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Allegheny Valley Bank of Pittsburgh v. Potomac Educational Foundation, Inc.

United States District Court, W.D. Pennsylvania

March 9, 2015

ALLEGHENY VALLEY BANK OF PITTSBURGH, a Pennsylvania financial Institution, Plaintiff,
POTOMAC EDUCATIONAL FOUNDATION, INC., a Delaware Corporation doing business as) Re UNIVERSITY OF FAIRFAX; VIENNA EDUCATIONAL SERVICES, INC., a Delaware Corporation; CHRISTOPHER FEUDO, an individual; ROGER C. GURNER, an individual; HUGH KOMINARS, an individual; THOMAS SAPIENZA, an individual; WILLIAM J. SOLOMON, an individual; DAVID OXENHANDLER, an individual; JOAN DALY, an individual, Defendants.


MAUREEN P. KELLY, Chief Magistrate Judge.

Pending before the Court is the "Motion to Dismiss Under Rule 12(b)(2) and 12(b)(6) and/or in Alternative Motion for Summary Judgment, Filed on behalf of Christopher V. Feudo, Roger A. Gurner, Hugh Kominars, Thomas Sapienza, William J. Solomon, David Oxenhandler and Joan Daly, " (ECF No. 58), seeking dismissal of this action against each of the individual defendants for lack of in personam jurisdiction, failure to state a claim for breach of contract, and because Plaintiff's claims for negligence and negligent misrepresentation are barred by the "gist of the action" doctrine.

For the following reasons, the Motion to Dismiss pursuant to Rule 12(b)(2) for lack of personal jurisdiction is granted as to Christopher V. Feudo, Roger A. Gurner, Hugh Kominars, Joan Daly and David Oxenhandler, but is denied as to Thomas Sapienza and William J. Solomon. The Motion to Dismiss pursuant to Rule 12(b)(6) for failure to state at claim at Counts I and II (Breach of Contract) is granted as to Defendants Sapienza and Solomon. The Motion to Dismiss pursuant to Rule 12(b)(6) for failure to state a claim at Count III (Negligence and Negligent Misrepresentation) is granted as to Defendant Sapienza and is denied as to Defendant Solomon.


Allegheny Valley Bank of Pittsburgh ("Plaintiff"), a Pennsylvania financial institution, commenced this action with the filing of a Complaint (ECF No. 1) against Potomac Educational Foundation, Inc., d/b/a/University of Fairfax (the "University") and Vienna Educational Services, Inc., a non-profit organized under the laws of the State of Delaware, with headquarters in the County of Fairfax, in Vienna, Virginia, (collectively, "the University Defendants"). Plaintiff also names as defendants Christopher V. Feudo, Roger A. Gurner (incorrectly identified as "Roger C. Gurner"), Hugh Kominars, Thomas Sapienza, William J. Solomon, David Oxenhandler and Joan Daly (the "Individual Defendants").[1]

The Individual Defendants initially responded to the Complaint by filing a Motion to Dismiss under Rule 12(b)(2) and 12(b)(6) for Lack of Jurisdiction and Failure to State a Claim. (ECF No. 34). Defendants argued that this Court lacked personal jurisdiction over Defendants Feudo, Daley, Gurner and Kominars, who are residents of Virginia; Defendant Oxenhandler, who is a resident of Colorado; and Defendant Solomon, who is a resident of New York. The Court permitted the parties to conduct discovery relative to the issue of this Court's exercise of personal jurisdiction over each of the Individual Defendants, as well as the applicability of the fiduciary shield doctrine, a defense asserted on behalf of the Individual Defendants. (ECF No. 55). At the close of limited initial discovery, Defendants filed the pending Motion to Dismiss and/or in the Alternative Motion for Summary Judgment, on behalf of all Individual Defendants. (ECF No. 58). The parties have fully briefed the issues and the Motion is now ripe for consideration.

A. Loan Agreements and Alleged Financing Irregularities

This dispute stems from two Loan Agreements executed by the Defendant University, to provide financing for software systems and equipment leases to be used by the Defendant University's graduate studies program in HIPAA Compliance.[2]

Loan Agreement No. 1 was in the principal amount of $262, 960.00, and was entered into between the Defendant University and AEL Financial, LLC, an Illinois financial institution. Under Loan Agreement No. 1, the Defendant University agreed that all of the information provided to the lender was true and correct, and prepared in accordance with generally accepted accounting principles. The agreement transferred and granted a license to the lender in all of the Defendant University's rights to use the software, goods or products after the occurrence of an "Event of Default." AEL's security interest in the collateral was registered with a UCC Financing Statement filed with the Delaware Department of State on September 6, 2011.

