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Nittany Nova Aggregates, LLC v. WM Capital Partners, LLC

United States District Court, M.D. Pennsylvania

February 27, 2017

NITTANY NOVA AGGREGATES, LLC, Plaintiff,
v.
WM CAPITAL PARTNERS, LLC and WM CAPITAL PARTNERS, XXXIX, LLC, Defendants.

          MEMORANDUM

          Matthew W. Brann, United States District Judge

         Before the Court for disposition are the following Motions: (1) Plaintiff Nittany Nova Aggregates, LLC's (“Plaintiff”) Emergency Motion for Temporary Restraining Order and for Preliminary Injunction, (2) Defendants WM Capital Partners, LLC and WM Capital Partners, XXXIX, LLC's (“Defendants”) Motion for Involuntary Dismissal of Plaintiff's Amended Complaint, and (3) Plaintiff's Cross Motion for Leave to Amend Complaint Nunc Pro Tunc. For the reasons that follow, Plaintiff's Emergency Motion for Temporary Restraining Order and for Preliminary Injunction, and Defendants' Motion for Involuntary Dismissal of Plaintiff's Amended Complaint will be denied. Plaintiff's Cross Motion for Leave to Amend Complaint Nunc Pro Tunc will be granted.

         I. BACKGROUND[1]

         The events giving rise to this dispute stem from Plaintiff's supply of products to a stone-cutting facility known as Shadow Mountain Stone and its assistance with the restructuring of a stone-cutting facility located in New Milford, Pennaylvania.

         Defendant WM Capital Partners, XXXIX, LLC (“WM 39”) is a Delaware limited liability company[2] which was formed in February 2013 for the purpose of purchasing certain loans of M&T Bank.[3] WM 39 subsequently purchased the business and real estate formerly associated with B & S Quarries.[4] This real estate included 4 contiguous parcels totaling 766.35 acres in Susquehanna County.[5] Also included within the purchase were various assets such as quarries, a saw shop, equipment, and other buildings.[6] WM 39 planned to establish a saw shop and a quarry on this acquired real estate. To further the operation of both the saw shop and quarry, WM 39 formed two operating entities: (1) WM Quarries (“WMQ”) for the quarries, [7] and (2) Shadow Mountain Stone (“SMS”) for the saw shop.[8]

         Richard Young, principal of Plaintiff Nittany Nova Aggregates, LLC, was also hired as a consultant to track down the assets of B&S Quarries and marshal them for the operation of the saw shop.[9] He later worked for a monthly stipend during the short-lived operation of the saw shop.[10]

         Plaintiff Nittany Nova Aggregates, LLC is in the aggregate stone business and supplied products, services, materials and equipment to the re-established stone cutting facility in New Milford, Pennsylvania.[11] Plaintiff specifically alleges providing the following assistance. First, because Defendants had not established credit with local vendors and suppliers, Plaintiff made payments on their behalf pursuant to Defendants' oral request.[12] Defendants, in turn, promised to compensate Plaintiff for these payments.[13] In total, Plaintiff asserts that it advanced funds[14] for material and employment services on Defendants' behalf in the sum of $ 87, 293.40.[15] Defendants have since repaid $ 79, 709.40 dollars, leaving a balance of $ 7, 584.00.[16]

         Second, as part of its contractual obligations, Plaintiff also sold equipment on Defendants' behalf which Defendants had obtained as part of their business asset acquisition from B & S Quarries.[17] Defendants, in return, promised to invest the proceeds from this sale in the business to ensure proper capitalization.[18]

         Third and finally, Plaintiff also assisted in the restructuring of the New Milford property as a stone-cutting facility by supplying it with various types of rock.[19] From February 2015 through September 2015, Plaintiff supplied Defendants with $ 954, 895.69 worth of stone and materials.[20] Defendants paid for these materials[21] through August 2015 in the sum of $ 583, 078.51.[22] There remains, however, an unpaid balance of $ 371, 817.18 owed to Plaintiff for products delivered and received by Defendants' employees.[23]

