United States District Court, W.D. Pennsylvania
JOSEPH J. GERMINARO, an individual, and GABRIELLA P. GERMINARO, an individual, Plaintiffs,
FIDELITY NATIONAL TITLE INSURANCE COMPANY, and COMMONWEALTH LAND TITLE INSURANCE COMPANY, Defendants.
Nora Barry Fischer United States District Judge
Plaintiffs Joseph and Gabriella Germinaro commenced this action on February 6, 2014 by filing a complaint in the Los Angeles Superior Court against Defendants Lawyers Title Insurance Company, Lawyers Title Insurance Corporation (collectively, “LTIC”),  Commonwealth Land Title Insurance Corporation (“CLTIC”),  and Does 1 through 100. Plaintiffs amended their complaint and, thereafter, the matter was removed to the United States District Court for the Central District of California. Plaintiffs filed the operative Second Amended Complaint (“SAC, ” ECF No. 12) on May 14, 2014, dropping their claims against the “Doe Defendants.” On September 4, 2014, the Honorable Christina A. Snyder entered an order transferring the case to this district pursuant to 28 U.S.C. §1404(a) (ECF No. 29).
The SAC asserts claims against the named Defendants for: (1) aiding and abetting fraud; (2) fraud; (3) violation of the Racketeer Influenced and Corrupt Organizations Act, 18 U.S.C. §1961, et seq. (“RICO”); (4) breach of fiduciary duty; (5) aiding and abetting breach of fiduciary duty; (6) conversion of trust funds; (7) aiding and abetting conversion of trust funds; (8) intentional interference with a contract; (9) breach of the implied covenant of good faith and fair dealing; (10) breach of contract; and (11) negligence. These claims arise from Plaintiffs’ attempt to effectuate a tax-deferred land exchange (“1031 exchange”) pursuant to Section 1031 of the Internal Revenue Code, 26 U.S.C. §1031. As part of the 1031 exchange, Plaintiffs entrusted approximately $831, 187 to LandAmerica 1031 Exchange Services, Inc. (“LES”), an entity which filed for bankruptcy relief less than a week after the money in question was transferred. In essence, Plaintiffs allege that LTIC, CLTIC, and LES – together with their parent company, LandAmerica Financial Group, Inc. (“LFG”) – operated a Ponzi scheme. Plaintiffs claim that, as part of this scheme, Defendants LTIC and CLTIC induced the Plaintiffs to entrust their money to LES while making misrepresentations about and/or fraudulently concealing the fact that: (a) LES was on the brink of insolvency; (b) Plaintiffs’ funds were being commingled with those of other LES clients; (c) Plaintiffs’ funds were being used to complete the exchanges of LES’ pre-existing clients; and (d) Plaintiffs were at substantial risk of losing their funds by placing them with LES.
Presently pending before the Court in this matter is the Defendants’ Motion for Judgment on the Pleadings (ECF No. 49). For the reasons that follow, Defendants’ motion will be granted, in part, and denied, in part.
II. FACTUAL BACKGROUND
Plaintiffs are residents of Pittsburgh, Pennsylvania who sought to effectuate tax-deferred, like-kind exchanges of property under Section 1031 of the Internal Revenue Code. (SAC ¶¶ 11-12.) This provision allows the seller of an investment property (a “relinquished property”) to defer payment of the capital gains on the taxable proceeds of the sale of the relinquished property by using the proceeds to purchase a replacement property. (Id. ¶¶ 28-29.)
To qualify for tax-deferral treatment under §1031, the seller of the relinquished property must identify like-kind replacement property within 45 days of the sale of the relinquished property and then purchase the replacement property within 180 days from the sale of the relinquished property. (Id.) One caveat is that §1031 prohibits the seller of the relinquished property or his agents from taking actual or constructive receipt of the proceeds from the sale of the relinquished property at any time during the 180-day exchange period. (Id. ¶¶ 30-33.) Accordingly, a taxpayer can comply with the requirements of §1031, and thus preserve the tax-deferral benefit, by having a qualified intermediary (“QI”) take possession of the sale proceeds (“exchange funds”) in trust while a substitute replacement property is acquired; the QI then transfers the exchange funds directly to the escrow established to complete the purchase of the replacement property. (Id.)
