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Samuel T. Freeman & Co v. Peter Hiam

June 11, 2012


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


Presently before the Court is the Motion of Defendants Peter Hiam and Helen Hiam (collectively hereinafter "Defendants" or "the Hiams")*fn1 to Dismiss, Stay, or Transfer the Interpleader Complaint of Plaintiff Samuel T. Freeman & Co. ("Plaintiff" or "Freemans"). For the following reasons, the Motion is denied in its entirety.


This matter involves a dispute related to the auction of a rare and very valuable antique Chinese Ming vase. The Hiams are the sellers of the vase, and are residents of Cambridge, Massachusetts. (Interpleader Compl. ¶ 2.) Freemans is the oldest auction house in America, and is located in Philadelphia, Pennsylvania. (Id. ¶¶ 1, 10.) Although not parties to the instant Motion, the conduct of Defendants Mr. Liu ("Liu") and Ting Wang ("Wang") lie at the heart of this dispute. Liu, a Chinese national, is the actual purchaser of the rare vase. (Id. ¶¶ 4, 21.) Wang, also a resident of China, acted at all relevant times as Liu's agent in the purchase of the vase. (Id. ¶¶ 3, 16--21.)

In February 2011, the Hiams agreed to consign the vase to Freemans for auction purposes. (Id. ¶ 11.) Prior to the auction, the Hiams and Freemans entered into a written Consignment Agreement, according to which the parties agreed to a reserve price, Freemans' commission from the sale, and that Freemans could charge a premium to the buyer. (Id. ¶¶ 11, 12.) Incorporated within the Consignment Agreement were certain Terms and Conditions of Sale ("Conditions of Sale"), one of which stated that the buyer of the vase was to make full payment within ten days of its sale. (Id. ¶¶ 12, 14.) If the buyer did not make payment within the specified ten days, the Conditions of Sale provided that Freemans could charge the buyer late, storage, and handling fees, and could cancel the sale, thereby permitting it to resell the vase or return it to the Hiams, while retaining all payments made by the buyer as liquidated damages. (Id. ¶ 14.) The Conditions of Sale likewise contained a forum selection clause, providing that all disputes arising from the parties' contractual relationship would be litigated in the Philadelphia Court of Common Pleas or the United States District Court for the Eastern District of Pennsylvania. (Id. ¶ 9.)

On March 19, 2011, Freemans auctioned off the vase in its Fine and Decorative Asian Arts Auction in Philadelphia. (Id. ¶ 15.) Wang was physically present at the event, and placed the winning bid at a hammer price of $1.2 million. (Id. ¶ 16.) Including the $185,500 buyer's premium, the total purchase price of the vase was $1,385,500. (Id.) According to Freemans, Wang identified himself as the actual buyer of the vase, and made no mention that he was serving as Liu's agent at this time. (Id.)

The buyers did not make full payment for the vase within the specified ten days of sale. (Id. ¶ 17.) Instead, Wang made several incremental payments totaling $750,000 to Freemans over the course of several months, $322,300 of which was transferred to the Hiams. (Id. ¶¶ 18--23.) According to Defendants, in light of the buyer's default, they "persistently and repeatedly" directed Freemans to cancel the sale from October 2011 onward, but were told that they had no right to cancel a sale that had already taken place. (Defs.' Mot. Dismiss 3--4.) According to Freemans, it was making "continued efforts" to collect the remaining balance due on the vase during this time. (Interpleader Compl. ¶ 19.)

In January of 2012, Wang informed Freemans for the first time that he was not the actual buyer of the vase, but rather had been acting as Liu's agent during the course of the sale. (Id. ¶ 21.) Wang further informed Freemans that Liu intended to visit Philadelphia in March of 2012, and would pay the balance due on the vase at that time. (Id.)

On February 1, 2012, Freemans sent the buyers a letter canceling the sale, citing their continuous default on their obligation to make full payment. (Id. ¶ 22.) The cancellation letter also imposed a $148,390 late charge, and provided that the $750,000 paid by the buyers thus far would be retained by Freemans as liquidated damages. (Defs.' Mot. Dismiss 4.) The cancellation letter further called for an additional payment of $818,390 from the buyers, and asserted that $35,000 in legal fees would be deducted from the amount Freemans had been retaining. (Id.) Since the time of cancellation and at present, Freemans remains in possession of both the vase and $427,700 of the total $750,000 of payments made by the buyers. (Interpleader Compl. ¶ 23.)