         This action was commenced by Complaint on January 22, 2016.[24]Defendants thereafter filed a Motion to Dismiss said Complaint on May 3, 2016.[25]The Court partially granted this Motion on October 26, 2016, and, in so doing, gave Plaintiff twenty-one days from that date in which to file an Amended Complaint re-asserting dismissed tort claims.[26] Plaintiff thereafter filed an Amended Complaint on November 30, 2016, [27] and the currently pending Emergency Motion for Temporary Restraining Order and for Preliminary Injunction on December 8, 2016.[28]

         Plaintiff's request for the imposition of a preliminary injunction stems from an online auction held on December 13, 2016 which Plaintiff avers depleted all of Defendants' remaining assets.[29] The Court held numerous telephonic conferences thereafter, [30] in which the parties agreed that proceeds from the auction would be held in the escrow account of Defendants' attorney pending the disposition of the motion for preliminary injunction.[31] On January 5, 2017, the Court held a hearing on the pending motion for a preliminary injunction.[32] In accord with a Court directive, the parties subsequently filed briefs on supplemental issues on January 20, 2017.[33] These matters are now ripe for disposition.

         II.DISCUSSION

         The Motions before the Court address two distinct issues. The first issue concerns the propriety of the November 20, 2016 Amended Complaint and is addressed in both Defendants' Motion for Involuntary Dismissal of Plaintiff's Amended Complaint and Plaintiff's Cross Motion for Leave to Amend Complaint Nunc Pro Tunc. The second issue pertains to the appropriateness of injunctive relief concerning the auction proceeds and is addressed by Plaintiff's Emergency Motion for Temporary Restraining Order and for Preliminary Injunction. Because a merits determination under the preliminary injunction standard necessarily depends on the averments contained within a complaint, logic dictates that I first address the propriety of the November 20, 2016 Amended Complaint. My disposition therefore is as follows.

         A. Defendants' Motion for Involuntary Dismissal of Plaintiff's Amended Complaint/Plaintiff's Cross Motion for Leave to Amend Complaint Nunc Pro Tunc

         i. Law

         Federal Rule of Civil Procedure 41(b) provides:

If the plaintiff fails to prosecute or to comply with these rules or a court order, a defendant may move to dismiss the action or any claim against it. Unless the dismissal order states otherwise, a dismissal under this subdivision (b) . . . operates as an adjudication on the merits.[34]

         The United States Court of Appeals for the Third Circuit has articulated six factors for a court to consider when pondering dismissal under Rule 41(b):

(1) the extent of the party's personal responsibility;
(2) the prejudice to the adversary caused by the failure to meet scheduling orders and respond to discovery;
(3) a history of dilatoriness;
(4) whether the conduct of the party or the attorney was willful or in bad faith;
(5) the effectiveness of sanctions other than dismissal, which entails an analysis of alternative sanctions; and
(6) the meritoriousness of the claim or defense.[35]

         “In balancing these factors, there is no ‘magic formula, ' nor must they all be satisfied.”[36] “[N]o single Poulis factor is dispositive.”[37] Finally, when considering the imposition of this extreme sanction, courts should resolve all doubts “in favor of reaching a decision on the merits.”[38]

         ii. Analysis

         Having considered the above Poulis factors as they relate to Plaintiff's failure to timely file its Amended Complaint, I find that dismissal of this action for failure to comply with my October 26, 2016 Order is not warranted

         (1) The Extent of the Party's Personal Responsibility

         In my October 26, 2016 Order addressing Defendants' original Motion to Dismiss, I granted Plaintiff “leave to file an Amended Complaint within twenty-one (21) days of the date of this Order re-asserting the dismissed tort claims.”[39]Plaintiff thereafter filed an Amended Complaint thirty-five days later, on November 30, 2016. Rather than re-assert with a greater factual basis the dismissed tort claims, this Amended Complain instead more logically relayed the factual background of the case and added a claim of quantum meruit.[40] It was, therefore, in violation of my Court order which made explicit that amendment was to occur within twenty-one days and was limited to allow Plaintiff to re-assert dismissed tort claims.

