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Lieberman v. Corporacion Experienca Unica, S.A.

United States District Court, E.D. Pennsylvania

December 27, 2016

RICHARD LIEBERMAN, Plaintiff,
v.
CORPORACION EXPERIENCA UNICA, S.A., et al., Defendants. RICHARD KREIBICH, et al., Plaintiffs,
v.
PLAYA DULCE VIDA, S.A., et al., Defendants.

          MEMORANDUM

          EDUARDO C. ROBRENO, J.

         I. FACTUAL BACKGROUND AND PROCEDURAL HISTORY ................. 2

         II. MOTION FOR JUDGMENT ON THE PLEADINGS ...................... 7

         III. MOTION FOR SUMMARY JUDGMENT .............................. 11

         A. Breach of Contract .................................. 13

         1. Timeliness ..................................... 14

         2. Merits ......................................... 18

         B. Piercing the Corporate Veil ......................... 30

         C. Fraud ............................................... 39

         D. Tortious Interference ............................... 41

         IV. MOTION TO APPOINT RECEIVER ............................... 44

         V. CONCLUSION ............................................... 48

         These two cases - consolidated for pretrial purposes - involve several investments in a resort located in Costa Rica. Following discovery, the parties have filed a number of motions. For the reasons that follow, the Court will: (1) deny the Motion for Judgment on the Pleadings; (2) grant in part the Motion for Summary Judgment; and (3) deny the Motion to Appoint a Receiver.

         I. FACTUAL BACKGROUND AND PROCEDURAL HISTORY

         Playa Dulce Vida, S.A. (“PDV”) is a corporation organized and existing under the laws of Costa Rica. David Callan Decl. ¶ 2, Kreibich ECF No. 33-1.[1] PDV owns and operates the Arenas Del Mar Beachfront and Rainforest Resort (“the Resort”) in Costa Rica. Id. ¶ 5.

         In 2004, Plaintiff Richard Lieberman became aware of the opportunity to invest in PDV by purchasing a condo-apartment, or unit, at the Resort. Another investor, Glenn Jampol, introduced Lieberman to Gary Haynes, [2] a real estate agent who served as PDV's representative for the sale of units at the Hotel. Second Am. Compl. ¶¶ 60-63, Lieberman ECF No. 19. Haynes informed Lieberman that PDV was not actually selling real estate, but instead was selling “preferred shares” of stock in PDV. These shares would vest a purchaser/shareholder with proprietary rights to “the full use and enjoyment” of a designated unit at the Resort - in other words, it was a timeshare agreement of sorts. Id. ¶¶ 67-68. Haynes also said that shareholders would earn income from their shares, because when a unit was not in use by its shareholder owner, it would be rented to the public by the Resort. Id. ¶ 69.

         Thereafter, in November 2004, Lieberman bought twenty-five preferred shares, representing unit 603 (“the Lieberman Unit”) at the Resort. Id. ¶¶ 65, 79-80. His purchase was memorialized by three stock certificates (collectively, “the Stock Certificates”). Id. ¶ 81. In the course of his purchase of shares, Lieberman signed a set of documents: a Reciprocal Promise of Purchase and Sale (“the PSA”), a Rental Pool Agreement (“the RPA”), the Regulations, and a Purchase/Sale Contract for Shares (“the PSCFS”) (collectively, “the Contract”). See Defs.' Mot. Summ. J. Ex. D, Kreibich ECF No. 33-4.

         The following year, Plaintiffs Richard Kreibich and Susan Kreibich (“the Kreibichs”) also learned about the opportunity to invest in the Resort. Specifically, they were introduced to Defendant David Callan, who informed the Kreibichs that he was a licensed financial advisor, an officer of PDV, a member of the PDV Board, and a member of the PDV Executive Committee. First Am. Compl. ¶¶ 54-60, Kreibich ECF No. 9. Callan explained that purchasing preferred shares would give the Kreibichs usage rights to a particular unit, as well as income from their unit's placement in the Resort rental pool. Id. ¶¶ 62-65.

         As a result, in February 2006, the Kreibichs purchased fifteen preferred shares, representing unit 501 (“the Kreibich Unit”) at the Resort. Id. ¶¶ 80, 90-95. The Kreibichs, like Lieberman, signed the Contract with PDV.