On February 21, 2012, the Hiams sent Freemans a Demand for Relief Letter ("the Demand Letter") seeking relief from Freemans pursuant to the Massachusetts Consumer Protection Statute, M.G.L. c. 93A §§ 1 et seq. (Id. at ¶ 25.) Specifically, the Hiams sought the immediate return of the vase, the remainder of the purchase price, and an additional unspecified amount of damages and fees. (Id.) The Demand Letter further provided that Freemans had thirty days to respond under the statute's timing requirements. (Pl.'s Resp. Opp'n 6.)

On March 12, 2012-a week prior to the expiration of the thirty-day time limit set by M.G.L. c. 93A-the Hiams filed an action against Freemans in the United States District Court for the District of Massachusetts seeking declaratory and injunctive relief and monetary damages ("the Massachusetts Action"). (Defs.' Mot. Dismiss 4.) On March 19, 2012, Freemans responded to the earlier Demand Letter in detail. (Id. at 2.) In its March 19th letter, Plaintiff informed Defendants that, due to their filing of the Massachusetts Action, it had filed the instant Interpleader Complaint in the United States District Court for the Eastern District of Pennsylvania ("the Interpleader Action" or "the Pennsylvania Action"), purporting to be a holder of two different stakes in this litigation-the valuable vase and the $427,700 amount paid by the buyer but retained by Freemans. (Id. at 2, 7.) The Interpleader Action likewise includes Wang and Liu as defendants in the instant litigation. The Interpleader Action also requests this Court to determine the rightful owner of both stakes of property, and seeks to enjoin the commencement or pursuit of any other action related to this subject matter. (Interpleader Compl. ¶ 37 A--E.) On March 26, 2012, after the thirty day time period of M.G.L. c. 93A had run, the Hiams amended their complaint in the Massachusetts Action to include a claim under the statute. (Pl.'s Resp. Opp'n 20.)

The Hiams filed the instant Motion to Dismiss the Interpleader Complaint on April 12, 2012. Freemans filed a Response in Opposition on April 26, 2012, and Defendants replied on May 3, 2012. Plaintiff filed a Sur-reply on May 10, 2012, making this issue ripe for judicial consideration.


Pursuant to Federal Rule of Civil Procedure 12(b)(6), a defendant bears the burden of demonstrating that the plaintiff has not stated a claim upon which relief can be granted. Fed. R. Civ. P. 12(b)(6); see also Hedges v. United States, 404 F.3d 744, 750 (3d Cir. 2005). In Bell Atl. Corp. v. Twombly, 550 U.S. 544 (2007), the United States Supreme Court recognized that "a plaintiff's obligation to provide the 'grounds' of his 'entitle[ment] to relief' requires more than labels and conclusions, and a formulaic recitation of the elements of a cause of action will not do." Id. at 555. It emphasized that it would not require a "heightened fact pleading of specifics, but only enough facts to state a claim to relief that is plausible on its face." Id. at 570.

In the subsequent case of Ashcroft v. Iqbal, 556 U.S. 662 (2009), the Supreme Court enunciated two fundamental principles applicable to a court's review of a motion to dismiss for failure to state a claim. First, it noted that "the tenet that a court must accept as true all of the allegations contained in a complaint is inapplicable to legal conclusions. Threadbare recitals of the elements of a cause of action, supported by mere conclusory statements, do not suffice." Id. at 678. Thus, although "[Federal] Rule [of Civil Procedure] 8 marks a notable and generous departure from the hyper-technical, code-pleading regime of a prior era . . . it does not unlock the doors of discovery for a plaintiff armed with nothing more than conclusions." Id. at 678--79. Second, the Supreme Court emphasized that "only a complaint that states a plausible claim for relief survives a motion to dismiss." Id. at 679. "Determining whether a complaint states a plausible claim for relief will . . . be a context-specific task that requires the reviewing court to draw on its judicial experience and common sense." Id.

