomms. Servs., 2000 U.S. Dist. LEXIS 7303, *32 (E.D. Pa. May 31, 2000); see also Burtch v. Ganz, 282 B.R. 805, 820 n.13 (E.D. Pa. 2002) (Robreno, J.) (noting that "[t]he discovery rule is the same under both Pennsylvania and federal common law" because whether a party has acted diligently for purposes of the discovery rule may be determined as a matter of law where the facts are so clear that reasonable minds cannot differ (citing Bohus v. Beloff, 950 F.2d 919, 925 (3d Cir. 1991))).*fn12
The "discovery rule" is inapplicable to the case at bar for several reasons. First, as discussed above, Raab was aware that his expectation of repayment (allegedly in the form of an ownership interest) was not being documented by Defendants upon his request as early as 1996. See note 10, supra. Upon his own due diligence, Raab learned that Defendants were not fulfilling what Raab believed he was obligated under the Agreement. Second, when Defendants failed to refinance the lease and failed to give Raab his alleged 10% interest in the Property on January 15 (eighteen months following the July 15, 1996), Defendants were, at least in Raab's mind, in breach of the contract. Therefore, even under Raab's version of the facts, there is no genuine issue of material fact that as early as January 15, 1998, Raab was on notice of his injury and January 15, 1998 is thus the date the cause of action began to accrue for purposes of the discovery rule.*fn13
Lastly, Raab argues that Defendants are estopped from asserting a statute of limitations defense whereby they gave Raab a check to thwart him from recognizing that there was a termination of the contractual relationship. See Pl. Opp'n 13. Therefore, Raab asserts that he believed he could deposit the $45,000 check on April 2, 2001 and still have a continued ownership interest in the Property since the memo line of the check didn't not explicitly reference "Whole Foods" or repayment "with interest." Id.
In Pennsylvania, "courts will estop a defendant from raising the statute of limitations defense if plaintiff proves by clear and convincing evidence, that defendant affirmatively concealed the plaintiff's cause of action." Actor v. First Investors Corp., 1985 U.S. Dist. LEXIS 12501, *8 (E.D. Pa. Dec. 20, 1985) (citing Commonwealth of Penn. Dept. of Public Welfare v. UEC, Inc., 483 Pa. 503, 397 A.2d 779, 784 (1979)).
Here, Raab, again by his own admission, stated that he believed Defendant Lander was not providing documentation of an ownership interest to which he was entitled and began requesting as early as 1996. Those actions do not support a finding that Defendants actively hid Raab's claims from him.
Further, Raab was on notice, at least as early as January 15, 1998, that he did not receive a 10% ownership interest within eighteen months of the closing of the Agreement. In fact, though Raab alleges Lander stated that he was "confused" when being questioned about Raab's 10% interest in 1996 through 2001, no reasonable jury could find that Defendants actively hid his causes of action, especially considering Defendants, in 2001, sent him a $45,000 check evidencing an attempt to repay the $30,000 loan with interest and legal fees. Under these circumstances, the Court cannot find that Defendants "affirmatively concealed" Raab's cause of action and estoppel is not appropriate here.
For the reasons set forth above, Defendants' motion for summary judgment will be granted and Counts I, II, III, IV, V, and VI are dismissed. An appropriate order will follow.