         In February 2011, several years after the Resort opened, the PDV board of directors issued a letter to the preferred shareholders (“the Preferred Shareholders Letter” or “the Letter”). Second Am. Compl. Ex. J, Lieberman ECF No. 19-3. The Letter explained that in order for the Resort to be a financial success, the company was undergoing an “important ownership restructuring.” Id. at 1. As part of the restructuring, the company offered to preferred shareholders the option to convert their preferred shares - that is, their contractual rights to their respective units at the Resort - to common stock. Id. at 3. The Letter explained that preferred shareholders who exercised that option would “continue to receive usage rights[, ] but as common shareholders.” Id. The usage rights for common shareholders were set forth in the Letter, Id. at 5, and, as the Letter noted, could “be modified by the Board of Directors, ” Id. at 3. Thus, the Letter cautioned preferred shareholders that “if usage is a critical reason for ownership, then one needs to weigh the cost/benefit analysis of giving up that usage right.” Id. The Kreibichs opted to convert their preferred shares into common shares. Kreibich First Am. Compl. ¶ 140. Lieberman did not. Lieberman Second Am. Compl. ¶ 128.

         Neither Lieberman nor the Kreibichs have received any income distributions from their respective investments in the Resort. Id. ¶ 117; Pls.' Mem. Law Opp'n at 5, Kreibich ECF No. 35. They also contend that Defendants have, in violation of the Contract, failed to provide audited financial statements for certain fiscal years. Lieberman Second Am. Compl. ¶¶ 110-12; Kreibich First Am. Compl. ¶¶ 110-14. Moreover, Lieberman claims that Defendants have breached the Contract by declining to accept or honor his attempts to reserve his Unit at particular times. Lieberman Second Am. Compl. ¶¶ 144-200.

         Lieberman filed a Complaint against PDV, Hawk Management L.P. (“Hawk Management”), and HWC, LLC (“HWC”), on June 10, 2014.[3] Lieberman ECF No. 1. He later filed a First Amended Complaint, Lieberman ECF No. 8 - which added Hawk Opportunity Fund, L.P. (“HOF”) as a defendant - and a Second Amended Complaint, [4] Lieberman ECF No. 19, which was dismissed in part, Lieberman ECF No. 31. The following claims remain in that case: (1) alter ego liability/piercing the corporate veil; (2) breach of contract; (3) conversion; (4) tortious interference with contract; (5) private nuisance; and (6) promissory estoppel.

         The Kreibichs filed a Complaint against PDV, HOF, Hawk Management, HWC, and David Callan on September 5, 2014. Kreibich ECF No. 1. They later filed a First Amended Complaint, Kreibich ECF No. 9, which was dismissed in part, Kreibich ECF No. 18. The following claims remain in that case: (1) alter ego liability/piercing the corporate veil; (2) breach of contract; (3) fraud/misrepresentation; (4) tortious interference with contract; and (5) fraud in the inducement.

         The Court consolidated these two cases for pretrial purposes.[5] Kreibich ECF No. 18. After discovery, several motions are now ripe for disposition: (1) a Motion to Appoint Receiver, filed by Lieberman and the Kreibichs, Lieberman ECF No. 45;[6] (2) a Motion for Judgment on the Pleadings, filed by Defendants, Lieberman ECF No. 57;[7] and (3) a Motion for Summary Judgment, filed by Defendants, Kreibich ECF No. 32.[8]

         II. MOTION FOR JUDGMENT ON THE PLEADINGS

         Though Defendants' motion for judgment on the pleadings was filed after their motion for summary judgment, the Court must address it first because it challenges the Court's subject matter jurisdiction.

         Federal Rule of Civil Procedure 12(c) provides that, "[a]fter the pleadings are closed - but early enough not to delay trial - a party may move for judgment on the pleadings."[9]Judgment on the pleadings is appropriate only if the moving party "clearly establishes that no material issue of fact remains to be resolved and that he is entitled to judgment as a matter of law." Society Hill Civic Ass'n v. Harris, 632 F.2d 1045, 1054 (3d Cir. 1980) (citation omitted). In reviewing a Rule 12(c) motion, a court "must view the facts presented in the pleadings and the inferences to be drawn therefrom in the light most favorable to the nonmoving party." Rosenau v. Unifund Corp., 539 F.3d 218, 221 (3d Cir. 2008) (quoting Jablonski v. Pan Am. World Airways, Inc., 863 F.2d 289, 290-91 (3d Cir. 1988)).

