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Electra Realty Co. Inc. v. Kaplan Higher Education Corp.

United States District Court, M.D. Pennsylvania

August 7, 2019

ELECTRA REALTY COMPANY, INC., and LEBO REALTY, L.P., Plaintiffs,
v.
KAPLAN HIGHER EDUCATION CORPORATION, Defendant.

          MEMORANDUM

          HON. JOHN E. JONES III JUDGE.

         In this breach of contract action, Plaintiffs Electra Realty Company, Inc. (“Electra Realty”) and Lebo Realty, L.P. (“Lebo Realty”) (collectively, “Plaintiffs”) claim that Defendant Kaplan Higher Education Corporation (“Kaplan”) is liable, as a guarantor, for the default of two leases on properties owned by Plaintiffs. Presently before the Court is Kaplan's Motion to Dismiss for Failure to State a Claim. (Doc. 4). For the reasons explained below, we will grant Kaplan's Motion.

         I. INTRODUCTION

         Plaintiffs initiated this action by filing a Complaint in the Court of Common Pleas of Dauphin County, Pennsylvania, on May 2, 2019. Kaplan filed a Notice of Removal to this Court on June 6, 2019. Plaintiffs Complaint states the following factual allegations, which we assume to be true.

         Electra Realty and Lebo Realty separately entered into lease agreements with Thompson Education, LLC, (“Thompson”), a subsidiary of Kaplan. (Doc. 1-2 at ¶¶ 5-6, 8). The two leases provided for ten-year terms beginning September 1, 2006. (Id. at ¶ 7). Kaplan is the guarantor on the two leases by agreement dated May 22, 2006. (Id. at ¶ 4). Plaintiffs attached the lease agreements and the guaranty agreements as exhibits to their Complaint.

         On March 24, 2015, in letters separately addressed to Electra Realty and Lebo Realty, Thompson, through Kaplan, informed Plaintiffs that it was selling the business assets at the lease locations to Education Corporation of America (“ECA”). (Id. at ¶ 9). The letters further stated that the two leases would be assigned to and assumed by Virginia College, LLC (“Virginia College”), a wholly owned subsidiary of ECA. (Id. at ¶ 10). Kaplan asked Plaintiffs to sign an acknowledgment portion on the letters. (Id. at ¶ 13). Kaplan also enclosed releases of guaranty with the letters and asked Plaintiffs to sign them, indicating that ECA would execute a substitute guaranty. (Id. at ¶ 11). Plaintiffs also attached the letters and releases as exhibits to their Complaint.

         Richard Lebo (“Mr. Lebo”) signed in acknowledgment of the letters as president of Electra Realty and managing partner of Lebo Realty on March 24, 2015. (Id. at ¶¶ 14-15). Mr. Lebo also executed the releases of guaranty on April 27, 2015. (Exs. C, D to Pl.'s Compl.). ECA did not execute a substitute guaranty in favor of either Plaintiff. (Doc. 1-2 at ¶ 20). At the time that Plaintiffs executed the letters and releases, ECA appeared solvent; now, however, ECA is insolvent. (Id. at ¶¶ 22, 24).

         On February 4, 2016, Plaintiffs executed amendments to the two leases. (Id. at ¶¶ 26-27). The amendments extended the initial terms of the leases to February 28, 2019, increased the base rent for the properties, and provided Virginia College a renewal option to extend the leases another three years. (Exs. E, F to Pl.'s Compl.). On May 15, 2018, Virginia College exercised its renewal options and extended the leases to February 28, 2022. (Doc. 1-2 at ¶¶ 28-29). Subsequently, Virginia College defaulted on its rent payments. On November 7, 2018, Plaintiffs separately provided notice to Virginia College that its rent was past due. (Id. at ¶¶ 30-31). Plaintiffs now bring this action claiming that Kaplan is still the guarantor on the leases and is obligated to pay the rent.

         Kaplan filed the instant Motion to Dismiss and supporting brief on June 20, 2019. (Doc. 4). Plaintiffs jointly filed an opposition brief on July 19, 2019, (Doc. 9), and Kaplan replied on August 2, 2019. (Doc. 10). Having been fully briefed, the Motion is ripe for review.

         II. STANDARD OF REVIEW

         In considering a motion to dismiss pursuant to Rule 12(b)(6), courts “accept all factual allegations as true, construe the complaint in the light most favorable to the plaintiff, and determine whether, under any reasonable reading of the complaint, the plaintiff may be entitled to relief.” Phillips v. County of Allegheny, 515 F.3d 224, 231 (3d Cir. 2008) (quoting Pinker v. Roche Holdings, Ltd., 292 F.3d 361, 374 n.7 (3d Cir. 2002)). In resolving a motion to dismiss pursuant to Rule 12(b)(6), a court generally should consider only the allegations in the complaint, as well as “documents that are attached to or submitted with the complaint, . . . and any matters incorporated by reference or integral to the claim, items subject to judicial notice, matters of public record, orders, [and] items appearing in the record of the case.” Buck v. Hampton Twp. Sch. Dist., 452 F.3d 256, 260 (3d Cir. 2006).

         A Rule 12(b)(6) motion tests the sufficiency of the complaint against the pleading requirements of Rule 8(a). Rule 8(a)(2) requires that a complaint contain a short and plain statement of the claim showing that the pleader is entitled to relief, “in order to give the defendant fair notice of what the claim is and the grounds upon which it rests.” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007) (quoting Conley v. Gibson, 355 U.S. 41, 47 (1957)). While a complaint attacked by a Rule 12(b)(6) motion to dismiss need not contain detailed factual allegations, it 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). To survive a motion to dismiss, a civil plaintiff must allege facts that ‘raise a right to relief above the speculative level . . . .” Victaulic Co. v. Tieman, 499 F.3d 227, 235 (3d Cir. 2007) (quoting Twombly, 550 U.S. at 555). Accordingly, to satisfy the plausibility standard, the complaint must indicate that defendant's liability is more than “a sheer possibility.” 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 of entitlement to relief.'” Id. (quoting Twombly, 550 U.S. at 557).

         Under the two-pronged approach articulated in Twombly and later formalized in Iqbal, a district court must first identify all factual allegations that constitute nothing more than “legal conclusions” or “naked assertions.” Twombly, 550 U.S. at 555, 557. Such allegations are “not entitled to the assumption of truth” and must be disregarded for purposes of resolving a 12(b)(6) motion to dismiss. Iqbal, 556 U.S. at 679. Next, the district court must identify “the ‘nub' of the . . . complaint - the well-pleaded, nonconclusory factual allegation[s].” Id. Taking these allegations as true, the district judge must then determine whether the complaint states a plausible claim for relief. See id.

         However, “a complaint may not be dismissed merely because it appears unlikely that the plaintiff can prove those facts or will ultimately prevail on the merits.” Phillips, 515 F.3d at 231 (citing Twombly, 550 U.S. at 556-57). Rule 8 “does not impose a probability requirement at the pleading stage, but instead simply calls for enough facts to raise a ...


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