The opinion of the court was delivered by: William W. Caldwell United States District Judge
Plaintiffs sued a number of defendants alleging fraud and negligent misrepresentation in connection with a real estate sales agreement and a construction agreement. The construction agreement contained an arbitration clause, and we ordered Plaintiffs to arbitrate their claims against the only defendant who was a party to that contract. We also stayed this action as against the remaining defendants pending resolution of the arbitration.
Plaintiffs have filed a motion for reconsideration of those rulings. We have decided that arbitration should not be required in this case and that we should proceed to adjudicate the pending motions to dismiss.
II. Pertinent Procedural History
This is a diversity action controlled by Pennsylvania law. Plaintiffs, John L. Scott, and Minnie L. Scott, husband and wife, filed this action against multiple defendants following the purchase of a lot in a real estate development in Pike County, Pennsylvania. Plaintiffs intended to build a retirement residence there. To that end, the plaintiff husband entered into a real estate sales agreement with defendant, LTS Realty Company, to purchase the lot and also entered into a construction agreement with defendant, LTS Builders LLC, to construct a house on the lot.*fn1 Other "LTS defendants" are Rene Giombetti, an agent for LTS Realty Company, who sold the parcel to John L. Scott; Michael V. Gazza, a broker for LTS Realty Company; and Lawrence T. Simon, an officer and agent for both LTS Realty Company and LTS Builders. The remaining defendants are: Investors Abstract, Inc., and Steve Paugh and Lorie A. Lehman, agents for Investors Abstract; Albert C. Read, III, doing business as AC Read Appraisal Service; Alicia N. Johnson, who worked for Read; and M.D. Everett, the owner of the lot.
The gravamen of Plaintiffs' second amended complaint is fraud, that all of the defendants participated in a scheme to knowingly conceal from Plaintiffs the existence of an easement in favor of PPL Electric Utilities Corporation on the property. The easement allegedly rendered at least a third of the lot unbuildable and even prevented construction of the house on a portion of the lot where Giombetti said the house could be placed.
The defendants filed motions to dismiss under Fed. R. Civ. P. 12(b)(6) as follows: (1) one by the LTS defendants (which also relied on Fed. R. Civ. P. 12(b)(1)); (2) one by Investors Abstract, Inc., Steve Paugh, and Lorie A. Lehman; (3) one by Albert C. Read, III, and Alicia N. Johnson; and (4) one by M.D. Everett.
The LTS defendants' motion to dismiss under Rule 12(b)(1) argued lack of jurisdiction over the claims against LTS Builders on the basis of an arbitration clause in the construction agreement and requested that the complaint be dismissed as against LTS Builders. On March 15, 2011, we agreed with that argument but instead of dismissing the claims against LTS Builders, we treated the motion as one to compel arbitration and ordered Plaintiffs to arbitrate their claims against LTS Builders. We also stayed the action against the other defendants while the arbitration was ongoing. See Scott v. LTS Builders LLC, 2011 WL 902422, at *4 (M.D. Pa.).
Plaintiffs moved to reconsider our ruling. They argued we erred procedurally because a decision on whether to compel a party to arbitrate a dispute has to be decided under Fed. R. Civ. P. 56, governing motions for summary judgment, where the party resisting arbitration could present evidence why arbitration should not take place. They also presented evidence that they could not afford the cost of pursuing their claims against LTS Builders in arbitration.
By order of July 12, 2011, we vacated the March 15 order and requested additional briefing on the arbitration issue. The parties complied with that request, and as noted above, we have decided that arbitration should not be required. Our decision to reject arbitration means that we must also consider the motions to dismiss.
The second amended complaint provides the background to resolving the arbitration issue and the motions to dismiss. We provide it below.
Plaintiffs allege as follows. On March 15, 2008, a Saturday, they were traveling westbound on I-80 from New York to Pennsylvania and saw billboards advertising LTS homes in the Poconos area. (Second Am. Compl. ¶ 18). They drove to the LTS offices and discussed purchasing an LTS-built home with Giombetti. (Id. ¶¶ 19 and 20). Giombetti told them that "valuable 'perks' for new home buyers would be ending that weekend and they would need to sign a sales agreement before they left the office to obtain those 'perks.'" (Id. ¶ 20).
The lot, in Saw Creek Estates, was on a corner, "located up a large hill," and "provided a scenic view of a valley forest descending between nearby mountainous hills." (Id. ¶ 22). It had "a large stand of trees and an old stone fence." (Id. ¶ 23). "[B]uffered from view by the stand of trees, [a] power transmission line . . . ran along the south east side of the lot approximately 75 to 100 feet from what appeared to be the end of the property line, demarcated by a clearing." (Id.).