         In their motion for judgment on the pleadings, Defendants argue that the Court lacks subject matter jurisdiction over this case because Plaintiffs lack standing to bring it. Specifically, Defendants believe that Plaintiffs' claims are derivative, not direct, and thus that they cannot be brought in Plaintiffs' personal capacities.

         In Pennsylvania, a shareholder lacks standing "to institute a direct suit for 'a harm [that is] peculiar to the corporation and [that is] only [] indirectly injurious to [the] shareholder.'" Hill v. Ofalt, 85 A.3d 540, 548 (Pa. Super. Ct. 2014) (alterations in original) (quoting Reifsnyder v. Pittsburgh Outdoor Advertising Co., 173 A.2d 319, 321 (1961)). Instead, "such a claim belongs to, and is an asset of, the corporation." Id. This type of claim - one belonging to the corporation, rather than the shareholder - is called a derivative claim.

         In order to have standing to bring a direct suit -that is, to sue individually, rather than on behalf of the corporation - a shareholder "must allege a direct, personal injury - that is independent of any injury to the corporation -and the shareholder must be entitled to receive the benefit of any recovery." Id. "If the injury is one to the plaintiff as a stockholder and to him individually, and not to the corporation, it is an individual action." Fishkin v. Hi-Acres, Inc., 341 A.2d 95, 98 n.4 (Pa. 1975) (quoting 13 Fletcher Cyclopedia Corporations § 5911 (Perm. Ed.)).

         Accordingly, a court facing the question of whether an action is direct or derivative must approach the inquiry as follows:

. . . Whether a cause of action is individual or derivative must be determined from the nature of the wrong alleged and the relief, if any, that could result if the plaintiff were to prevail.
In determining the nature of the wrong alleged, the court must look to the body of the complaint, not to the plaintiff's designation or stated intention. The action is derivative if the gravamen of the complaint is injury to the corporation, or to the whole body of its stock or property without any severance or distribution among individual holders, or if it seeks to recover assets for the corporation or to prevent dissipation of its assets .... If damages to a shareholder result indirectly, as the result of any injury to the corporation, and not directly, the shareholder cannot sue as an individual.

Hill, 85 A.3d at 549 (quoting 12B Fletcher Cyclopedia of the Law of Corporations § 5911 (2013). "If the court determines that a claim is actually derivative in nature, the plaintiff is precluded from proceeding directly." Resh v. Bortner, No. 16-02437, 2016 WL 6834104, at *5 (E.D. Pa. Nov. 21, 2016).

         Looking to the bodies of Plaintiffs' complaints, as well as the relief they seek, it is evident that Plaintiffs allege direct, rather than derivative, claims.

         First, Plaintiffs are not alleging any injury to PDV. In many derivative suits, for example, shareholders argue that they have been injured by the devaluing of their investments due to poor decisions that have harmed the corporation - that is, that others have injured the corporation and the shareholders have suffered as a result. See Kauffman v. Dreyfus Fund, Inc., 434 F.2d 727, 732 (3d Cir. 1970) ("A stockholder of a corporation does not acquire standing to maintain an action in his own right, as a shareholder, when the alleged injury is inflicted upon the corporation and the only injury to the shareholder is the indirect harm which consists in the diminution in value of his corporate shares resulting from the impairment of corporate assets."); Resh, 2016 WL 6834104, at *6. Here, in contrast, the injuries alleged by Plaintiffs were inflicted directly on the shareholders, by the corporation. Indeed, Plaintiffs could not even conceivably bring these claims on behalf of PDV because they implicitly claim that PDV benefited from - and was not harmed by - the actions at issue. In short, then, Plaintiffs' claims are "independent of any injury to the corporation." Hill, 85 A.3d at 548.

         Second, Plaintiffs would be "entitled to receive the benefit of any recovery." Id. The requested recovery would not go to PDV, where it would trickle down to Plaintiffs in the form of increased stock value, but instead would go directly to Plaintiffs.

         Therefore, Plaintiffs' claims are direct, rather than derivative, and Plaintiffs have standing to pursue them.

