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Klineburger v. Kell

United States District Court, E.D. Pennsylvania

May 1, 2017



          ROBERT F. KELLY, Sr. J.

         Presently before the Court is Defendants, James R. Wolsky (“Wolsky”), MAKR Staffing Inc. (“MAKR”), and Versatile Concepts' (“Versatile”) (collectively, “Defendants”) Motion to Dismiss Plaintiff's Amended Complaint, Plaintiff, Richard Klineburger, III.'s (“Plaintiff”) Response in Opposition thereto, and Defendants' Reply Brief. For the reasons set forth below, Defendants' Motion is granted in part and denied in part.

         I. BACKGROUND

         Plaintiff commenced this action against Tina M. Tierney Kell (“Kell”), MAKR, Wolsky, and Versatile by filing a Complaint on October 27, 2016. (Doc. No. 1.) On December 27, 2016, Defendants filed a motion to dismiss the Complaint. (Doc. No. 4.) Subsequently, Plaintiff filed an Amended Complaint on January 13, 2017. (Doc. No. 7.) Plaintiff's Amended Complaint is comprised of six counts against all Defendants including: both a substantive and inchoate count under the Racketeer Influenced and Corrupt Organizations Act (“RICO”) (Counts I and II), Fraud (Count III), Unjust Enrichment (Count IV), Intentional Misrepresentation (Count V) and Breach of Contract (Count VI).[1]

         MAKR appears to be a legitimate business entity specializing in staffing in the Commonwealth of Pennsylvania as well as other states. (Am. Compl. ¶ 15.) Versatile is a legitimate business entity specializing in software engineering, IT consulting, web development and ecommerce in the Commonwealth of Pennsylvania. (Id. ¶ 17.) Both MAKR and Versatile share the same business address but do not advertise their business relationship or the financial interests of Wolsky in both companies. (Id. ¶ 18.)

         On or about March 1, 2010, Plaintiff and Kell entered into a General Partnership Agreement for the company that became known as MAKR.[2] (Id. ¶ 22.) Based on alleged representations made by Kell, Plaintiff contends that he was under the impression that Kell was running MAKR in a proper manner that would be profitable. (Id. ¶ 23.) Plaintiff alleges that he loaned Kell and MAKR tens of thousands of dollars over the course of many years without any receipt of profits and sporadic repayment. (Id. ¶ 24.) Plaintiff “began to wonder about the profits and/or lack thereof and it became apparent that [Kell] was utilizing [MAKR] as a clearinghouse for her own expenses and was not properly running same company.” (Id. ¶ 25.) As a result thereof, in April of 2014, the parties entered into a “CONSENT ORDER AND FINAL JUDGMENT BY WAY OF SETTLEMENT AGREEMENT” (“Agreement”) under which Plaintiff was to be paid $108, 000.[3] (Id.) Plaintiff alleges that in return for this agreement, he executed a Release and Redemption (“Release”) of his stock in MAKR. (Id. ¶ 28.) Not explained by Plaintiff is why the Release was signed in December of 2013 - nearly four months earlier than the date of the Agreement. (Id., Exs. A & B.)

         Plaintiff alleges that Kell approached Wolsky about Plaintiff's 49 % interest in MAKR, and Wolsky expressed “excitement.” (Id. ¶¶ 29-30.) Plaintiff contends that Wolsky did not inform Kell that he was a competing business owner seeking MAKR's lucrative accounts. (Id. ¶ 31.) Plaintiff alleges that “[a]t all times Wolsky was aware of the obligations that went with purchasing [Plaintiff]'s 49% ownership in MAKR and, in fact, was being specifically brought in by Kell to provide the capital MAKR needed to pay [Plaintiff] that which he is admittedly owed.” (Id. ¶ 32.) According to the Shareholders' Agreement, Wolsky paid $142, 000 for the shares in MAKR. (Id. ¶ 33, Ex. C.)

         Plaintiff alleges that Kell assured him that he would be paid particularly since Wolsky was responsible for the debt as per paragraph 3 of the Agreement that stated it would bind “Tina M. Kell, MAKR Staffing, Inc. it's owners, partners, successor owners and/or assigns (if transferred prior to repayment), and in the event of death prior to repayment, her estate.” (Id. ¶ 35.) However, from the onset of acquiring the shares, Wolsky began “muscling” Kell. (Id. ¶ 36.) Plaintiff contends that Wolsky apparently unilaterally determined that his “investment” would not be to purchase Plaintiff's shares; rather, he merely booked his obligation to remit these monies as “capital” of the corporation. (Id. ¶ 37.)