Notwithstanding the foregoing, nothing in Twombly or Iqbal has altered some of the fundamental underpinnings of the Rule 12(b)(6) standard of review. Arner v. PGT Trucking, Inc., No. Civ.A.09-0565, 2010 WL 1052953, at *2 (W.D. Pa. Mar. 22, 2010); Spence v. Brownsville Area Sch. Dist., No. Civ.A.08-0626, 2008 WL 2779079, at *2 (W.D. Pa. July 15, 2008). Federal Rule of Civil Procedure 8 requires only a short and plain statement of the claim showing that the pleader is entitled to relief and need not contain detailed factual allegations. Fed. R. Civ. P. 8; Phillips v. Cnty. of Allegheny, 515 F.3d 224, 233 (3d Cir. 2008). Further, the court must "accept all factual allegations in the complaint as true and view them in the light most favorable to the plaintiff." Buck v. Hampton Twp. Sch. Dist., 452 F.3d 256, 260 (3d Cir. 2006). Finally, the court must "determine whether, under any reasonable reading of the complaint, the plaintiff may be entitled to relief." Pinkerton v. Roche Holdings Ltd., 292 F.3d 361, 374 n.7 (3d Cir. 2002).


The Hiams assert that the Interpleader Complaint should be dismissed because the "first-filed rule" applies under these circumstances. (Defs. Mot. Dismiss 8.) In response, Freemans asserts that Defendants' request for dismissal be denied because the facts of this case fall within several exceptions to the first-filed rule. (Pl.'s Resp. Opp'n 2.) The Court initially considers whether the first-filed rule applies in the first instance here, and, if so, will then determine whether this case falls within any of the recognized exceptions to the rule.

A. Application of the First-Filed Rule in the First Instance

The "first-filed rule" provides that: "'in all cases of federal concurrent jurisdiction, the court which first has possession of the subject must decide it.'" EEOC v. Univ. of Penn., 850 F.2d 969, 971 (3d Cir. 1988) (quoting Crosley Corp. v. Hazeltine Corp., 122 F.2d 925, 929 (3d Cir. 1941)) (further citation omitted). The date of the original complaint, rather than any amended complaint, is the determinative date for purposes of the first-filed rule. See Colony Nat'l Ins. Co. v. UHS Child. Servs., Inc., No. Civ.A.09-2916, 2009 WL 3007334, at *2 n.5 (E.D. Pa. Sept. 11, 2009) (further citation omitted). The rule was established to encourage sound judicial administration and promote comity among federal courts of equal rank. EEOC, 850 F.2d at 971. It has been recognized that "'[i]t is of obvious importance to all the litigants to have a single determination of their controversy, rather than several decisions which if they conflict may require separate appeals to different circuit courts of appeals.'" Violet Pot, LLC v. Lowe's Co., Inc., No. Civ.A.06-4138, 2007 WL 894187, at *2 (D.N.J. Mar. 20, 2007) (quoting EEOC, 850 F.2d at 974) (further citation omitted). Moreover, "due consideration to the orderly administration of justice counsels in favor of ordinarily respecting the first-filed rule." Koresko v. Nationwide Life Ins. Co., 403 F.Supp.2d 394, 400 (E.D. Pa. 2005).

The Hiams allege that the rule applies under the present circumstances. The logic of their argument is as follows: the Massachusetts Action was filed first on March 12, 2012, while the Interpleader Action was subsequently filed on March 19, 2012. Dismissal of the later-filed Interpleader Action is therefore required because both "arise from the same set of operative facts, involve the same transactions, concern the same Property and Proceeds, involve the same parties, and turn on the same set of legal issues." (Defs.' Mot. Dismiss 8.) The Hiams further allege that once the complaint was served on Freemans in the District of Massachusetts, the Interpleader Action converted into a "compulsory counterclaim." (Id. at 9.)

Under appropriate circumstances, courts should consider the first-filed and compulsory counterclaim rules jointly. See Hanover Fire & Cas. Ins. Co. v. Sieron, No. Civ.A.06-2758, 2007 WL 120058, at *3 (E.D. Pa. Jan. 9, 2007) (citing Keating Fibre Int'l, Inc. v. Weyerhaeuser Co., Inc., 416 F.Supp.2d 1048, 1053--54 (E.D. Pa. 2006)); see also Jermax, Inc. v. AK Steel Corp., No. Civ.A.09-4438, 2010 WL 2652276, at *9 (D.N.J. June 24, 2010). The general compulsory counterclaim rule is set forth in Rule 13(a) of the Federal Rules of Civil Procedure, and provides:

A pleading must state as a counterclaim any claim that-at the time of its service-the pleader has against an opposing party if the claim:

(A) arises out of the transaction or occurrence that is the subject matter of the ...

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