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AnimalScan, LLC v. Live Oak Veterinary Specialists, LLC

United States District Court, M.D. Pennsylvania

August 13, 2019

ANIMALSCAN, LLC, Plaintiff
v.
LIVE OAK VETERINARY SPECIALISTS, LLC, et al., Defendants

          MEMORANDUM

          MALACHY E. MANNION UNITED STATES DISTRICT JUDGE.

         Pending before the court in this diversity breach of contract sounding action is the motion to dismiss all claims raised by plaintiff AnimalScan, LLC. The motion was filed by defendants Live Oak Veterinary Specialists, LLC (“LOVS”) and Jason King (collectively “LOVS defendants”). (Doc. 6). Based upon the court's review of the motion and the briefs of the parties, as well as the exhibits, defendants' motion will be DENIED IN ITS ENTIRETY.

         I. PROCEDURAL BACKGROUND

         Plaintiff initiated this action by filing complaints in the Luzerne County Court of Common Pleas on November 6, 2018, against defendants LOVS, King, Covert Aire, LLC, and Michael Covert.[1] (Doc. 2). The complaint raises claims against LOVS and King for: (1) Breach of Written Contract; (2) Unjust Enrichment; (3) Quantum Meruit; (4) Breach of Oral Contract; (5) Promissory Estoppel; and (6) Common Law Fraud. The complaint also raises causes of action against Covert Aire and Covert for Breach of Contract and Negligence.[2]

         On November 29, 2018, LOVS defendants removed the consolidated cases to this court based on diversity jurisdiction pursuant to 28 U.S.C. §1441 and §1332. (Doc. 1). It is alleged that there is complete diversity of the parties under 28 U.S.C. §1332(a)(1).

         On December 6, 2018, LOVS defendants filed the instant motion to dismiss all claims against them contained in plaintiff's complaint pursuant to Fed.R.Civ.P. 12(b)(6). (Doc. 6). They filed their brief in support, with Exhibits attached, on December 18, 2018. (Doc. 7). Plaintiff filed its brief in opposition on January 16, 2019. (Doc. 12). LOVS defendants filed a reply brief on January 22, 2019. (Doc. 13).

         II. FACTUAL BACKGROUND [3]

         According to the complaint, plaintiff is in the business of leasing veterinary magnetic resonance imaging scanners (“MRIs” or “MRI units”) to veterinary clinics. LOVS is a veterinary clinic that uses MRI units in its business. Dr. King is the owner of LOVS. Covert Aire is in the heating, ventilation and air conditioning (HVAC) business, and Covert owns Covert Aire.

         On December 15, 2014, LOVS and plaintiff executed a written “Equipment Lease Agreement” (the “Agreement”), which provided that plaintiff would lease an MRI unit to LOVS for a minimum rental term of 60 months, commencing when plaintiff delivered the MRI unit to LOVS. (Doc. 7-1, Ex. A). King entered a personal guarantee under paragraph 12 of the Agreement, which provided that LOVS's obligations for monthly rental payments were secured “by the personal guarantee of each LOVS principal.” Also, if LOVS failed to make its monthly payment, King would be “personally responsible for handling payments under the term of this agreement.” The Personal Guarantee of King was limited by the Agreement to five months of payment, unless LOVS failed to make payments for the first 27 months of the Agreement. It is alleged that since LOVS did not reach the 27-month payment threshold, the personal guarantee against King is not limited to only five months of payments.

         On March 10, 2015, plaintiff delivered the MRI unit to LOVS thus starting the 60-month lease term.

         Paragraph 6 of the Agreement contained a provision to terminate the lease for default by either party of any material term which continues for 60-days after receiving written notice of the default, but it allowed the breaching party to cure the default within the 60-day notice period.[4] Paragraph 15 of the Agreement also contained a merger clause and a clause requiring that any amendments to it must be made by “a writing signed by both parties.” On February 11, 2016, King, as managing partner of LOVS, sent plaintiff a notice of an alleged default in a letter in which he claimed that the MRI unit was failing due to problems with its heating, ventilation and air conditioning (“HVAC”) unit. (Doc. 7-1, Ex. B). King stated that plaintiff was aware of the problem for months and failed to correct it which caused the unit to be non-operational. King stated that LOVS intended to terminate the Agreement if the problems detailed in his letter were not fixed and the MRI unit made operational.

         When plaintiff was notified of the default, it alleges that it immediately cured the problem by having repairs made to the MRI and HVAC by Covert Aire on February 11, 2016, the same day that it was notified of the problem. It is further alleged that when plaintiff was notified by LOVS of any other issues with the HVAC unit, it promptly provided service within one day or otherwise issued a credit to LOVS pursuant to the Agreement. In particular, plaintiff alleges that every time an issue with the HVAC unit occurred between February and July of 2016, it gave LOVS notice of its efforts to cure the problems and LOVS accepted the repairs made to the MRI unit.