         As of February 16, 2015, Plaintiff had only received back $20, 000 of the $108, 000 owed to him according to the Agreement. (Id. ¶ 38.) On February 19, 2015, Kell, allegedly at Wolsky's insistence, proposed a new Repayment Plan. (Id. ¶ 40, Ex. D.) The Repayment Plan would begin on April 1, 2015 and end by January 30, 2016 and would repay Plaintiff his remaining balance of $88, 000. (Id.) It is worth noting that Wolsky's name is not mentioned anywhere in the Repayment Plan.

         Plaintiff alleges that Wolsky was in control of the finances at all times and maintained total dominion and control over all of MAKR's accounts. (Id. ¶¶ 41-43.) Plaintiff further alleges that Wolsky denied Kell signature authority and mandated that she obtain his approval and signature for every check issued. (Id.) After several complaints regarding not receiving his payments, Plaintiff ended up collecting four checks from Defendants totaling $40, 000.[4] (Id. ¶¶ 44-48.)

         Plaintiff alleges that Wolsky used this absolute dominion and control over Kell to strip MAKR of its most valuable assets - its client base - and fold all of its contracts into Versatile.[5] (Id. ¶ 50.) In September of 2014, Versatile, with Wolsky allegedly operating MAKR as its own, entered a master service agreement with Kelly Services.[6] (Id. ¶ 54.) Plaintiff alleges that “Wolsky was adamant that he wanted all MAKR contracts to go through Versatile because he did not: ‘want to pay that Jew lawyer [referring to Plaintiff Klineburger] a penny!'” (Id. ¶ 57.) Specifically, Plaintiff contends that “Wolsky also specifically instructed Kell that so long as [Plaintiff] was owed any monies, ALL MAKR business was to be booked to . . . Versatile.” (Id. ¶ 60.)

         In sum, Plaintiff alleges that after agreeing to purchase Plaintiff's shares, Wolsky used Versatile to usurp all of MAKR's assets (its valued client list especially) for himself and his partners therein, and he did so specifically to avoid remitting to Plaintiff the monies that he is owed. (Id. ¶ 61.) In February 2016, Wolsky sent a letter to Kell informing her that he was not putting any more working capital into MAKR. (Id. ¶ 63, Ex. I.) Plaintiff alleges that Kell claims to have been completely locked out of all of MAKR's records as of May of 2016. (Id. ¶ 64.) Once Wolsky demanded that all of MAKR's business be run through Versatile and not MAKR, Plaintiff contends that this put MAKR out of business. (Id. ¶ 75.) To date, Plaintiff alleges that he has not received his remaining monies owed by the Defendants in the amount of $58, 000.00. (Id. ¶ 77.)

         Defendants contend that Plaintiff's Amended Complaint should be dismissed with prejudice for several reasons. Regarding Count I alleging a civil RICO claim, Defendants argue that Plaintiff's Amended Complaint has fatal flaws, which include failing to adequately allege both an “enterprise” and a “pattern” of racketeering activity. (Defs.' Mot. to Dismiss at 7-39.) Defendants then contend that, since the substantive RICO claim in Count I fails, the conspiracy to commit a RICO violation in Count II must fail as a matter of law. (Id. at 39.) In addition, Defendants argue that the remaining state law claims fail as a matter of law. (Id. at 39-50.) For the reasons set forth below, we agree with Defendants that Plaintiff's Amended Complaint fails to adequately allege a claim under Section 1962(c) of the RICO statute. In light of this finding, we will decline to exercise supplemental jurisdiction over the remaining state law claims.


         A motion to dismiss under Federal Rule of Civil Procedure 12(b)(6) tests the sufficiency of a complaint. Kost v. Kozakiewicz, 1 F.3d 176, 183 (3d Cir. 1993). Pursuant to Rule 12(b)(6), the defendant bears the burden of demonstrating that the plaintiff has failed to set forth a claim from which relief may be granted. Fed.R.Civ.P. 12(b)(6); see also Lucas v. City of Phila., No. 11-4376, 2012 WL 1555430, at *2 (E.D. Pa. May 2, 2012) (citing Hedges v. U.S., 404 F.3d 744, 750 (3d Cir. 2005)). In evaluating a motion to dismiss, the court must view any reasonable inferences from the factual allegations in a light most favorable to the plaintiff. Buck v. Hamilton Twp. Sch. Dist., 452 F.3d 256, 260 (3d Cir. 2002).

