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Shah v. Harristown Development Corporation

United States District Court, Third Circuit

December 13, 2013

HASU SHAH, Plaintiff,


CHRISTOPHER C. CONNER, Chief District Judge.

This is an antitrust action filed by plaintiff Hasu Shah ("Shah") against defendants Harristown Development Corporation ("Harristown Development"), Harristown Holding Company, Inc. ("HHC"), Harristown Hotel Associates, L.P. ("HH Associates"), Harrisburg Hotel Corporation ("HH Corp."), Russell C. Ford ("Ford"), William D. Kohl ("Kohl"), 2012 Harrisburg Investment LLC ("2012 Harrisburg"), Greenwood Hospitality Group, LLC ("Greenwood"), and Thomas W. Conran ("Conran"). Shah alleges that defendants violated the Sherman Antitrust Act, 15 U.S.C. § 1, et seq. ("the Sherman Act"), and also committed several state law violations, during the sale of the Harrisburg Hilton Hotel and Towers ("the Harrisburg Hilton"). Presently before the court is defendants' motion (Doc. 30) to dismiss. For the reasons that follow, the court will grant the motion.

I. Background[1]

In 1984, Harrisburg authorities decided to create a hotel and office building complex on Market Square in downtown Harrisburg. (Id. ¶ 32). This development quickly became the "Number One' priority" for the administration of former Harrisburg Mayor Stephen Reed. (Id. ¶¶ 32-33). In October 1990, this priority became reality with the opening of the Harrisburg Hilton. (Id. ¶ 25). The opening was a major breakthrough in the reformation of the Second Street corridor of Harrisburg and a significant coup for Harrisburg city officials. According to the amended complaint, the Harrisburg Hilton has quickly become "one of the most attractive investment and development properties in downtown Harrisburg." (Id. ¶ 100).

Until June 2012, Harristown Development, through its wholly-owned subidiary HHC and its affiliates HH Associates and HH Corp., owned and operated the Harrisburg Hilton. (Doc. 28 ¶ 25). HH Associates held legal ownership of the Harrisburg Hilton. (Id. ¶ 39). HH Corp. was responsible for managing the daily affairs of HH Associates, including any matters related to the ownership and maintenance of the Harrisburg Hilton. (Id. ¶ 40). At times relevant to the amended complaint, Kohl was the President and CEO of HH Corp.; as set forth in the amended complaint, Kohl is now a principal of Greenwood, the present owner and operator of the Harrisburg Hilton. (Id. ¶¶ 7, 41). Ford is the President of both Harristown Development and HHC as well as Vice President of HH Corp. (Id.) All of these various subsidiaries and affiliates of Harristown Development ultimately consolidate under Harristown Development's umbrella for tax reporting purposes.[2] (Id. ¶ 42).

Shah is a very successful and experienced hotelier, with ownership interests in over one hundred hotels. (Id. ¶ 48-51). Shah conducts business predominantly through his various companies, Hersha Hospitality Management and Hersha Hospitality Trust. (Id. ¶¶ 50-53). Over the course of the past twenty years, Shah has repeatedly vocalized his interest in owning the Harrisburg Hilton to former Mayor Reed. (Id. ¶ 55). In 2007, former Mayor Reed and Ford allegedly advised Shah that he would be "the first to be called" if the Harrisburg Hilton ever became available for sale because he was "an obvious choice" to purchase it. (Id. ¶¶ 57, 60). However, Ford and Shah never discussed a specific "price or process" for the sale of the Harrisburg Hilton. (Id. ¶ 60).

On June 29, 2012, HH Associates sold the Harrisburg Hilton to 2012 Harrisburg, a subsidiary of Greenwood, for $21.5 million dollars. (Id. ¶ 46, 63). According to the amended complaint, this purchase price is "substantially below" the property's market value. (Id. ¶¶ 46, 74, 75, 78, 115). Conran is a principal of Greenwood. (Id. ¶ 10). Shah alleges that Conran provided Kohl with an ownership interest in Greenwood "as a quid pro quo" for Kohl "to deliver" the Harrisburg Hilton to Greenwood. (Id. ¶¶ 86, 93-96). The amended complaint also alleges that Ford and Kohl used their "insider positions" and acted in concert to "fix the sale price" and "push through the sale" of the Harrisburg Hilton to Greenwood. (Id. ¶¶ 73, 96, 98, 107)

The amended complaint lists a number of motivations catalyzing the sale. (Id. ¶¶ 87-106). For example, it states that, had Shah purchased the Hilton, Kohl "could well have found himself out of a job." (Id. ¶¶ 88, 91). The sale to Greenwood provided Kohl with an opportunity to leave his "charitable perch" and move to the "for-profit" world where he could enjoy a "substantial salary" and profit from Greenwood's operation. (Id. ¶ 101). The amended complaint further asserts that Ford would have had "no further purpose" if Shah had purchased the hotel because Harristown Development "would have become obsolete." (Id. ¶¶ 92, 106).

