United States District Court, M.D. Pennsylvania
SMITH & MORRIS HOLDINGS, LLC, MICHAEL C. MORRIS, and STEPHEN G. SMITH, Plaintiffs,
SCOTT J. SMITH, et al., Defendants.
A. RICHARD CAPUTO, District Judge.
Presently before the Court is the Motion to Dismiss (Doc. 16) filed by Defendants Scott J. Smith, F.J. Monaghan, James L. Brennan, Jr., Juanita Pisano, Bill Canfield, Robert Jennings, Tiffany S. Kominski, Carolyn J. Lorent, Harry Devrieze,  and the Borough of Honesdale (collectively, "Defendants"). Pursuant to 42 U.S.C. § 1983, Plaintiffs Smith & Morris Holdings, LLC ("Smith & Morris Holdings"), Michael C. Morris ("Morris"), and Stephen G. Smith ("Smith") (collectively, "Plaintiffs") allege that Defendants violated their rights under the Fifth, Sixth, and Fourteenth Amendments to the United States Constitution. Plaintiffs also assert federal law claims under 42 U.S.C. § 1985 and § 1986, as well as state law claims for breach of contract, inducing breach of contract, and breach of the implied covenants of good faith and fair dealings. Because Plaintiffs fail to state a claim under § 1983, § 1985, or § 1986 and there exists no affirmative justification for exercising supplemental jurisdiction over the remaining state law claims, Defendants' motion to dismiss will be granted, Plaintiffs' federal law claims will be dismissed with prejudice, and Plaintiffs' state law claims will be dismissed without prejudice.
The facts as set forth in the Complaint are as follows:
In or about May 2011, Smith & Morris Holdings and the Borough of Honesdale (the "Borough") entered into negotiations to seek a Keystone Communities Program Grant from the Pennsylvania Department of Community & Economic Development ("DCED"). ( Compl. , ¶ 16.) Smith & Morris Holdings invested substantial resources in assisting the Borough in applying to the DCED for grants and grants-to-loans for physical improvements to a building owned by Smith & Morris Holdings at 560 Main Street, Honesdale, Pennsylvania, referred to as the "Anchor Building Renovation Project." ( Id . at ¶ 17.) The Anchor Building Renovation Project was approved by the DCED and a grant was made to the Borough in the amount of $255, 076.00. ( Id . at ¶ 18.) Smith & Morris Holdings was to act as the contractor for the renovation project. ( Id . at ¶ 19.)
As part of the understanding between Smith & Morris Holdings and the Borough, "bridge funding" to commence the construction of the project was to be provided by the Dime Bank of Honesdale. ( Id . at ¶ 20.) To close the "bridge loan" with the Dime Bank, Defendants required Smith & Morris Holdings to execute a Promissory Note, a Mortgage and Security Agreement, a Construction Loan Agreement, and an Assignment of Leases and Rents to the Borough. ( Id . at ¶ 21.) Although not required by the Dime Bank, the Borough also required Morris and Smith to execute Personal Guaranty and Suretyship agreements in favor of the Borough. ( Id . at ¶ 22.) The Borough falsely represented that this was required by the Commonwealth of Pennsylvania when it was not. ( Id .)
The Construction Loan Agreement dated April 25, 2013 provides for the Borough to make disbursements pursuant to the schedule of progress payments set forth in the agreement. ( Id . at ¶ 23.) Smith & Morris Holdings submitted for payment on several occasions construction progress payment authorizations. ( Id . at ¶ 24.) Defendants, however, failed to comply with their obligations under the terms of the Grant Agreement and caused unnecessary delays in Smith & Morris Holdings receiving the approved progress payments which were due to contractors and suppliers. ( Id . at ¶¶ 25-27.) As a result, contractors and suppliers went unpaid and/or walked off the project. ( Id .) And, because of Defendants' delays, vendors demanded up-front payments and inflated quotes, causing the project's costs to increase by an average of 30% above industry standards. ( Id . at ¶ 29.)
Defendants' failure to timely complete their obligations to the DCED resulted in the Dime Bank freezing and placing Plaintiffs' bank accounts into default. ( Id . at ¶ 30.) The Dime Bank also demanded payment of the balloon payment in January 2014. ( Id . at ¶ 31.) Smith & Morris Holdings thus became incapable of conducting any business. ( Id . at ¶ 32.) Defendants' actions also forced Morris to place an additional $100, 000.00 of equity from his home to cover a new loan. ( Id . at ¶ 34.) Defendants' conduct put Plaintiffs in jeopardy of default on the investment in the project, an investor balloon payment, other loans, and caused investors to walk from the project, which cut the funding source for the operation of Plaintiffs' business. ( Id . at ¶¶ 36-39.)
As a result of Defendants' actions and Smith & Morris Holdings' inability to carry on the business, the property undergoing renovations suffered damages, including water damage due to a contractor not completing work sealing windows. ( Id . at ¶ 35.) Moreover, contractors demanded up-front payment prior to providing material and/or labor for the project. ( Id . at ¶ 40.)
Since April 2013, Defendants have continuously harassed Plaintiffs in a variety of ways, such as: permitting the Borough's legal counsel to handle matters involving Smith & Morris Holdings when that attorney was representing a contractor that claimed it was not paid by Plaintiffs; the same attorney allowing statements and letters to be read by the Borough Council into the public record; giving interviews to a local newspaper repeating these statements; and giving interviews to local newspapers denying such involvement when these Council members were at that meeting. ( Id . at ¶ 45.)
