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Devon Drive Lionville, LP v. Parke Bancorp, Inc.

United States District Court, E.D. Pennsylvania

July 26, 2018

DEVON DRIVE LIONVILLE, LP, et al., Plaintiffs,
PARKE BANCORP, INC., et al., Defendants.


          Goldberg, J.

         This litigation was originally instituted by Plaintiffs, eight limited partnerships and two individuals, against Defendants Parke Bancorp, Inc., Parke Bank, and two of Parke Bank's employees, Vito Pantilione and Ralph Gallo (collectively, "Defendants"). The original Complaint alleged claims under the Racketeer Influenced and Corrupt Organizations Act ("RICO"), 18 U.S.C §§ 1961, et seq., in connection with a series of large commercial loans and related transactions. Following two rounds of Motions to Dismiss, only two Plaintiffs presently remain. These Plaintiffs filed a Second Amended Complaint setting forth three RICO claims, as well as state law claims for fraud, conversion, and civil conspiracy. Defendants have moved to dismiss the Second Amended Complaint under Federal Rules of Civil Procedure 12(b)(6) and 41(b). For the following reasons, I will grant the Motion on both grounds and dismiss the Second Amended Complaint with prejudice.


         The eight original Plaintiffs-Devon Drive Lionville, LP ("Lionville"), North Charlotte Road Pottstown, LP ("Pottstown"), Main Street Peckville, LP ("Peckville"), Rhoads Avenue Newtown Square, LP ("Rhoads Avenue"), VG West Chester Pike, LP ("West Chester Pike"), 1301 Phoenix, LP ("Phoenix"), John Shea ("Shea"), and George Spaeder ("Spaeder")-filed this lawsuit against Defendants on June 19, 2015. I dismissed most of the claims without prejudice for failure to state a claim. Devon Drive Lionville, L.P., et al. v. Parke Bancorp, Inc., et al.. No. 15-3435, 2016 WL 475816 (E.D. Pa. Dec. 29, 2016). Two of the Plaintiff Partnerships-West Chester Pike and Phoenix-dropped out of the suit, and the remaining Plaintiffs filed an Amended Complaint on January 30, 2017, setting forth six counts: (1) conduct and participation in an enterprise through a pattern of racketeering activity in violation of RICO, 18 U.S.C. § 1962(c); (2) acquisition and maintenance of an interest in and control of an enterprise engaged in a pattern of racketeering activity in violation of RICO, 18 U.S.C. § 1962(b); (3) conspiracy to engage in a pattern of racketeering activity in violation of RICO, 18 U.S.C. § 1962(d); (4) common law fraud; (5) conversion; and (6) civil conspiracy.

         On November 27, 2017, I granted in part Defendants' Motion to Dismiss on the grounds of res judicata and dismissed all claims brought by Plaintiffs Pottstown, Peckville, Rhoads Avenue, and Shea, but found no res judicata bar regarding the claims alleged by Lionville or Spaeder. I also declined to address Defendants' argument that Lionville and Spaeder had failed to properly plead their substantive causes of action, noting that:

The Amended Complaint sets forth the various causes of action as to all Plaintiffs collectively. As such, it is almost impossible to decipher which specific allegations go to which Plaintiff. Having now dismissed four of the six Plaintiffs, I cannot discern how the absence of these Plaintiffs' claims impacts the validity of the remaining causes of action by the remaining Plaintiffs.

Devon Drive Lionville, LP v. Parke Bancorp, Inc., No. 15-3435, 2017 WL 5668053, at *25 (E.D. Pa. Nov. 27, 2017). Accordingly, I denied the remainder of the Defendants' Motion to Dismiss without prejudice and granted Plaintiffs Lionville and Spaeder leave to file a second amended pleading, directing that this pleading shall contain "allegations only relating to themselves and Defendants" Id. (emphasis added).

         On December 27, 2017, Lionville and Spaeder (collectively, "Plaintiffs") filed their Second Amended Complaint. Defendants, in turn, filed (1) a Motion to Dismiss pursuant to Federal Rules of Civil Procedure 41(b) and 12(b)(6); and (2) a Motion to Take Judicial Notice of Adjudicative Facts.[1]


         Despite my directive that any amended complaint disentangle Lionville and Spaeder's claims from those of the dismissed Plaintiffs, the Second Amended Complaint at issue is practically identical to the Amended Complaint. Rather than restating the allegations set forth in the Second Amended Complaint, I will incorporate by reference the extensive factual recitation in my Memorandum and Order of December 29, 2016. Devon Drive Lionville, L.P., et al. v. Parke Bancorp. Inc.. et al.. No. 15-3435, 2016 WL 475816, at *1-7 (E.D. Pa. Dec. 29, 2016). For purposes of clarity, however, I will summarize the allegations in the Second Amended Complaint below.