         Despite this clear non-compliance and Defendants' arguments concerning this factor, I find that Plaintiff cannot be held personally responsible for this error. The myriad of cases finding that this factor weighs in favor of this dismissal involve pro se plaintiffs whose failures are undoubtedly their own.[41] Here, Plaintiff is represented by counsel. Therefore, although “a client cannot always avoid the consequences of the acts or omissions of its counsel, ”[42] I find that this error cannot be attributed to Plaintiff because it was procedural in nature and beyond the knowledge of the lay man. This factor therefore weighs against dismissal.

         (2) The Prejudice to the Adversary

         In ruling on a Motion for Involuntary Dismissal pursuant to Federal Rule of Civil Procedure 41(b), “[e]vidence of prejudice to an adversary ‘would bear substantial weight in support of a dismissal or default judgment.' ”[43] Such prejudice may be inflicted through “the irretrievable loss of evidence, the inevitable dimming of witnesses' memories, or the excessive and possibly irremediable burdens or costs imposed on the opposing party.”[44]

         In the instant matter, Defendants can point to no real prejudice suffered by the admittedly untimely filing of Plaintiff's Amended Complaint. Specifically, because my Opinion of October 26, 2016 only partially dismissed Plaintiff's Complaint, [45] this matter was set to advance into discovery regardless of whether an Amended Complaint was filed. Furthermore, although Defendants argue that they would have answered with affirmative defenses had Plaintiff not filed the untimely Amended Complaint, I note that the unique procedural history of this case and the recently held preliminary injunction hearing have nevertheless allowed them to assert defenses to this action in a meaningful manner. Therefore, because Defendants cannot establish prejudice resulting from this very limited delay, I find that this factor also weighs against dismissal.

         (3) A History of Dilatoriness

         “Extensive or repeated delay or delinquency constitutes a history of dilatoriness, such as consistent non-response to interrogatories, or consistent tardiness in complying with court orders.”[46] In analyzing whether this condition is met, the Third Circuit has stipulated that “a party's problematic acts must be evaluated in light of its behavior over the life of the case.”[47] As such, “conduct that occurs one or two times is insufficient to demonstrate a history of dilatoriness.”[48]

         Taken as whole, Plaintiff's conduct does not demonstrate a history of dilatoriness. First, the untimely filing of the Amended Complaint is Plaintiff's first incident of untimeliness in response to a court order. Defendants argue that Plaintiff (1) had previously improperly tried to serve the complaint and summons by way of certified mail, and (2) had improperly engaged in discovery in violation of Federal Rule of Civil Procedure 26.[49] However, I note that both of these allegations occurred prior to the entry of appearance of Plaintiff's current counsel and have not really delayed the instant proceedings.[50] Furthermore, even if I were to credit these instances, I still find that they are, without more, insufficient to demonstrate a history of dilatory conduct in a matter which has thus far required extensive legal work to counter.

         (4) Willful or Bad Faith Conduct

         To determine whether a party acted in bad faith, the court looks for “flagrant bad faith, ” or “intentional or self-serving behavior” going beyond mere negligence.[51] Here, based on the explanation provided by Plaintiff concerning its non-compliance, I cannot find that Plaintiff's conduct rose beyond negligence to the level of “flagrant bad faith.” Specifically, while Plaintiff's explanation for its ultimately filing was ultimately erroneous, I cannot find that it demonstrates a level justifying dismissal.[52] This factor therefore weighs against granting Defendants' Motion.

