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Signature Medical Ltd., LLC v. U.S. Med-Equip Inc.

United States District Court, E.D. Pennsylvania

September 11, 2017

SIGNATURE MEDICAL, LTD, LLC, et al., Plaintiffs
v.
U.S. MED-EQUIP, INC., Defendant

          MEMORANDUM

          STENGEL, C.J.

         In this diversity action, Co-Plaintiffs Signature Medical and Clifford Hall bring state law claims against Defendant U.S. Med-Equip, Inc., stemming from a rental agreement involving used medical equipment. The defendant filed a motion to dismiss, and the plaintiffs responded. For the following reasons, I will grant the motion in its entirety.

         I. BACKGROUND [1]

         Mr. Hall is the sole owner of Signature Medical, a Pennsylvania corporation which buys, sells, repairs, and leases medical equipment. Defendant U.S. Med-Equip, owned by Greg Salario and Ghurmit Bhatia, is a Texas corporation whose business includes the purchase, sale, lease, and repair of biomedical equipment. Attorney Jeffrey Hofferman began representing U.S. Med-Equip in August 2006, and along with Mr. Salario and Mr. Bhatia acted as an agent for U.S. Med-Equip.

         Plaintiff Hall and Mr. Salario met as co-employees at Freedom Medical, Inc. They both left Freedom Medical in 2000 when they started their own separate businesses. Mr. Salario and Mr. Bhatia started U.S. Med-Equip. Mr. Hall started Signature Medical. Both businesses are involved in the renting and repairing of used medical equipment.

         In October 2003, Mr. Salario contacted Mr. Hall for the purpose of renting medical equipment from Signature Medical. Mr. Hall and Mr. Salario agreed that U.S. Med-Equip would pay Signature Medical for any equipment that U.S. Med-Equip rented from Signature Medical at the current market rental value.

         The amended complaint alleges that this arrangement continued until August 2006, when U.S. Med-Equip stopped paying the rent on the equipment it had rented from Signature Medical. It further alleges that U.S. Med-Equip has refused to return the equipment owned by Signature Medical, and now owes over $170, 000 in past rent due.

         On July 20, 2006, Freedom Medical instituted legal action in this court against twenty-three defendants, including U.S. Med-Equip, Mr. Salario, Mr. Bhatia, Signature Medical, and Mr. Hall. See Freedom Medical, Inc. vs. Thomas R. Gillespie, III, et al., Civ. No. 06-3195. One of the allegations asserted by Freedom Medical was that Mr. Hall, on behalf of Signature Medical, purchased medical equipment that he knew had been stolen from Freedom Medical. Mr. Hall vehemently denied that allegation. Freedom Medical also asserted that Mr. Bhatia and Mr. Salario knowingly obtained rental equipment from Signature Medical and from other vendors that they knew to be stolen from Freedom Medical. They denied that allegation.

         On August 17, 2006, Attorney Hofferman allegedly advised Mr. Salario and Mr. Bhatia to withhold the payment of rent owed to Signature Medical. Ronald Ashby, Mr. Hall's attorney, advised Mr. Hall that U.S. Med-Equip was suspending further payment of rental fees for equipment it had leased from Signature Medical pending the termination of the Freedom Medical litigation. U.S. Med-Equip further advised the plaintiffs that the leased equipment would be held in quarantine pending resolution of the litigation.

         By 2012, most of the defendants in the Freedom Medical litigation had settled. These defendants, however, did not include Signature Medical, Mr. Hall, U.S. Med-Equip, Mr. Salario, or Mr. Bhatia.

         In June 2012, Mr. Hall considered filing an affidavit in the Freedom Medical litigation formally documenting his assertion that he did not know that he had purchased medical equipment that had been stolen from Freedom Medical and correspondingly, that neither Mr. Bhatia nor Mr. Salario conspired with Mr. Hall to lease medical equipment from Signature Medical that was known to have been stolen from Freedom Medical. He recognized that such an affidavit would serve to exculpate U.S. Med-Equip, Mr. Salario, and Mr. Bhatia and possibly contribute to the end of the litigation against all of them.