         Plaintiff alleges that even though it cured all of the problems LOVS had with the MRI unit, LOVS wrongfully terminated the Agreement in a letter from King dated July 8, 2016. (Doc. 7-1, Ex. C). King stated that since his February 11 letter, “AnimalScan has made several efforts to cure the default, ” but “none of those efforts has been successful.” King also stated that while plaintiff proposed to replace the MRI unit, LOVS rejected the proposal since plaintiff indicated that the replacement unit would be operational no more than 90% of the time which was less than the uptime required under the Agreement of no less than 98% of the time. However, plaintiff alleges that as of July 11, 2016, both the HVAC unit and the MRI unit were fully functional and operational and, that LOVS was responsible for the maintenance and care of the MRI unit under the Agreement.

         Finally, it is alleged that in August of 2016, plaintiff and LOVS reached an amicable resolution whereby plaintiff would provide LOVS with a replacement MRI unit. It was also agreed that the terms of the Agreement would remain unchanged. Plaintiff then bought a new MRI unit after LOVS represented that it would accept the replacement unit. Nonetheless, LOVS advised plaintiff in an August 15, 2016 letter that it would not accept delivery of the new MRI unit from plaintiff.

         Plaintiff alleges that it incurred damages in the amount of $43, 100 due to LOVS's refusal to accept the replacement MRI unit. On its breach of contract claim against LOVS and King, Count I, plaintiff seeks damages of $233, 280 representing 18 months of the minimum rent amount of $12, 500 allegedly due, plus damages for 18 months of the average of LOVS's scan fees.

         III. DISCUSSION

         LOVS defendants move to dismiss all six claims against them. The court will now address the claims seriatim.

         A. Count I, Breach of Contract

         LOVS defendants contend that plaintiff fails to state a cognizable breach of contract claim against them in Count I since its allegations do not show that LOVS breached the contract. Alternatively, defendants contend that plaintiff's breach of contract claim against King should be dismissed since there is no contractual relationship between him and the plaintiff.

         Initially, there is no dispute that there is an enforceable contract between plaintiff and LOVS and that the Agreement contains the contract's material terms between the stated two parties. Defendants however argue that based on the allegations in the complaint, it appears that there is no dispute that LOVS did not breach the Agreement. Defendants state that since the Agreement allowed LOVS to terminate the Agreement due to plaintiff's failure to cure the default within 60 days after receiving King's February 11, 2016 letter detailing “service failures” with the MRI unit, i.e., his notice of a default, and since plaintiff failed to timely cure the default, LOVS properly terminated the Agreement. Defendants point out that while plaintiff alleges that it “cured this alleged default” “by engaging the services of its service providers to commence repairs of both the MRI and HVAC unit”, it does not allege that it was able to remediate the problems with the units. Defendants also point out that plaintiff admits there were several issues with its MRI unit requiring numerous service calls, and that plaintiff offered to replace the MRI unit if any doubts as to its condition remained.

         LOVS defendants then state that they waited well beyond 60 days after sending King's February 11, 2016 letter until they sent plaintiff their July 8, 2016 letter providing it with written notice that the Agreement was terminated. In the termination letter, King also indicated that although plaintiff offered to replace its “malfunctioning [e]quipment”, LOVS rejected this offer since plaintiff could not promise that the replacement unit would be sufficiently functional within the uptime stated in the Agreement.

         As such, defendants contend that LOVS properly terminated the Agreement and that as a matter of law Count I should be dismissed against LOVS since it did not breach its contract with plaintiff.

         In response, plaintiff states that it has alleged that it immediately cured the problems with its MRI unit when it received King's February 11, 2016 letter, and that when it was notified of the subsequent issues with the unit between February and July 2016, it promptly repaired the issues within one day or it gave a credit to LOVS for the impacting result pursuant to Section 3b of the Agreement. Further, plaintiff indicates that it alleged LOVS accepted all of the repairs it made to the MRI unit, and that LOVS caused several of the problems with the unit by trying to fix them itself instead of immediately contacting plaintiff as required by the Agreement. Plaintiff also states that since it cured all of the problems with the MRI unit when it was notified of them and, since the HVAC unit and the MRI unit were fully functional as of July 11, 2016, LOVS wrongfully terminated the Agreement on July 8, 2016.

         Both parties agree that Pennsylvania law applies to this case. Indeed, because this is a case based upon diversity jurisdiction, 28 U.S.C. §1332, the court applies Pennsylvania law. See Moore v. Kulicke & Soffa Industries, Inc.,318 F.3d 561, 563 (3d Cir. 2003). In order to establish a breach of contract claim under Pennsylvania law, plaintiff must demonstrate: “(1) the existence of a contract, including its essential terms, (2) a breach of a duty imposed by the contract, and (3) resultant damages.” CoreStates Bank, N.A. v. Cutillo,723 A.2d 1053, 1058 (Pa. Super. ...


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