         The United States Supreme Court (“Supreme Court”) set forth in Twombly, and further defined in Iqbal, a two-part test to determine whether to grant or deny a motion to dismiss. See Ashcroft v. Iqbal, 556 U.S. 662, 679 (2009); Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 555 (2007). The United States Court of Appeals for the Third Circuit (“Third Circuit”) has noted that these cases signify the progression from liberal pleading requirements to more “exacting scrutiny” of the complaint. Wilson v. City of Phila., 415 F. App'x 434, 436 (3d Cir. 2011).

         Initially, the court must ascertain whether the complaint is supported by well-pleaded factual allegations. Iqbal, 556 U.S. at 679. “Threadbare recitals of the elements of a cause of action, supported by mere conclusory statements, do not suffice.” Twombly, 550 U.S. at 555. Conclusions of law can serve as the foundation of a complaint, but to survive dismissal they must be supported by factual allegations. Iqbal, 556 U.S. at 679. These factual allegations must be explicated sufficiently to provide a defendant the type of notice that is contemplated by Rule 8. See Fed.R.Civ.P. 8(a)(2) (requiring a short and plain statement of the claim showing that the pleader is entitled to relief); see also Phillips v. County of Allegheny, 515 F.3d 224, 233 (3d Cir. 2008). Where there are well-pleaded facts, courts must assume their truthfulness. Iqbal, 556 U.S. at 679.

         Upon a finding of a well-pleaded complaint, the court must then determine whether these allegations “plausibly” give rise to an entitlement to relief. Id. at 679. This is a “context specific task that requires the reviewing court to draw on its judicial experience and common sense.” Id. Plausibility compels the pleadings to contain enough factual content to allow a court to make “a reasonable inference that the defendant is liable for the misconduct alleged.” Id. (citing Twombly, 550 U.S. 544 at 570). This is not a probability requirement; rather plausibility necessitates “more than a sheer possibility that a defendant has acted unlawfully.” Iqbal, 556 U.S. at 678. “Where a complaint pleads facts that are ‘merely consistent with' a defendant's liability, it ‘stops short of the line between possibility and plausibility.'” Id. (quoting Twombly, 550 U.S. at 557). In other words, a complaint must not only allege entitlement to relief, but must demonstrate such entitlement with sufficient facts to nudge the claim “across the line from conceivable to plausible.” Id. at 683; see also Holmes v. Gates, 403 F. App'x 670, 673 (3d Cir. 2010).

         The general rule is that “a district court ruling on a motion to dismiss may not consider matters extraneous to the pleadings.” W. Penn Allegheny Health Sys., Inc. v. UPMC, 627 F.3d 85, 97 n.6 (3d Cir. 2010) (citing In re Burlington Coat Factory Sec. Litig., 114 F.3d 1410, 1426 (3d Cir. 1997)). “However, an exception to the general rule is that a ‘document integral to or explicitly relied upon in the complaint' may be considered ‘without converting the motion [to dismiss] into one for summary judgment.'” Burlington, 114 F.3d at 1426 (citing Shaw v. Digital Equip. Corp., 82 F.3d 1194, 1220 (1st Cir. 1996)); see also Pension Benefit Guar. Corp. v. White Consol. Indus., 998 F.2d 1192, 1196 (3d Cir. 1993) (“[A] court may consider an undisputedly authentic document that a defendant attaches as an exhibit to a motion to dismiss if the plaintiff's claims are based on the document.”). The Third Circuit explained:

The reason that a court must convert a motion to dismiss to a summary judgment motion if it considers extraneous evidence submitted by the defense is to afford the plaintiff an opportunity to respond. When a complaint relies on a document, however, the plaintiff obviously is on notice of the contents of the document, and the need for a chance to refute evidence is greatly diminished.

Pension Benefit, 998 F.2d at 1196-97 (citations omitted).


         We will first address the RICO claims in Counts I and II over which we have original jurisdiction. The RICO statute, 18 U.S.C. § 1962, provides, in relevant part, as follows:

(b) It shall be unlawful for any person through a pattern of racketeering activity or through collection of an unlawful debt to acquire or maintain, directly or indirectly, any interest in or control of any enterprise which is engaged in, or the ...

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