On September 8, 2011, Allegheny Valley Bank and AEL entered into an Assignment Agreement, whereby AEL assigned to Allegheny Valley Bank all of its rights, title and interest in Loan Agreement No. 1, and in any and all collateral for the loan, as well as in all payments due under the Loan Agreement. An Amendment to the UCC Financing Statement was filed in the Delaware Department of State, identifying Allegheny Valley Bank as the secured party to the previously designated loan collateral.

One year later, the University and Allegheny Valley Bank entered into Loan Agreement No. 2, a second financing transaction, by way of an equipment "Lease Agreement" for the principal amount of $296, 670.60. The terms of the Lease Agreement gave Allegheny Valley Bank a purchase money security interest in the equipment, and the Defendant University was obligated to keep the equipment free of all liens and encumbrances. Allegheny Valley Bank perfected its security interest in the equipment by filing UCC Financing Statements in Virginia, Maryland and Pennsylvania.

Allegheny Valley Bank, as assignee for Loan Agreement No. 1, and as direct lender for Loan Agreement No. 2, alleges that the Defendant University, with the participation of the Individual Defendants, presented financial statements that misrepresented the value of the software and equipment, and grossly overstated the value of the Defendant University's assets at approximately $12 million dollars. In addition, Allegheny Valley Bank alleges that the Defendant University participated in a scheme to improperly transfer funds to entities in which some of the Individual Defendants had a personal interest. In particular, some funds were transferred to Secureant, an entity for which Defendant Feudo acted as President and CEO, and some funds were transferred to Titan Youth Development Co. ("Titan"), an entity for which Defendant Solomon acted as President. At the time certain transfers were made, both men were serving as members of the University's Board of Directors, with Defendant Feudo serving as President of the University and Defendant Solomon serving as Treasurer of the University. Allegheny Valley Bank alleges the relationships with Secureant and Titan were not disclosed on any financial statements submitted to either AEL or Allegheny Valley Bank prior to entering into the Loan Agreements.

Allegheny Valley Bank alleges that funds transferred to Secureant and Titan were then "pledged" back to the University; however, not all of the money pledged was paid to the University, leaving the University substantially undercapitalized. The pledges were listed on financial statements in their full value as "pledged contribution receivables" or "donated property." In addition, the transactions were structured and then depicted on financial statements so that it would appear that new independent capital flowed from Secureant and Titan to the University, to lend credence to line items for future "pledged contributions, " which were listed at full value.

In December 2012, the Defendant University failed to pay amounts due under the loan documents. Allegheny Valley Bank received notice that the Defendant University's bank account had been "frozen" as a result of default on a loan held with another financial institution. Allegheny Valley Bank also learned that the representations made by the Defendants regarding existing and future capital were false. Further, upon completion of a sale of the Defendant University and its assets, Allegheny Valley Bank learned the software and equipment in which it held a security interest had "little residual value." Allegheny Valley Bank has been unable to collect any amounts due it under Loan Agreement Nos. 1 and 2.

With particular relevance to the pending Motion to Dismiss, Allegheny Valley Bank alleges that the Defendant University, by and through its officers and directors, breached its duty under the Loan Documents by misreporting the financial status of the Defendant University in such a manner as to conceal the true financial condition to both AEL and Allegheny Valley Bank. Allegheny Valley Bank seeks to hold the Individual Defendants jointly and severally liable for breach of contract, "after allowing for the piercing of the corporate veil of the University, " to permit recovery of the amounts of the loans, plus additional damages provided for under the loan documents. Alternatively, Allegheny Valley Bank alleges that as a result of the Individual Defendants' conduct, it sustained damages arising out of their negligent misrepresentation of the Defendant University's financial condition. Allegheny Valley Bank alleges that the Individual Defendants breached their fiduciary duties to the University by acting to conceal the relative insolvency of the University in order to induce the banks to enter into loan transactions, and otherwise failed to report material information regarding their own personal interests in University financial transactions.


A. Rule 12(b)(2)

Federal Rule of Civil Procedure 12(b)(2) allows a party to seek dismissal of a complaint or any portion of a complaint for lack of personal jurisdiction over the defendant. In ruling on a Rule 12(b)(2) motion, "a court must accept the plaintiff's allegations as true and draw in the plaintiff's favor all reasonable inferences supported by the well-pleaded factual allegations." Arrington v. Colortyme, Inc., 972 F.Supp.2d 733, 739 (W.D. Pa. 2013) (citing Carteret Sav. Bank, FA v. Shushan, 954 F.2d 141, 151 n. 1 (3d Cir. 1992)). The court need not limit the scope of its review to the pleadings and instead must consider affidavits and other competent evidence submitted by the parties. Patterson by Patterson v. F.B.I., 893 F.2d 595, 603-04 (3d Cir. 1990); Time Share Vacation Club v. Atl. Resorts, Ltd., 735 F.2d 61, 66 n. 9 (3d Cir. 1984). Once the defendant raises a question of personal jurisdiction, the plaintiff bears the burden of establishing the court's jurisdiction over the defendant. Miller Yacht Sales, Inc. v. Smith, 384 F.3d 93, 97 (3d Cir. 2004); Metcalfe v. Renaissance Marine Inc., 566 F.3d 324, 330 (3d Cir. 2009).