         The Second Amended Complaint alleges-in identical fashion to the First Amended Complaint-that, in 2003, Plaintiff George Spaeder ("Spaeder") and non-party Bruce Earle ("Earle") entered into an oral partnership agreement for the purpose of buying and selling real estate (the "Earle-Spaeder Partnership"). Together, the two men formed four of the partnerships-Lionville, Pottstown, Peckville, and Rhoads Avenue (collectively, "the Partnerships")-that were, at one point, Plaintiffs in this lawsuit. (Sec. Am. Compl. ("SAC") ¶¶ 15-16.) Currently, only Lionville and Spaeder are Plaintiffs. These Partnerships were formed to purchase, develop, and lease a single Pennsylvania commercial real estate property capable of hosting multiple commercial tenants. Spaeder was principally in charge of managing the day-today business of Partnerships, while Earle acted as an independent contractor through his wholly-owned company Rosedon Holding Company Limited Partnership ("Rosedon Holding"). Rosedon Holding took custody of the books and records of these three Partnerships and monitored their finances. (Id.¶¶ 16-18.)

         To finance their operations, three of the Partnerships-Lionville, Pottstown, and Peckville-obtained financing through Defendant Parke Bank ("Parke Bank"). In December 2007, Lionville borrowed $3, 098, 000 from Parke Bank to finance the purchase and development of vacant ground featuring three commercial "pads." In March 2008, Pottstown borrowed $8, 000, 000 from Parke Bank to acquire and renovate a shopping center. In May 2008, Peckville borrowed $5, 200, 000 from Parke Bank to fund the purchase and renovation of an existing shopping center. (Id.¶¶ 19-21, 26-28.)

         By late 2011, Earle's and Spaeder's relationship had deteriorated and their business partnership began to collapse. Around that time, the loans from Parke Bank to the Pottstown and Peckville Partnerships went into default. Spaeder then filed for bankruptcy and, during the ensuing proceedings in July 2013, the Partnerships began to uncover evidence of an "enterprise" among Parke Bank, Vito Pantilione (Officer and Director of Parke Bank), Defendant Ralph Gallo (Senior Vice President and Chief Workout Officer for Parke Bancorp, Inc.), and Earle (collectively, the "BPGE Enterprise"). (Id. ¶¶ 2, 35-37, 41.)

         According to the Second Amended Complaint, Parke Bank allegedly participated in the BPGE Enterprise when it utilized the funds available under the loans and/or lines of credit extended to the various independent limited partnership entities as one "piggy bank." This piggy bank allegedly funded troubled loans to create the appearance of a performing loan. Despite the fact that the Lionville, Pottstown, and Peckville Partnerships were separate legal entities with different assets and ownership, it is alleged that Parke Bank treated these loans as if they were three loans to the same borrower, controlled by Earle, such that their loans could be cross-collateralized by Parke Bank as it saw fit. Parke Bank sent correspondence revealing unauthorized transfers and other allegedly fraudulent activity to Earle. In addition to the individual bank account statements, Parke Bank, acting at Pantilione's and/or Gallo's instruction, compiled and/or emailed to Earle reports that detailed account activity for each of the Parke Bank accounts over which Earle had allegedly usurped control. (Id. ¶¶ 52, 54-65.)

         As stated above, aside from two small additions, set forth below, the Second Amended Complaint's 192 paragraphs are identical to the dismissed Amended Complaint.[2] The new allegations and one new claim that vary from the First Amended Complaint are as follows:

         First, paragraphs 107-112 of the Second Amended Complaint allege that, in March 2008, Pottstown secured an $8, 000, 000 loan in connection with its acquisition of the property at 1400 North Charlotte Street, Pottstown, PA. The plan for that property was to completely renovate the existing shopping center using $4, 146, 000 of earmarked funds and then lease the space. The agreement, which described the total loan budget, permitted Pottstown to pull an additional $1 million from the loan balance contingent on providing additional collateral. When the $1 million was repaid, the collateral was to be released. The additional collateral-two other Pennsylvania properties-was delivered prior to any draw on the funds from the Construction Loan. Even though the collateral was released by the terms of the loan documents, Earle allowed Parke Bank to take a confessed judgment against the limited partnership that owned the collateral, without raising any defenses. (Id. ¶¶ 88-89, 108-11.) Importantly, the Second Amended Complaint does not connect these new allegations to any of the claims of the remaining Plaintiffs.

