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Milo, LLC v. Procaccino

United States District Court, E.D. Pennsylvania

March 22, 2018



          R. BARCLAY SURRICK, J.

         Presently before the Court is Defendants 200 Christian Street Partner's, Arthur Elwood's, and Virgil Procaccino's Motion to Dismiss Plaintiff's Amended Complaint Pursuant To Fed.R.Civ.P. 12(b)(6). (ECF No. 18.) For the following reasons, Defendants' Motion will be DENIED.


         This action arises from the sale of a house. Defendants Virgil Procaccino (“Procaccino”) and Arthur Elwood (“Elwood”) are partners in the Defendant company 200 Christian Street Partners (“200 CSP”), which built and then sold a house (“the Home”) to Plaintiff MILO, LLC (“MILO”). MILO now asserts claims against Defendants, all related to Defendants' alleged defective construction of the Home.

         A. Factual Background[1]

         Plaintiff's First Amended Complaint alleges that David and Beth Ferreira formed MILO, a limited liability company registered in Delaware, for the purpose of purchasing and holding assets in trust for their two children. (Am. Compl. ¶¶ 12, 21-22, ECF No. 12.) Virgil Procaccino and Arthur Elwood are partners in 200 CSP, a limited liability company formed in Pennsylvania. (Id. ¶¶ 13-15.) 200 CSP builds and sells high-end homes in Philadelphia. (Id. ¶ 27.) In 2014, MILO authorized David Ferreira to search for and purchase a newly-constructed house in Philadelphia, Pennsylvania, to serve as the Ferreira's new home. (Id. ¶¶ 23, 26.) On November 11, 2014, David Ferreira agreed to buy a new house built by 200 CSP located at 501A South 12thStreet in Philadelphia. (Id. ¶¶ 2, 30.) The purchase price was $1, 955, 000. (Id. ¶ 8.) Ferreira assigned the Agreement of Sale to MILO, which then made settlement on the Home on January 15, 2015. The Ferreiras moved into the Home in March, 2015. (Id. ¶¶ 32-34.)

         MILO alleges that the Home suffers from numerous material defects due to shoddy construction. Specifically, MILO alleges that the Home has a water infiltration problem, which has led to leaks inside the Home, a recurring fungus growing in one of the bedrooms, and mold. (Id. ¶¶ 40, 50-60, 70-73, 87.) MILO alleges that it hired independent home inspectors to assess the water issue and that these inspections revealed significant construction defects in the Home. (Id. ¶¶ 84-89.) These defects include: a foundation wall below grade and not to code; insufficient wall cavity thickness in the brick veneer; inadequately secured brick veneers lacking proper relief angles, leading to a risk of collapse; a structurally unstable foundation not compliant with the building code; and mold and water infiltration. (Id. ¶¶ 119-29.) As a result of these defects and the water issues, the Ferreiras allege that the Home was not safe to live in and so they were forced to move out and seek temporary residence elsewhere from late 2015 through the summer of 2016. (Id. ¶¶ 87, 100.)

         MILO alleges that Defendants are responsible for these defects, the water issues that have resulted from the defects, and that, as the builder-vendors, Defendants knew or should have known of these defects before the Home was sold to MILO. (Id. ¶¶ 134-146.) In addition, MILO alleges that Defendants not only failed to disclose these defects to MILO, but also consistently misrepresented the nature of the defects, the cause of the water issues, and their willingness and ability to fix these problems, both before and after the sale. (Id. ¶¶ 39-47, 58-64, 94-95.) MILO also alleges that Procaccino and Elwood, acting as individuals, repeatedly guaranteed that the problems with the Home would be fixed and that the water issues would not keep occurring, all while not revealing that the root cause of these problems was Defendants' use of fraudulent cost-cutting measures while constructing the Home. (Id. ¶¶ 46, 53, 66, 76.) MILO claims it relied on the misrepresentations made by Procaccino, Elwood, and 200 CSP in deciding to purchase the Home, and that as a result of the defects in the Home not disclosed by Defendants, the Ferreiras cannot live in the Home, cannot resell it at an adequate price, have had to pay for a temporary residence, and ultimately were forced to purchase another house. (Id. ¶¶ 147-50.) Finally, MILO alleges that Defendants have refused to engage in any meaningful negotiation or mediation with MILO to resolve these issues. (Id. ¶ 151.)

         MILO's Complaint alleges the following claims against all Defendants: Count I - violation of the Pennsylvania Unfair Trade Practices and Consumer Protection Law (“UTPCPL”) 73 Pa. Stat. and Cons. Stat. Ann. § 201-2(4)(v), (vii), and (xii)(2017); Count II - breach of contract; Count III - breach of implied warranty; Count IV - negligence; Count V - negligent supervision claim; Count VI - civil conspiracy; and Count VII - violation of the Pennsylvania Real Estate Seller Disclosure Law (“RESDL”), 68 Pa. Stat. and Cons. Stat. Ann. § 7303. Procaccino and Elwood seek dismissal of all of MILO's claims. 200 CSP seeks dismissal of Count V, the negligent supervision claim, Count VI, the civil conspiracy claim, and Count VII, the RESDL claim.

