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Reese v. Pook & Pook, LLC

United States District Court, E.D. Pennsylvania

December 19, 2017

POOK & POOK, LLC, [1] et al., Defendants


          STENGEL, J.

         This is an action for damages and injunctive relief brought by husband and wife Carter and Sarah Reese against several defendants alleging various state law claims stemming from the auction of part of the Reeses' antique toy collection. The Pook[2] Defendants have filed a motion to dismiss pursuant to Rules 12(b)(1) of the Federal Rules of Civil Procedure, claiming that this court has no jurisdiction over these state claims because there is no diversity of citizenship among the parties. The motion is also brought pursuant to Rule 12(b)(6) for failure to state a claim upon which relief can be granted. The plaintiffs have filed a response in opposition. For the following reasons, I will grant the motion in part and deny it in part.

         I. BACKGROUND

         Mr. and Mrs. Reese collect antique toys, and have done so for over forty-five years. On October 2, 2012, they filed for Chapter 11 bankruptcy in this district. During the bankruptcy proceedings, the Reeses were required to sell a portion of their massive antique toy collection, i.e., twenty-four hundred items. Defendant Pook & Pook, Inc., became the bankruptcy court-approved auctioneer to sell the antique toys at auction. The Reeses and Pook & Pook entered into an agreement for the sale of the toys. The terms of the agreement are attached to the second amended complaint.[3] See Second Am.Compl., Exhibit C at 31-36. None of the individual Pook Defendants were parties to this agreement. Pursuant to the agreement, Pook & Pook was to receive a 5% commission from the plaintiffs for all sales of the auctioned items up to a total of $1, 800, 000 in sale proceeds. Pook & Pook was also entitled to charge and retain a buyers' commission of 18½%. The auctioned items were to be conducted on such dates and times as Pook & Pook, in its discretion, determined to be appropriate. Except as otherwise provided in the agreement, the sale of the auction items was to be conducted according to the standard terms and conditions of Pook & Pook for such sales. The bankruptcy court approved the agreement by Order dated May 28, 2013.

         The toy auction took place on September 6-7, 2013, and resulted in sales of approximately $560, 000, which, according to the Reeses, was an amount far lower than expected. The Chapter 11 Reorganization Plan was confirmed on October 10, 2013. On October 7, 2014, the plaintiffs filed a civil action in this court against the named defendants here, and others. I dismissed that action against the Pook Defendants for lack of subject matter jurisdiction pursuant to the Barton doctrine.[4]

         In carrying out the toy sale pursuant to the agreement, Pook & Pook retained Defendants Jay Lowe and Mike Caffarella as toy experts to assist in the sale. The Reeses allege that the auction was not carried out in a manner to achieve the sales that it otherwise could have achieved. Some of the set-up and display consisted of unmatched parts, which the plaintiffs allege, resulted in an inadequate presentation of the toys at the auction. This presentation was allegedly a ploy for Mr. Lowe enabling him to purchase items from the auction for himself at a lower price.

         The Reeses also allege that in selecting one of the their own toys for the front cover of the auction catalogue, the “Carpenter Burning Building, ” which Mr. Lowe had originally sold to the plaintiffs, Mr. Lowe was promoting the future sales of his remaining Burning Building toys in his inventory. The plaintiffs also feel that placing this toy on the cover sent a negative message to the auction goers about what was in the catalogue.

         Consequently, in their second amended complaint, the Reeses bring claims for Civil Conspiracy/Combination in Count I, breach of fiduciary duty/responsibility in Count II, negligence in Count III, breach of the contractual duty of good faith and fair dealing, and dishonesty in fact in Count IV, and unjust enrichment in Count V.


         The Pook & Pook defendants move to dismiss the plaintiffs' second amended complaint against them pursuant to Rule 12(b)(1) of the Federal Rules of Civil Procedure for lack of subject matter jurisdiction, and pursuant to Rule 12(b)(6) for failure to state a claim upon which relief can be granted.

         A. Lack of Subject Matter Jurisdiction

         Challenges to subject matter jurisdiction can be made at any time. Fed.R.Civ.P. 12(h)(3). In evaluating a motion to dismiss for lack of subject matter jurisdiction under Rule 12(b)(1), there is a crucial distinction between “12(b)(1) motions that attack the complaint on its face and 12(b)(1) motions that attack the existence of subject matter jurisdiction in fact, quite apart from any pleadings.” Mortensen v. First Fed. Sav. and Loan Ass'n, 549 F.2d 884, 891 (3d Cir. 1977). “In a facial attack, a defendant argues that the plaintiff did not properly plead jurisdiction, and the court must consider the allegations in the complaint as true.” Smolow v. Hafer, 353 F.Supp.2d 561, 566 (E.D. Pa. 2005). A 12(b)(1) motion making a factual attack asserts that “there is no subject matter jurisdiction because the facts of the case . . . do not support the asserted jurisdiction.” Constitution Party of Pa. v. Aichele, 757 F.3d 347, 358 (3d Cir. 2014). In other words, a facial attack “contests the sufficiency of the pleadings, ” In re Schering-Plough Corp., 678 F.3d 235, 243 (3d Cir. 2012), “whereas a factual attack concerns the actual failure of a [plaintiff's] claims to comport [factually] with the jurisdictional prerequisites.” CNA v. United States, 535 F.3d 132, 139 (3d Cir. 2008). For both the facial and factual attack, the plaintiff bears the burden of proving jurisdiction. Smolow, 353 F.Supp.2d at 566.