In 2008, Plaintiffs attempted to execute a 1031 exchange after selling land located in Pittsburgh. (Id. ¶ 12.) Based on a recommendation from Alfred Watterson, an attorney employed by LTIC, Plaintiffs executed a 1031 exchange contract (“Exchange Agreement”) with the Los Angeles branch of LES (“LES-LA”), which agreed to serve as the QI for Plaintiffs’ exchange transaction. (Id. ¶¶ 12, 38, 39, 103-06.) Watterson designated a fellow LTIC employee, Tammy Bentz, to assist in the 2008 Exchange. (Id. ¶105.) Plaintiffs allege that, pursuant to Watterson’s recommendation, they contacted various branches of LES to obtain the best quote for the costs of effectuating the 1031 exchange and received the most favorable quote from Whitney Walters, an employee at LES-LA. (Id. ¶106.) On November 17, 2008, Plaintiffs closed the sale on the relinquished property in Pittsburgh, utilizing LTIC as their escrow holder and instructing LTIC to entrust approximately $831, 187 in net sale proceeds to LES. (Id. ¶¶ 104, 109.) Pursuant to the terms of the Exchange Agreement and Plaintiffs’ escrow instructions to LTIC, these proceeds were to be maintained by LES in a segregated, FDIC-insured deposit account with Sun Trust Bank in Richmond, Virginia. (Id. ¶¶ 47, 109.)
Just one week after closing on the sale of their relinquished property, Plaintiffs received an email notifying them that LFG and LES intended to file petitions for relief under Chapter 11 of the Bankruptcy Code. (Id. ¶¶ 109-10.) Then, on November 26, 2008, LFG and LES filed Chapter 11 petitions in the United States Bankruptcy Court for the Eastern District of Virginia. (Id. ¶110)
On December 30, 2008, Plaintiffs filed an adversary proceeding against LES in the Bankruptcy Court in which they sought to recover their exchange funds and damages. (See Defs.’ First Request for Judicial Notice (“RJN-D1”), Ex. B, ECF No. 49-1.) Plaintiffs claim they recovered substantially less than their original $831, 187 in the Bankruptcy Action (Id. ¶121.)
In May 2010, Plaintiffs filed a complaint in Pennsylvania state court (hereafter, the “Pennsylvania Action”) against Watterson and Bentz, who were involved in the 2008 Exchange. (Id. ¶ 123; RJN-D1 Ex. D.) Plaintiffs’ second amended complaint in the Pennsylvania Action asserted claims for breach of contract, negligence, breach of fiduciary duty, and fraudulent misrepresentation/nondisclosure. (RJN-D1 Ex. D.) Plaintiffs amended their complaint in the Pennsylvania Action in October 2012 to add LTIC as a defendant. (SAC ¶125; RJN-D1 Ex. E.).
In November 2010, a class action suit (hereinafter, the “Class Action”) was filed against LTIC and CLTIC in the United States District Court for the Northern District of California on behalf of persons who, like Plaintiffs, were allegedly “victimized by the LES Ponzi scheme.” (SAC ¶124; RJN-D1 Ex. H, ECF No. 49-1.) The Class Action complaint asserted claims for aiding and abetting breach of fiduciary duty, aiding and abetting conversion, negligence, breach of fiduciary duty, and constructive fraud. (RJN-D1 Ex. H.) Although the Class Action settled, Plaintiffs opted out of the settlement class in August 2012. (SAC ¶123.)
In December 2013, the tort claims against LTIC in the Pennsylvania Action were dismissed as untimely. (Id. ¶126, RJN-D1 Ex. G.) Plaintiffs then commenced the instant action against LTIC and CLTIC in February 2014.