         III. MOTION FOR SUMMARY JUDGMENT

         Summary judgment is appropriate if there is no genuine dispute as to any material fact and the moving party is entitled to judgment as a matter of law. Fed.R.Civ.P. 56(a). "A motion for summary judgment will not be defeated by 'the mere existence' of some disputed facts, but will be denied when there is a genuine issue of material fact." Am. Eagle Outfitters v. Lyle & Scott Ltd., 584 F.3d 575, 581 (3d Cir. 2009) (quoting Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247 (1986)). A fact is "material" if proof of its existence or nonexistence might affect the outcome of the litigation, and a dispute is "genuine" if "the evidence is such that a reasonable jury could return a verdict for the nonmoving party." Anderson, 477 U.S. at 248.

         The Court will view the facts in the light most favorable to the nonmoving party. "After making all reasonable inferences in the nonmoving party's favor, there is a genuine issue of material fact if a reasonable jury could find for the nonmoving party." Pignataro v. Port Auth., 593 F.3d 265, 268 (3d Cir. 2010). In short, the essential question is "whether the evidence presents a sufficient disagreement to require submission to a jury or whether it is so one-sided that one party must prevail as a matter of law." Anderson, 477 U.S. at 251-52.

         Defendants move to dismiss some, but not all, of the claims in these two cases.[10] Each of Defendants' arguments is analyzed in turn below.

         A. Breach of Contract

         Both Lieberman and the Kreibichs bring breach of contract claims. Lieberman contends that Defendants breached the Contract by: (1) failing to provide audited financial statements for fiscal years 2004 to 2006 and 2011 until at least 2014, Lieberman Second Am. Compl. ¶¶ 221-23; (2) using improper accounting methodologies to arrive at a net income that allows Defendants to avoid paying income distributions to Lieberman, id. ¶¶ 224-28; and (3) "unilaterally and secretly modifying the terms of" the Contract in order to refuse Lieberman access to his Unit, id. ¶¶ 230-31. The Kreibichs contend that Defendants breached the Contract by: (1) failing to provide audited financial statements for fiscal years 2011, 2012, and 2013, Kreibich First Am. Compl. ¶¶ 170-71; and (2) using improper accounting methodologies to arrive at a net income that allows Defendants to avoid paying income distributions to the Kreibichs, id. ¶¶ 172-75.

         Defendants move for summary judgment on only a portion of these breach of contract claims: the claim that Defendants breached the Contract by manipulating PDV s accounting in such a way that allowed PDV to avoid paying distributions to its preferred shareholders, including Lieberman and the Kreibichs. Defendants argue that this claim is (1) barred by the statute of limitations, and (2) foreclosed by the language of the Contract.

         1. Timeliness

         First, Defendants argue that this breach of contract claim is untimely.

         The parties agree that Pennsylvania's four-year statute of limitations applies to this claim.[11] See 42 Pa. Const. Stat. Ann. § 5525(a). But they appear to disagree about when the claim accrued, such that the statute of limitations began to run. See Gleason v. Borough of Moosic, 15 A.3d 479, 484 (Pa. 2011) ("Generally, a statute of limitations period begins to run when a cause of action accrues; i.e., when an injury is inflicted and the corresponding right to institute a suit for damages arises.").

         Curiously, Defendants do not actually state a specific date on which they believe this claim accrued. They suggest that it may have accrued sometime in 2008, because "there is no question that Plaintiffs[] were aware that PDV had financial issues in 2008" but "did nothing for seven years until filing these actions." Defs.' Mem. Law at 13, Kreibich ECF No. 32. But this is not a coherent argument concerning the accrual of the breach of contract claim; the claim is not about PDV s "financial issues" generally, but PDVs specific failure to pay distributions from the rental pool. To that end, Defendants do state that distributions, if any, should have been paid on November 2 9, 2008; November 2 9, 2009; and November 2 9, 2010. Id.[12] Again, though, they do not explain how any or all of these dates impact the statute of limitations - an important omission, because those dates have different implications.

         Most obviously, any claim for distributions that should have been paid on November 29, 2010, is not time-barred, because Plaintiffs filed their claims on June 10, 2014 (Lieberman), and September 5, 2014 (the Kreibichs) - within the ...


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