         B. Failure to State a Claim Upon Which Relief Can be Granted

         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 At. Corp. v. Twombly, 550 U.S. 544, 555 (2007) and Ashcroft v. Iqbal, 556 U.S. 662, 679 (2009), pleading 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 conduct a two-part analysis. First, the factual and legal elements of a claim are 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 the court to infer more than the mere possibility of misconduct, the complaint has alleged - but it has not ‘show[n]' - ‘that the pleader is entitled to relief.'” Iqbal, 556 U.S. at 679.

         Under Federal Rule of Civil Procedure 8(a)(2), a pleading must contain a “short and plain statement of the claim showing that the pleader is entitled to relief.” As the Court held in Twombly, the pleading standard Rule 8 announces does not require “detailed factual allegations, ” but it demands more than an unadorned, the-defendant-unlawfully-harmed-me accusation. Iqbal, 556 U.S. at 678 (quoting Twombly, 550 U.S. at 555). A pleading that offers “labels and conclusions” or “a formulaic recitation of the elements of a cause of action will not do.” Twombly, 550 U.S. at 555. Nor does a complaint suffice if it tenders “naked assertion[s]” devoid of “further factual enhancement.” Id. at 557.


         A. The Court's Jurisdiction

         First, the Pook Defendants seek the dismissal of this second amended complaint arguing that this court lacks subject matter jurisdiction pursuant to 28 U.S.C. §§ 1331[5]and 1332(a).[6] They maintain that no federal claims are presented, there is no federal question, and the parties are not diverse. In fact, all parties are citizens of the Commonwealth of Pennsylvania. The defendants also argue that this court should decline to exercise supplemental jurisdiction over the Reeses' state-law claims. The plaintiffs insist that 28 U.S.C. § 1334(b) provides this court with jurisdiction. I agree.

         Title 28 of the United States Code, Section 1334(b) confers upon district courts “original and exclusive jurisdiction of all cases under Title 11, ” and “original but not exclusive jurisdiction of all civil proceedings arising under Title 11, or arising in or related to cases under Title 11.” (Emphasis added). Matters “arising under Title 11” for purposes of 28 U.S.C. § 1334(b) are those in which “a claim is made under a provision of Title 11.” See Samson Res. Co. v. J. Aron & Co. (In re Semcrude, L.P.), 2010 Bankr. LEXIS 4567, *15 (Bankr. D.Del., December 13, 2010). In other words, the “cause of action is created by Title 11.” Id. Matters “arising in” a bankruptcy case are typically “administrative matters that arise only in bankruptcy cases.” Id. at *16 (citing In re Eastport Assocs., 935 F.2d 1071, 1076 (9th Cir. 1991). Finally, proceedings “related to” a case under Title 11 are those whose outcome “could conceivably have any effect on the estate being administered in bankruptcy.” Pacor, Inc. v. Higgins (In re Pacor, Inc.), 743 F.2d 984, 994 (3d Cir. 1984) (overruled on other grounds).

         In my Memorandum dated January 27, 2016, which granted the Pook Defendants' motion to dismiss pursuant to the Barton doctrine, I found that the Reeses' claims in their first amended complaint against the Pook Defendants fell within the “arising in a case under” category of bankruptcy jurisdiction. All of those claims against the Pook Defendants, as the ones here, arose from their involvement in the auction of the Reeses' toy collection, as ordered by the bankruptcy court. See Reese v. Pook & Pook, 158 F.Supp.3d 271, 285 (E.D. Pa. 2016). Those claims, as the ones here, arose out of the disposition of property of an estate, as opposed to non-estate property of the bankruptcy petitioners. Id. If the auction was tainted, it was the bankruptcy estate that suffered since the auction proceeds that were allegedly diminished by the defendants' actions were the property of the estate to be used to pay creditors. Id. I also found that those claims, which concerned how the estate was administered, qualified as both “arising under” the Code and “arising in” a bankruptcy case under 28 U.S.C. § 1334(b). Id. The same analysis still applies to the current claims against the Pook Defendants in the Reeses' “Amended Complaint Pursuant to the Court's Order of 16 February 2017.” Accordingly, I find that 28 U.S.C. § 1334(b) provides this court with subject matter jurisdiction, and that this case is properly before me. I will deny the defendants' motion to dismiss pursuant to Rule 12(b)(1) of the Federal Rules of Civil Procedure.

         B. ...

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