         (5) The Effectiveness of Alternative Sanctions

         Prior to involuntarily dismissing an action, a court must also consider the availability of alternative sanctions. In so directing, the Third Circuit has stated that a preferable alternative to dismissal “would be to impose the excess costs caused by such conduct directly upon the attorney, with an order that such costs are not to be passed on to the client.”[53] Such sanctions, authorized by Federal Rule of Civil Procedure 37(b), “avoid compelling an innocent party to bear the brunt of its counsel's dereliction.”[54] Here, I find that, because the error rests upon Plaintiff's counsel, an alternative sanction to dismissal undoubtedly exists through the imposition of “expenses, including attorneys' fees, caused by unjustified failure to comply” with the Order.[55]

         (6) The Meritoriousness of the Claim or Defense

         “A claim, or defense, will be deemed meritorious when the allegations of the pleadings, if established at trial, would support recovery by plaintiff or would constitute a complete defense.”[56] Courts specifically consider the meritoriousness of a claim under the same standard as a motion to dismiss made pursuant to Federal Rule of Civil Procedure 12(b)(6).[57] In this action, Plaintiff alleges claims of (1) breach of contract, and (2) unjust enrichment/quantum meruit. In the Court's previous Memorandum of October 26, 2016 addressing Defendants' Motion to Dismiss, the Court found that both of these claims met the plausibility requirements of Twombly-Iqbal.[58] Furthermore, the meritoriousness of Plaintiff's claims in accordance with this standard was further confirmed during the preliminary injunction hearing recently held on this matter. This factor therefore weighs against dismissal.

         (7) Balancing of Factors/Leave to Amend Nunc Pro Tunc

         After consideration of the above Poulis factors as they relate to Plaintiff's case, I find that dismissal of this matter pursuant to Federal Rule of Civil Procedure 41(b) is not justified. My conclusion is in keeping with the Third Circuit's directive that, in deciding whether to levy the extreme sanction suggested, courts should resolve all doubts in “favor of reaching a decision on the merits.”[59]Specifically, I find that, given both the above consideration and the revealed complexity of this case, ultimate adjudication on the merits is in the interest of justice.

         Furthermore, in response to Defendants' Motion for Involuntary Dismissal, Plaintiff cross filed for nunc pro tunc leave to amend its complaint, i.e. to have the Court accept its untimely filed Amended Complaint. Federal Rule of Civil Procedure 15 sets forth the mechanisms for amending a pleading prior to trial. Section 15(a)(1) applies to amendments as a matter of course. Amendment as a matter of course is inapplicable here. Section 15(a)(2), entitled “Other Amendments, ” explains that “[i]n all other cases, a party may amend its pleading only with the opposing party's written consent or the court's leave. The court should freely give leave when justice so requires.”

         The Third Circuit has “previously discussed when a court may deny leave to amend under Rule 15(a)(2).”[60] In Shane v. Faver, for example, then Circuit Judge Samuel A. Alito, Jr. stated that “[a]mong the grounds that could justify a denial of leave to amend are undue delay, bad faith, dilatory motive, prejudice, and futility.”[61] “The decision to grant or deny leave to amend a complaint is committed to the sound discretion of the district court.”[62]

         I find no evidence in the record indicating that Plaintiff's request is the result of undue delay, bad faith, dilatory motive, prejudice, or would otherwise be futile. Furthermore, given the general complexity of this case, I see immense benefit in having the parties proceed from an improved Amended Complaint which is strictly limited to the claims progressing into discovery. Defendants' Motion will therefore be denied and Plaintiff's Motion granted. Defendants are directed to file a responsive pleading within twenty-one (21) days of the date of this Memorandum Opinion and accompanying Order.