         The amended complaint alleges that before Mr. Hall signed the affidavit, he requested an agreement with U.S. Med-Equip, Mr. Salario, and Mr. Bhatia regarding payment of the outstanding rent owed to Signature Medical by U.S. Med-Equip. Attorney Ashby contacted Attorney Hofferman and informed him that Mr. Hall was considering signing an affidavit that would exculpate U.S. Med-Equip in the Freedom Medical litigation provided that U.S. Med-Equip would agree to pay the rental owed on the medical equipment. Attorney Hofferman told Attorney Ashby that U.S. Med-Equip would pay the outstanding rent due to Signature Medical upon conclusion of the Freedom Medical litigation. Drafts of the affidavit were exchanged, and once satisfied with the language, Mr. Hall signed the final affidavit[2] on July 23, 2012. See Document #5 at 34-36.

         On May 13, 2014, Attorney Sharon Cherry, the plaintiffs' new counsel, wrote a letter to Attorney Hofferman, requesting payment of U.S. Med-Equip's outstanding rental fees. She indicated that she was unaware of any legal authority that supported the withholding of amounts due to Signature Medical because of pending litigation. On the following day, Attorney Hofferman responded by email, stating that the terms of the agreement between Mr. Hall and U.S. Med-Equip were contained in the affidavit signed by Mr. Hall. The amended complaint alleges that Attorney Hofferman informed Attorney Cherry by telephone that the rental payments would be made upon conclusion of the entire litigation.[3]

         On December 18, 2014, Attorney Cherry notified Attorney Hofferman that Mr. Hall and Signature Medical had settled with Freedom Medical, and asked when a check for the overdue rental payments might be expected. She also notified Attorney Hofferman that Signature Medical was terminating the rental agreement on the equipment and asked that the equipment be returned. On December 22, 2014, Attorney Hofferman responded requesting more specifics on the equipment, i.e., invoice and serial numbers. Attached to the amended complaint is a spreadsheet prepared by U.S. Med-Equip which lists the equipment for which U.S. Med-Equip owed rent payments to Signature Medical.

         The amended complaint further alleges that it became clear to Mr. Hall as of March 19, 2015, that U.S. Med-Equip had no intention of paying Signature Medical the rental fees owed for the leased equipment. It also allegedly became clear to Mr. Hall that U.S. Med-Equip had no intention of returning the rented equipment to Signature Medical. In fact, the amended complaint insists that at the time the affidavit was negotiated and executed, Mr. Salario and Mr. Bhatia had no intention of paying Signature Medical the total rental due for the equipment leased by Signature Medical, but nevertheless willfully and intentionally lured Mr. Hall into signing the affidavit so that U.S. Med-Equip could use the affidavit in the Freedom Medical litigation to its advantage. The fair market value of the equipment which U.S. Med-Equip has refused to return is $30, 025.00.

         Signature Medical and Mr. Hall filed this action against the defendant alleging fraudulent misrepresentation/fraud in the inducement in Count One, breach of contract in Count Two, unjust enrichment/quasi contract in Count Three, promissory estoppel in Count Five, and conversion in Count Six.[4]

         II. LEGAL STANDARD

         A motion to dismiss under Rule 12(b)(6) of the Federal Rules of Civil Procedure for failure to state a claim upon which relief can be granted examines the sufficiency of the complaint. Conley v. Gibson, 355 U.S. 41, 45-46 (1957). Following the Supreme Court decisions in Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 555 (2007) and Ashcroft v. Iqbal, 556 U.S. 662, 679 (2009), pleadings standards in federal actions have shifted from simple notice pleading to a more heightened form of pleading, requiring a plaintiff to plead more than the possibility of relief to survive a motion to dismiss under Fed. R. Civ. P.12(b)(6). Fowler v. UPMC Shadyside, 578 F.3d 203, 210-211 (3d Cir. 2009); see also Phillips v. County of Allegheny, 515 F.3d 224, 230 (3d Cir. 2008).

         Therefore, when presented with a motion to dismiss for failure to state a claim, district courts should conduct a two-part analysis. First, the factual and legal elements of a claim should be separated. The court must accept all of the complaint's well-pleaded facts as true but may disregard legal conclusions. Iqbal, 556 U.S. at 679. Second, a district court must determine whether the facts alleged in the complaint are sufficient to show that the plaintiff has a “plausible claim for relief.” Id. In other words, a complaint must do more than allege the plaintiff's entitlement to relief. A complaint has to “show” such an entitlement with its facts. Id.; see also Phillips, 515 F.3d at 234-235. “Where the well-pleaded facts do not permit ...


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