         Second, paragraphs 184 to 188 of the Second Amended Complaint set forth a new conversion claim by Spaeder. In the Amended Complaint, the conversion claim was brought by Lionville, Pottstown, Peckville, and Shea. In the Second Amended Complaint, Plaintiffs deleted Pottstown and Peckville from the claim and substituted Spaeder's name wherever Shea's name appeared.

         III. MOTION TO DISMISS UNDER FED. R. CIV. P. 12(b)(6)

         A. Standard of Review

         Under Federal Rule of Civil Procedure 12(b)(6), a defendant bears the burden of demonstrating that the plaintiff has not stated a claim upon which relief can be granted. Fed.R.Civ.P. 12(b)(6); see also Hedges v. United States. 404 F.3d 744, 750 (3d Cir. 2005). The United States Supreme Court has recognized that "a plaintiffs obligation to provide the 'grounds' of his 'entitle[ment] to relief requires more than labels and conclusions." Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007) (quotations omitted). "[T]hreadbare recitals of the elements of a cause of action, supported by mere conclusory statements, do not suffice" and "only a complaint that states a plausible claim for relief survives a motion to dismiss." Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009). "A claim has facial plausibility 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 does not show an entitlement to relief when the well-pleaded facts do not permit the court to infer more than the mere possibility of misconduct. Id.

         The United States Court of Appeals for the Third Circuit has detailed a three-step process to determine whether a complaint meets the pleadings standard. Bistrian v. Levi, 696 F.3d 352 (3d Cir. 2014). First, the court outlines the elements a plaintiff must plead to state a claim for relief. Id. at 365. Next, the court must "peel away those allegations that are no more than conclusions and thus not entitled to the assumption of truth." Id. Finally, the court "look[s] for well-pled factual allegations, assume[s] their veracity, and then 'determine[s] whether they plausibly give rise to an entitlement to relief" Id. (quoting Iqbal, 556 U.S. at 679). The last step is "a context-specific task that requires the reviewing court to draw on its judicial experience and common sense." Id. (quoting Iqbal, 556 U.S. at 679).

         Claims of fraud, either standing alone or as predicate acts for a RICO claim, are subject to the heightened requirements of Federal Rule of Civil Procedure 9(b). Warden v. McLelland 288 F.3d 105, 114 n.6 (3d Cir. 2002). "In all averments of fraud or mistake, the circumstances constituting fraud or mistake shall be stated with particularity." Fed.R.Civ.P. 9(b). In order to satisfy Rule 9(b), "a plaintiff alleging fraud must state the circumstances of the alleged fraud with sufficient particularity to place the defendant on notice of the 'precise misconduct with which [it is] charged.'" Frederico v. Home Depot, 507 F.3d 188, 200 (3d Cir. 2007) (citation omitted). Plaintiffs may satisfy this requirement by pleading the "date, time and place" of the alleged fraud or "otherwise inject precision or some measure of substantiation into a fraud allegation." Id.

         B. Claims Against Parke Bancorp, Inc.

         Plaintiffs set forth RICO claims against, among others, Parke Bancorp, Inc. ("PBI"), which, according to the Second Amended Complaint, is a corporation that wholly owns Defendant Parke Bank. (SAC ¶¶ 8-9.) Defendants seek to dismiss all causes of action against PBI.

         The Third Circuit has held that "mere ownership of a subsidiary does not justify the imposition of liability on the parent." Pearson v. Component Tech. Corp., 247 F.3d 471, 484 (3d Cir. 2001). While the Third Circuit recognized that it is "theoretically possible for a parent corporation and its subsidiary to be the enterprise" under RICO, "the plaintiff must plead facts which, if assumed to be true, would clearly show that the parent corporation played a role in the racketeering activity which is distinct from the activities of its subsidiary." Lorenz v. CSX Corp., 1 F.3d 1406, 1412 (3d Cir. 1993). "A RICO claim under section 1962(c) is not stated where the subsidiary merely acts on behalf of, or to the benefit of, its parent." Id.

         Here, the sole allegation in the Second Amended Complaint regarding the parent company, PBI, is a statement that Parke Bank is a "wholly owned subsidiary" of PBI. (SAC ¶ 9.) Plaintiffs' pleading otherwise contains no facts that could justify any inference that PBI had any involvement in the alleged actions at issue in this case. Plaintiffs do not address this argument, let alone make an effort to identify any misdeeds by PBI. Accordingly, I will grant Defendants' Motion to Dismiss on this ground and dismiss all claims against PBI.

         C. Standing to Assert RICO Claims

         Counts I to III of the Second Amended Complaint set forth RICO claims against Defendants under 18 U.S.C. § 1962(b), (c), and (d). Defendants move to dismiss all three of these claims on ...

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