         B. Procedural History

         On November 4, 2016, MILO filed the original Complaint in this Court. (ECF No. 1.) On January 9, 2017, Defendants filed a Motion to Dismiss Plaintiff's Complaint. (ECF No. 10.) On January 30, 2017, MILO filed an Amended Complaint. (Am. Compl. ECF No. 12.) On March 8, 2017, Defendants filed the instant Motion. (MTD, ECF No. 18.) MILO filed a Response in Opposition to Defendants' Motion on April 7, 2017. (Pl.'s Resp., ECF No. 19.)


         Under Federal Rule of Civil Procedure 8(a)(2), “[a] pleading that states a claim for relief must contain a short and plain statement of the claim showing that the pleader is entitled to relief.” Rule 12(b)(6) provides for the dismissal of a complaint, in whole or in part, for failure to state a claim upon which relief can be granted. A motion under Rule 12(b)(6) tests the sufficiency of the complaint against the pleading requirements of Rule 8(a). “To survive a motion to dismiss, a complaint must contain sufficient factual matter, accepted as true, to ‘state a claim to relief that is plausible on its face.'” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007)).

         A claim is plausible “when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.” Id. A complaint that merely alleges entitlement to relief, without alleging facts that show entitlement, must be dismissed. See Fowler v. UPMC Shadyside, 578 F.3d 203, 211 (3d Cir. 2009). Courts need not accept “[t]hreadbare recitals of the elements of a cause of action, supported by mere conclusory statements . . . .” Iqbal, 556 U.S. at 678. “While legal conclusions can provide the framework of a complaint, they must be supported by factual allegations.” Id. at 679. This ‘“does not impose a probability requirement at the pleading stage, ' but instead ‘simply calls for enough facts to raise a reasonable expectation that discovery will reveal evidence of' the necessary element.” Phillips v. Cty. of Allegheny, 515 F.3d 224, 234 (3d Cir. 2008) (quoting Twombly, 550 U.S. at 556).

         In determining whether dismissal of the complaint is appropriate, courts use a two-part analysis. Fowler, 578 F.3d at 210. First, courts separate the factual and legal elements of the claim and accept all of the complaint's well-pleaded facts as true. Id. at 210-11. Next, courts determine whether the facts alleged in the complaint are sufficient to show that the plaintiff has a “‘plausible claim for relief.'” Id. at 211 (quoting Iqbal, 556 U.S. at 679). Given the nature of the two-part analysis, “‘[d]etermining whether a complaint states a plausible claim for relief will . . . be a context-specific task that requires the reviewing court to draw on its judicial experience and common sense.'” McTernan v. City of York, 577 F.3d 521, 530 (3d Cir. 2009) (quoting Iqbal, 556 U.S. at 679).


         A. Breach of Contract, RESDL, and Breach of Implied Warranty Claims

         Elwood and Procaccino contend that MILO's breach of contract claim against them must fail because 200 CSP, the corporation which built and sold the Home, is the only proper defendant in this case. They argue that only MILO and 200 CSP were bound by the contract and that MILO has not alleged sufficient reasons to pierce the corporate veil. MILO contends that it has alleged sufficient justification to pierce the corporate veil and to go after Elwood and Procaccino as individuals for their role in the breach of contract. MILO also contends that Defendants violated the RESDL by failing to disclose material defects to the Ferreiras. MILO argues that because Defendants were obligated to comply with the RESDL as provided in the Agreement of Sale, the RESDL violation resulted in a breach of the Agreement.

         To state a claim for breach of contract, a plaintiff must establish: (1) the existence of a contract, including its essential terms; (2) a breach of duty imposed by the contract; and (3) resulting damages. Chemtech Int'l, Inc. v Chemical Injection Techs., Inc., 170 F. App'x 805, 807 (3d Cir. 2006) (internal quotation omitted). It is fundamental to the law of contracts that one cannot be liable for a breach of contract unless one is a party to the contract. Accurso v. InfraRed Servs., Inc., 23 F.Supp.3d 494, 503 (E.D. Pa. May 28, 2014) (internal quotation omitted). When a corporate agent signs a contract on behalf of the principal corporation, it is the corporate principal that is alone liable for any breach of the contract. Id. (citing Daniel Adams Assoc., Inc. v. Rimbach Pub., Inc., 519 A.2s 997, 1000-01 (Pa. Super. Ct. Jan. 9, 1987)).

         Here, the contract for the sale of the Home lists the buyer as “David Ferreira or assignee” and the seller as “200 Christian Street Partners.” (Am. Compl. Ex. B at 37.) We must therefore determine whether MILO's Complaint alleges facts sufficient to justify the imposition of liability on Elwood and Procaccino as individuals for breach of contract.

          i. Piercing the Veil

         A corporation is a legal entity unto itself. See, e.g., Pearson v. Component Tech. Corp., 247 F.3d 471, 484 (3d Cir. 2001). Shareholders, officers, and directors of the corporation do not normally bear personal liability for the acts of the corporation. Id. However, when equity requires it, courts may allow plaintiffs to ‚Äúpierce the ...

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