"Plaintiffs asked defendant Giombetti if there were any restrictions on building on the lot, and defendant said no." (Id. ¶ 25). "Plaintiffs explained to Giombetti how they wanted to position the [house] so it would face out toward the valley forest and defendant Giombetti said "there would be no problem and that the entire parcel was available for improvement. He even agreed that plaintiffs' proposed location would be ideal." (Id. ¶ 26)(brackets added).
Giombetti prepared the form sales agreement for the lot, the "Agreement for the Sale of Real Estate." The agreement did not identify Everett, the seller, only Scott as the buyer. (Id. ¶ 35). It did identify LTS Realty Company as the seller's agent. (Id. ¶ 37). The LTS defendants prepared the construction agreement between LTS Builders and John Scott. (Id. ¶ 40). On March 15, 2008, John L. Scott signed both contracts, the same day Plaintiffs saw the lot for the first time.
The real estate agreement contained the following clause, dealing with "Representations," providing as follows, in pertinent part:
(A) In entering into this Agreement, Buyer has not relied upon any representations, claims, advertising, promotional activities, brochures or plans of any kind made by the Seller, Agents, or their employees unless expressly incorporated or stated in this Agreement.
(B) It is understood that Buyer has inspected the property, or hereby waives the right to do so, and has agreed to purchase it in its present condition. . . .
(C) It is further understood that this Agreement contains the whole Agreement between Seller and Buyer and there are no other terms, obligations, covenants, representations, statements or conditions oral or otherwise of any kind whatsoever concerning this sale. (Doc. 31-1, Second Am. Compl., Ex. A, ¶ 16(A) and (C).
The construction agreement contained an arbitration clause requiring John L. Scott and LTS Builders to submit "any disputes arising under" the "Agreement" "to arbitration . . . ." (Doc. 31-2, Second Am. Compl., Ex. B, ¶ 19). It also contained a clause dealing with "Representations," providing as follows:
Owner [John Scott] acknowledges that the Contractor [LTS Builders] has made no warranties or representations that are not set forth in writing. In entering into this Agreement, Owner has not relied upon any claims . . . of any kind made by the Contractor, unless expressly incorporated or stated in this Agreement. It is further understood that this Agreement contains the whole Agreement between Owner and Contractor and there are no other terms, obligations, covenants, statements or conditions oral or otherwise of any kind whatsoever concerning this Agreement. (Id., Ex. B, ¶ 21).
The LTS defendants handled the arrangements for obtaining a loan from HSBC Mortgage Corporation, an abstract of title, a title policy, a survey endorsement, and for closing on the purchase. (Id. ¶ 41). Plaintiffs allege that the defendants knew that Plaintiffs were relying on them to guide them through the purchase of the lot and the new home. (Id. ¶ 64). Plaintiffs closed on the deal on May 8, 2008. Defendants induced Plaintiffs to enter into these transactions, including the closing. (Id. ¶¶ 66 and 67).
Plaintiffs allege that the LTS defendants and Everett arranged for the Investor Abstract defendants to conduct a "deceptive, misleading and fraudulent title search" that "buried the easement in their [title] report," (id. ¶¶ 42-43), and affirmatively misrepresented that there were no "adverse easements." (Id. ¶ 57). LTS arranged for defendants Read and Johnson "to prepare a deceptive, misleading and fraudulent appraisal." (Id. ¶ 45). The appraisal report "affirmatively misrepresented that the property was not subject to adverse easements or encroachments and that there were no physical deficiencies or conditions that would adversely affect value." (Id. ¶ 57). It also improperly used comparable sales, identifying only three of them with two of them not in Saw Creek Estates. (Id. ¶¶ 59 and 60).
Giombetti and the other defendants knew that "the power transmission line ran along a 200' foot wide easement that rendered at least a third of the property unbuildable." (Id. ¶ 27). The LTS defendants knew "that PPL had a project to expand its power line transmission to add a massive 500 additional kilovolts." (Id. ¶ 49). Defendants knew this project would: (1) replace the current lines with 200' foot poles carrying 720 kilovolts, (id. ¶ 50); and (2) expand the use of the easement on the lot. (Id. ¶ 51). They also knew the easement encroached on at least one-third of the lot, severely reducing its value and marketability. (Id. ¶ 52). Moreover, "[d]efendants knew or recklessly disregarded the fact that plaintiffs sought to site the home on a portion of [the lot] that was encumbered by the PPL easement." (Id. ¶ 54).
"In reliance on the aforesaid acts and omissions of defendants, plaintiffs proceeded with closing on May 9, 2008." (Id. ¶ 66). The next month: plaintiffs learned for the first time that [the lot] was so severely encumbered by the PPL easement that they would not be able to situate the house as previously represented by defendant Giombetti. Moreover, plaintiffs learned for the first time that virtually the entire stand of trees that served as a barrier between the existing power line and the lot were to be cut down by PPL in anticipation of expanding the power line transmission. ...