         B. Plaintiff's Emergency Motion for Temporary Restraining Order And For Preliminary Injunction

         i. Law

         Federal Rule of Civil Procedure 65 governs the granting of injunctive relief such as temporary restraining orders and preliminary injunctions. Such relief, however, is extraordinary in nature and only available “upon a clear showing” of entitlement.[63] The United States Court of Appeals for the Third Circuit has outlined four factors that a court ruling on a request for injunctive relief must consider: (1) whether the movant has shown a reasonable probability of success on the merits; (2) whether the movant will be irreparably injured by denial of the relief; (3) whether granting preliminary relief will result in even greater harm to the nonmoving party; and (4) whether granting the preliminary relief will be in the public interest.[64] The moving party bears the burden of establishing each of the four elements.[65] As a practical matter, likelihood of success on the merits and irreparable injury are the most important factors.[66]

         ii. Analysis

         Based on my analysis of these factors in accordance with the evidence as developed at this early stage of litigation, I find that Plaintiff has not met its burden of demonstrating a clear entitlement to injunctive relief.

         (1) Reasonable Probability of Success on the Merits

         First, Plaintiff has not demonstrated a reasonable probability of success on the merits of either its breach of contract claim or its unjust enrichment/quantum meruit claim.[67] To establish a reasonable probability of success on the merits, the moving party must produce sufficient evidence to satisfy the essential elements of the underlying cause of action.[68] In determining whether success is likely, the court must look to the legal principles controlling the claim and the potential defenses available to the opposing party.[69]

         A. Breach of Contract Claim

         Plaintiff first argues that it has demonstrated a reasonable probability of success on the merits of its breach of contract claim. In order to establish a breach of contract claim, the plaintiff must demonstrate: 1) the existence of a contract; 2) a breach of a duty imposed by the contract; and 3) damages.[70] To determine the existence of an oral contract, Pennsylvania law requires courts to assess the parties' conduct in light of the surrounding circumstances to decide whether an oral contract existed, and what terms governed.[71] The party asserting the existence of such an oral agreement must therefore establish that its terms are “clear and precise.”[72]

         In the matter at hand, Plaintiff argues that, through nonpayment, Defendants breached an oral agreement between them concerning both (1) the advancement of funds on Defendants' behalf, and (2) the later supply of saw rock for use at the New Milford saw shop. Concerning the agreement to make advances for vendor payment and management services, Plaintiff specifically alleges that Defendants orally requested these services and orally agreed to compensate Plaintiff for them.[73] Plaintiff further argues that, after supplying Defendants with $954, 895.69 worth of materials, an unpaid balance of $371, 817.18 remains.[74] Plaintiff cites the Declaration of Richard Young, [75] Nittany Nova invoices, [76] and the live testimony of Richard Young as evidence of both the oral agreement reached and goods and services provided.[77]

         Defendants, in turn, dispute the existence of an oral contract with Plaintiff for goods and services through the following arguments. First, Defendants argue that Plaintiff cannot win because it sued the wrong parties.[78] Defendants state in support of this argument that Shadow Mountain Stone had issued all prior payments to Plaintiff and that it is a real entity doing business and incorporated in the State of Delaware. Second, to the extent Defendants are proper parties, they also allege a defense to underlying merits of the claims. Specifically, Defendants claim that, while Richard Young served as a manager of the saw shop, WM 39 learned that he was buying rock and material from his business- Plaintiff Nittany Nova. WM 39 believed this to be a conflict of interest and later determined that the materials and rock provided were of a lower quality than the price charged. Based on these allegations disputing the merit of Plaintiff's claim, Defendants further assert within their Brief in Opposition that they plan to both countersue for breach of fiduciary duty, conspiracy, tortious interference with contractual obligations, fraud, and other related causes of action, and join Young as a defendant in the action.

         Whether simply by chance or through design, the relationship between the corporate parties associated with the saw shop in question remains cloudy at best.[79]However, regardless of which corporate entity is the proper defendant to this action, I find that Plaintiff has nevertheless failed to demonstrate a reasonable probability of success on the underlying merits of its breach of contract claim. During the cross examination of Jim Barr Coleman, a contractor and lawyer employed by WM 39 in the role of asset manager/debt collector/in-house counsel, the following discussion occurred which called into question the existence of an oral agreement between Nittany Nova and any of the potential defendants (WM39, SMS, WMQ):

Q. Did Mr. Young ever lend his services to XXXIX in terms of his ability to provide ...

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