Based on the foregoing, Plaintiffs commenced this action on April 27, 2014. The Complaint consists of five Counts. Count I sets forth claims for "violations of Plaintiffs' substantive and procedural due process rights under 42 U.S.C. § 1983 and the Fifth, Sixth and Fourteenth Amendments to the United States Constitution." ( Compl. , Count I.) Count II asserts claims for "conspiracy to deprive the Plaintiffs' federally-protected rights under 42 U.S.C. § 1985 & § 1986 and the Fifth, Sixth and Fourteenth Amendments to the United States Constitution." ( Id . at Count II.) Count III asserts a breach of contract claim, while Count IV asserts a claim for inducing breach of contract. ( Id . at Counts III-IV.) Lastly, Count V alleges a breach of the implied covenants of good faith and fair dealing. ( Id . at Count V.)
On July 14, 2014, Defendants filed a motion to dismiss the Complaint in its entirety. (Doc. 16.) Defendants' brief in support of their motion to dismiss was filed on July 28, 2014. (Doc. 19.) Plaintiffs' brief in opposition was filed on August 11, 2014. (Doc. 20.) Defendants' reply brief in further support of their motion was filed on August 25, 2014. (Doc. 23.) Defendants' motion to dismiss is now fully briefed and ripe for disposition.
A. Legal Standard
Federal Rule of Civil Procedure 12(b)(6) provides for the dismissal of a complaint, in whole or in part, for failure to state a claim upon which relief can be granted. See Fed.R.Civ.P. 12(b)(6). When considering a Rule 12(b)(6) motion, the Court's role is limited to determining if a plaintiff is entitled to offer evidence in support of their claims. See Semerenko v. Cendant Corp. , 223 F.3d 165, 173 (3d Cir. 2000). The Court does not consider whether a plaintiff will ultimately prevail. See id . A defendant bears the burden of establishing that a plaintiff's complaint fails to state a claim. See Gould Elecs. v. United States , 220 F.3d 169, 178 (3d Cir. 2000).
"A pleading that states a claim for relief must contain... a short and plain statement of the claim showing that the pleader is entitled to relief." Fed.R.Civ.P. 8(a)(2). The statement required by Rule 8(a)(2) must "give the defendant fair notice of what the... claim is and the grounds upon which it rests.'" Erickson v. Pardus , 551 U.S. 89, 93, 127 S.Ct. 2197, 167 L.Ed.2d 1081 (2007) (per curiam) (quoting Bell Atl. Corp. v. Twombly , 550 U.S. 544, 555, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007)). Detailed factual allegations are not required. Twombly , 550 U.S. at 555, 127 S.Ct. 1955. However, mere conclusory statements will not do; "a complaint must do more than allege the plaintiff's entitlement to relief." Fowler v. UPMC Shadyside , 578 F.3d 203, 210 (3d Cir. 2009). Instead, a complaint must "show" this entitlement by alleging sufficient facts. Id . "While legal conclusions can provide the framework of a complaint, they must be supported by factual allegations." Ashcroft v. Iqbal , 556 U.S. 662, 129 S.Ct. 1937, 1950, 173 L.Ed.2d 868 (2009). As such, "[t]he touchstone of the pleading standard is plausability." Bistrian v. Levi , 696 F.3d 352, 365 (3d Cir. 2012).
The inquiry at the motion to dismiss stage is "normally broken into three parts: (1) identifying the elements of the claim, (2) reviewing the complaint to strike conclusory allegations, and then (3) looking at the well-pleaded components of the complaint and evaluating whether all of the elements identified in part one of the inquiry are sufficiently alleged." Malleus v. George , 641 F.3d 560, 563 (3d Cir. 2011).
Dismissal is appropriate only if, accepting as true all the facts alleged in the complaint, a plaintiff has not pleaded "enough facts to state a claim to relief that is plausible on its face, " Twombly , 550 U.S. at 570, 127 S.Ct. 1955, meaning enough factual allegations "to raise a reasonable expectation that discovery will reveal evidence of'" each necessary element. Phillips v. County of Allegheny , 515 F.3d 224, 234 (3d Cir. 2008) (quoting Twombly , 550 U.S. at 556, 127 S.Ct. 1955). "The plausibility standard is not akin to a probability requirement, ' but it asks for more than a sheer possibility that a defendant has acted unlawfully." Iqbal , 556 U.S. at 678, 129 S.Ct. 1937. "When there are well-pleaded factual allegations, a court should assume their veracity and then determine whether they plausibly give rise to an entitlement to relief." Id. at 679, 129 S.Ct. 1937.
In deciding a motion to dismiss, the Court should consider the complaint, exhibits attached to the complaint, and matters of public record. Mayer v. Belichick , 605 F.3d 223, 230 (3d Cir. 2010) (citing Pension Benefit Guar. Corp. v. White Consol. Indus., Inc. , 998 F.2d 1192, 1196 (3d Cir. 1993)). The Court may also consider "undisputedly authentic" documents when the plaintiff's claims are based on the documents and the defendant has attached copies of the documents to the motion to dismiss. Pension Benefit Guar. , 998 F.2d at 1196. The Court need not assume the plaintiff can prove facts that were not alleged in the complaint, see City of Pittsburgh v. W. Penn Power Co. , 147 F.3d 256, 263 & n.13 (3d Cir. 1998), or credit a complaint's "bald ...