III. Procedural Background
On September 4, 2014, Judge Snyder entered an order transferring the case to this district pursuant to 28 U.S.C. §1404(a) (ECF No. 29). Thereafter, Defendants filed a motion to dismiss the SAC (ECF No. 34). In their motion, Defendants argued that: (1) all of the Plaintiffs’ claims are time-barred; (2) the SAC fails to allege the requisite elements of a RICO claim; and (3) the SAC fails to sufficiently allege the existence of a contract for purposes of Plaintiffs’ claims premised on breach of contract, intentional interference with a contract, and implied covenant of good faith and fair dealing. This Court denied the motion on the grounds that the parties had failed to address the appropriate choice-of-law analysis in their briefing of the motion (ECF No. 45). The Court noted that Judge Snyder had transferred the case pursuant to 28 U.S.C. §1404(a) and, to that end, this Court was required to apply the choice of law principles of the transferor court. See Van Dusen v. Barrack, 376 U.S. 612, 639 (1964); Amica Mut. Ins. Co. v. Fogel, 656 F.3d 167, 171 (3d Cir. 2011), as amended (Dec. 9, 2011) (citing Ferens v. John Deere Co., 494 U.S. 516, 530-31 (1990)). Consistent with the Court’s order, Defendants filed their answer to the SAC (ECF No. 47) on November 25, 2014.
On December 5, 2014, Defendants filed the pending motion for judgment on the pleadings and supporting brief, essentially renewing the arguments previously raised in their original Rule 12(b) motion (ECF Nos. 49, 50). As before, Defendants argue that all of Plaintiffs’ claims are outside of the applicable statutes of limitations and should therefore be dismissed as untimely. Defendants next argue that the SAC fails to state a viable RICO claim because: (a) it does not allege the existence of a “person” distinct from the alleged “enterprise” and (b) it does not allege a pattern of predicate acts with sufficient particularity. Finally, as to Plaintiffs’ claims for breach of contract (Count 10) and breach of implied covenant of good faith and fair dealing (Count 9), Defendants once again seek dismissal on the grounds that the SAC fails to sufficiently allege the existence or terms of a contract, which is a necessary element for both causes of action.
In connection with their motion, Defendants filed a Request for Judicial Notice (hereafter, “RJN-D1, ” ECF No. 49-1), asking that this Court take judicial notice of the following documentary exhibits:
(A) Judge Snyder’s Minute Order transferring the instant case from the U.S. District Court for the Central District of California to this judicial district;
(B) the coversheet and complaint that was filed by Plaintiffs in LES’s bankruptcy proceeding in the U.S. Bankruptcy Court for the Eastern District of Virginia;
(C) the order of the bankruptcy court, entered on December 17, 2008, approving the purchase of CLTIC and LTIC;
(D) the second amended complaint (without exhibits) filed by Plaintiffs in the Pennsylvania Action, styled Germinaro v. Lawyers Title Ins. Corp., et al., Case No. GD 10-009332 (Allegheny County Court of Common Pleas);
(E) the third amended complaint filed by Plaintiffs in the Pennsylvania Action;
(F) the docket from the LES bankruptcy proceedings;
(G) an order of the Allegheny County Court of Common Pleas, dated December 23, 2013, granting LTIC’s motion for partial judgment on the pleadings in the Pennsylvania Action;
(H) the original complaint in the Class Action lawsuit, styled Hays, et al., v. Commonwealth Land Title Ins. Co., et al., No. 10-5336 (N.D. Cal.);
(I) the first amended complaint in the Class Action;
(J) the Plaintiffs’ brief in opposition to Defendants’ motion for partial judgment on the pleadings filed in the Pennsylvania Action;
(K) Plaintiffs’ “Opposition to Defendants’ [original] Motion to Dismiss, ” filed in the instant action while the case was still pending before Judge Snyder in the Central District of California (see ECF No. 21); and
(L) a “Stipulation Regarding the Location of Plaintiffs’ ‘Replacement Property’ Not Affecting the Progress of the Case” that was filed while this action was pending in the Central District of California (see ECF No. 16).
As the foregoing descriptions indicate, all of the documents in question were filed of record either in the instant case or in litigation related to this case.
On December 29, 2014, Plaintiffs filed their brief in opposition to the pending motion (ECF No. 54). Appended to the brief was Plaintiffs’ own Request for Judicial Notice (“RJN-P, ” ECF No. 54-2). Plaintiffs are requesting that the following documentary exhibits be judicially noticed:
(A) a 2009 publication from the LandAmerica website describing the LES/LFG bankruptcy and the sale of its primary assets (CLTIC and LTIC) to Fidelity National Financial, Inc.;
(B) a November 24, 2008 article authored by Inman News, entitled “LandAmerica Scrambling for Cash”;
(C) a November 26, 2008 Reuters article entitled “LandAmerica Files for Bankruptcy, ...