The amended complaint also alleges that a number of different people were harmed by the Harrisburg Hilton sale. Shah was allegedly harmed because he was denied "the promised opportunity" to purchase the Harrisburg Hilton and "derive revenues and profits" from its operation. (Id. ¶ 108). Nearby property owners were purportedly harmed because the below-market-value sale caused nearby property values to be "artificially depressed." (Id. ¶ 109). According to the amended complaint, other hotel owners in the area were similarly harmed "because hotels are valued with regard to comparable sales." (Id. ¶¶ 110, 116). Finally, the amended complaint alleges that the below-market sale ensures that no competitor will be able to construct a new hotel in downtown Harrisburg because it would be "cost prohibitive." (Id. ¶ 118).

On November 2, 2012, Shah filed a complaint against all defendants alleging an agreement and a conspiracy to restrain trade and commerce in violation of § 1 of the Sherman Act, as well as state tort violations of tortious interference with prospective business relations, unfair competition, and civil conspiracy. (Doc. 1). Following defendants' initial motion (Doc. 10) to dismiss, Shah filed an amended complaint (Doc. 28) alleging additional antitrust violations under § 2 of the Sherman Act. Defendants filed the instant motion (Doc. 30) to dismiss on March 25, 2013. The motion is fully briefed and ripe for disposition.

II. Standard of Review

Rule 12(b)(6) of the Federal Rules of Civil Procedure provides for the dismissal of complaints that fail to state a claim upon which relief may be granted. FED. R. CIV. P. 12(b)(6). When ruling on a motion to dismiss under Rule 12(b)(6), the court must "accept all factual allegations as true, construe the complaint in the light most favorable to the plaintiff, and determine whether, under any reasonable reading of the complaint, the plaintiff may be entitled to relief." Gelman v. State Farm Mut. Auto. Ins. Co. , 583 F.3d 187, 190 (3d Cir. 2009) (quoting Phillips v. County of Allegheny , 515 F.3d 224, 233 (3d Cir. 2008)); see also Kanter v. Barella , 489 F.3d 170, 177 (3d Cir. 2007) (quoting Evancho v. Fisher , 423 F.3d 347, 350 (3d Cir. 2005)).

Federal notice and pleading rules require the complaint to provide "the defendant fair notice of what the... claim is and the grounds upon which it rests." Phillips , 515 F.3d at 232 (quoting Bell Atl. Corp. v. Twombly , 550 U.S. 544, 555 (2007)). To test the sufficiency of the complaint in the face of a Rule 12(b)(6) motion, the court must conduct a three-step inquiry. See Santiago v. Warminster Twp. , 629 F.3d 121, 130-31 (3d Cir. 2010). In the first step, "the court must tak[e] note of the elements a plaintiff must plead to state a claim.'" Id . (quoting Ashcroft v. Iqbal , 556 U.S. 662, 675 (2009)). Next, the factual and legal elements of a claim should be separated; well-pleaded facts must be accepted as true, while mere legal conclusions may be disregarded. Id .; see also Fowler v. UPMC Shadyside , 578 F.3d 203, 210-11 (3d Cir. 2009). Once the court isolates the well-pleaded factual allegations, it must determine whether they are sufficient to show a "plausible claim for relief." Iqbal , 556 U.S. at 679 (citing Twombly , 550 U.S. at 556); Twombly , 550 U.S. at 555 (requiring plaintiffs to allege facts sufficient to "raise a right to relief above the speculative level"). A claim "has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged." Iqbal , 556 U.S. at 678. When the complaint fails to present a prima facie case of liability, courts should generally grant leave to amend before dismissing a complaint. See Grayson v. Mayview State Hosp. , 293 F.3d 103, 108 (3d Cir. 2002); Shane v. Fauver , 213 F.3d 113, 116-17 (3d Cir. 2000).

III. Discussion

Defendants seek to dismiss the entirety of Shah's amended complaint, asserting that Shah fails to state a claim for antitrust violations under §§ 1 and 2 of the Sherman Act and for the state law claims of tortious interference with prospective business relations, unfair competition, and civil conspiracy. Defendants also allege that the amended complaint fails to plead the antitrust claims ...

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