B. Rule 12(b)(6)

In considering a Rule 12(b)(6) motion, federal courts require notice pleading, as opposed to the heightened standard of fact pleading. Fed.R.Civ.P. 8(a)(2) requires only "a short and plain statement of the claim showing that the pleader is entitled to relief, ' in order to give the defendant fair notice of what the... claim is and the grounds on which it rests.'" Bell Atlantic Corp. v. Twombly, 550 U.S. 554, 555 (2007) (quoting Conley v. Gibson, 355 U.S. 41, 47 (1957)).

Building upon the landmark United States Supreme Court decisions in Twombly and Ashcroft v. Iqbal, 556 U.S. 662 (2009), the United States Court of Appeals for the Third Circuit explained that a District Court must undertake the following three steps to determine the sufficiency of a complaint: first, the court must "tak[e] note of the elements a plaintiff must plead to state a claim." Second, the court should identify allegations that, "because they are no more than conclusions, are not entitled to the assumption of truth." Third, "whe[n] there are well-pleaded factual allegations, a court should assume their veracity and then determine whether they plausibly give rise to an entitlement for relief." This means that our inquiry 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) (quoting Iqbal, 556 U.S. at 675, 679). The third step of the sequential evaluation requires this Court to consider the specific nature of the claims presented and to determine whether the facts pled to substantiate the claims are sufficient to show a "plausible claim for relief." Fowler v. UPMC Shadyside, 578 F.3d 203, 210 (3d Cir. 2009). "While legal conclusions can provide the framework of a Complaint, they must be supported by factual allegations." Id. at 210-11; see also Malleus, 641 F.3d at 560. This Court may not dismiss a Complaint merely because it appears unlikely or improbable that Plaintiff can prove the facts alleged or will ultimately prevail on the merits. Twombly, 550 U.S. at 563 n.8. Instead, this Court must ask whether the facts alleged raise a reasonable expectation that discovery will reveal evidence of the necessary elements. Id. at 556. Generally speaking, a Complaint that provides adequate facts to establish "how, when, and where" will survive a motion to dismiss. Fowler, 578 F.3d at 212; see also Guirguis v. Movers Specialty Servs., Inc., 346 F.Appx. 774, 776 (3d Cir. 2009). In short, a motion to dismiss should not be granted if a party alleges facts, which could, if established at trial, entitle him/her to relief. Twombly, 550 U.S. at 563, n.8.

C. Rule 56(c)

Summary judgment is appropriate if the "pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law." Fed.R.Civ.P. 56(c); see also Celotex Corp. v. Catrett, 477 U.S. 317, 322-23 (1986); Turner v. Schering-Plough Corp., 901 F.2d 335, 340 (3d Cir.1990). A factual dispute is genuine if a reasonable jury could find for the non-moving party, and is material if it will affect the outcome of the trial under governing substantive law. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986); Aetna Casualty & Sur. Co. v. Ericksen, 903 F.Supp. 836, 838 (M.D. Pa. 1995). At the summary judgment stage, "the judge's function is not himself to weigh the evidence and determine the truth of the matter but to determine whether there is a genuine issue for trial." Anderson, 477 U.S. at 249; see also Marino v. Indus. Crating Co., 358 F.3d 241, 247 (3d Cir. 2004) (a court may not weigh the evidence or make credibility determinations). Rather, the court must consider all evidence and inferences drawn therefrom in the light most favorable to the non-moving party. Andreoli v. Gates, 482 F.3d 641, 647 (3d Cir. 2007).

To prevail on summary judgment, the moving party must affirmatively identify those portions of the record which demonstrate the absence of a genuine issue of material fact. Celotex, 477 U.S. at 323-24. The moving party can discharge the burden by showing that "on all the essential elements of its case on which it bears the burden of proof at trial, no reasonable jury could find for the non-moving party." In re Bressman, 327 F.3d 229, 238 (3d Cir. 2003); see also Celotex, 477 U.S. at 325. If the moving party meets this initial burden, the non-moving party "must do more than simply show that there is some metaphysical doubt as to material facts, " but must show sufficient evidence to support a jury verdict in its favor. Boyle v. County of Allegheny, 139 F.3d 386, 393 (3d Cir. 1998) (quoting Matsushita Elec. Indus. Co. v. Zenith Radio, 475 U.S. 574, 586 (1986)). However, if the non-moving party "fails to make a showing sufficient to establish the existence of an element essential to [the non-movant's] case, and on which [the non-movant] ...

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