KREIBICH et al v. PLAYA DULCE VIDA, S.A. et al
MEMORANDUM AND/OR OPINION. SIGNED BY HONORABLE EDUARDO C. ROBRENO ON 12/27/2016. 12/28/2016 ENTERED AND COPIES E-MAILED.(nds)
IN THE UNITED STATES DISTRICT COURT
FOR THE EASTERN DISTRICT OF PENNSYLVANIA
UNICA, S.A., et al.,
RICHARD KREIBICH, et al.,
PLAYA DULCE VIDA, S.A., et al.,
M E M O R A N D U M
EDUARDO C. ROBRENO, J.
December 27, 2016
FACTUAL BACKGROUND AND PROCEDURAL HISTORY................. 2
MOTION FOR JUDGMENT ON THE PLEADINGS...................... 7
III. MOTION FOR SUMMARY JUDGMENT.............................. 11
Breach of Contract.................................. 13
Piercing the Corporate Veil......................... 30
Tortious Interference............................... 41
MOTION TO APPOINT RECEIVER............................... 44
These two cases – consolidated for pretrial purposes –
involve several investments in a resort located in Costa Rica.
Following discovery, the parties have filed a number of motions.
For the reasons that follow, the Court will: (1) deny the Motion
for Judgment on the Pleadings; (2) grant in part the Motion for
Summary Judgment; and (3) deny the Motion to Appoint a Receiver.
FACTUAL BACKGROUND AND PROCEDURAL HISTORY
Playa Dulce Vida, S.A. (“PDV”) is a corporation
organized and existing under the laws of Costa Rica. David
Callan Decl. ¶ 2, Kreibich ECF No. 33-1.1 PDV owns and operates
the Arenas Del Mar Beachfront and Rainforest Resort (“the
Resort”) in Costa Rica. Id. ¶ 5.
In 2004, Plaintiff Richard Lieberman became aware of
the opportunity to invest in PDV by purchasing a condoapartment, or unit, at the Resort. Another investor, Glenn
Jampol, introduced Lieberman to Gary Haynes,2 a real estate agent
who served as PDV’s representative for the sale of units at the
The Court consolidated these cases for pretrial
purposes. Defendants then filed a single motion for summary
judgment, addressing both cases, in Kreibich. Citations to
either docket are marked accordingly.
Jampol and Haynes are not parties here.
Hotel. Second Am. Compl. ¶¶ 60-63, Lieberman ECF No. 19. Haynes
informed Lieberman that PDV was not actually selling real
estate, but instead was selling “preferred shares” of stock in
PDV. These shares would vest a purchaser/shareholder with
proprietary rights to “the full use and enjoyment” of a
designated unit at the Resort – in other words, it was a
timeshare agreement of sorts. Id. ¶¶ 67-68. Haynes also said
that shareholders would earn income from their shares, because
when a unit was not in use by its shareholder owner, it would be
rented to the public by the Resort. Id. ¶ 69.
Thereafter, in November 2004, Lieberman bought twentyfive preferred shares, representing unit 603 (“the Lieberman
Unit”) at the Resort. Id. ¶¶ 65, 79-80. His purchase was
memorialized by three stock certificates (collectively, “the
Stock Certificates”). Id. ¶ 81. In the course of his purchase of
shares, Lieberman signed a set of documents: a Reciprocal
Promise of Purchase and Sale (“the PSA”), a Rental Pool
Agreement (“the RPA”), the Regulations, and a Purchase/Sale
Contract for Shares (“the PSCFS”) (collectively, “the
Contract”). See Defs.’ Mot. Summ. J. Ex. D, Kreibich ECF No.
The following year, Plaintiffs Richard Kreibich and
Susan Kreibich (“the Kreibichs”) also learned about the
opportunity to invest in the Resort. Specifically, they were
introduced to Defendant David Callan, who informed the Kreibichs
that he was a licensed financial advisor, an officer of PDV, a
member of the PDV Board, and a member of the PDV Executive
Committee. First Am. Compl. ¶¶ 54-60, Kreibich ECF No. 9. Callan
explained that purchasing preferred shares would give the
Kreibichs usage rights to a particular unit, as well as income
from their unit’s placement in the Resort rental pool. Id.
As a result, in February 2006, the Kreibichs purchased
fifteen preferred shares, representing unit 501 (“the Kreibich
Unit”) at the Resort. Id. ¶¶ 80, 90-95. The Kreibichs, like
Lieberman, signed the Contract with PDV.
In February 2011, several years after the Resort
opened, the PDV board of directors issued a letter to the
preferred shareholders (“the Preferred Shareholders Letter” or
“the Letter”). Second Am. Compl. Ex. J, Lieberman ECF No. 19-3.
The Letter explained that in order for the Resort to be a
financial success, the company was undergoing an “important
ownership restructuring.” Id. at 1. As part of the
restructuring, the company offered to preferred shareholders the
option to convert their preferred shares – that is, their
contractual rights to their respective units at the Resort – to
common stock. Id. at 3. The Letter explained that preferred
shareholders who exercised that option would “continue to
receive usage rights[,] but as common shareholders.” Id. The
usage rights for common shareholders were set forth in the
Letter, id. at 5, and, as the Letter noted, could “be modified
by the Board of Directors,” id. at 3. Thus, the Letter cautioned
preferred shareholders that “if usage is a critical reason for
ownership, then one needs to weigh the cost/benefit analysis of
giving up that usage right.” Id. The Kreibichs opted to convert
their preferred shares into common shares. Kreibich First Am.
Compl. ¶ 140. Lieberman did not. Lieberman Second Am. Compl.
Neither Lieberman nor the Kreibichs have received any
income distributions from their respective investments in the
Resort. Id. ¶ 117; Pls.’ Mem. Law Opp’n at 5, Kreibich ECF No.
35. They also contend that Defendants have, in violation of the
Contract, failed to provide audited financial statements for
certain fiscal years. Lieberman Second Am. Compl. ¶¶ 110-12;
Kreibich First Am. Compl. ¶¶ 110-14. Moreover, Lieberman claims
that Defendants have breached the Contract by declining to
accept or honor his attempts to reserve his Unit at particular
times. Lieberman Second Am. Compl. ¶¶ 144-200.
Lieberman filed a Complaint against PDV, Hawk
Management L.P. (“Hawk Management”), and HWC, LLC (“HWC”), on
June 10, 2014.3 Lieberman ECF No. 1. He later filed a First
Amended Complaint, Lieberman ECF No. 8 – which added Hawk
Opportunity Fund, L.P. (“HOF”) as a defendant – and a Second
Amended Complaint,4 Lieberman ECF No. 19, which was dismissed in
part, Lieberman ECF No. 31. The following claims remain in that
case: (1) alter ego liability/piercing the corporate veil; (2)
breach of contract; (3) conversion; (4) tortious interference
with contract; (5) private nuisance; and (6) promissory
The Kreibichs filed a Complaint against PDV, HOF, Hawk
Management, HWC, and David Callan on September 5, 2014. Kreibich
ECF No. 1. They later filed a First Amended Complaint, Kreibich
ECF No. 9, which was dismissed in part, Kreibich ECF No. 18. The
following claims remain in that case: (1) alter ego
liability/piercing the corporate veil; (2) breach of contract;
(3) fraud/misrepresentation; (4) tortious interference with
contract; and (5) fraud in the inducement.
The Court consolidated these two cases for pretrial
The first complaint also named as a defendant
Corporacion Experienca Unica, S.A., which was not named as a
defendant in the amended complaints.
The Second Amended Complaint added David Callan as a
purposes.5 Kreibich ECF No. 18. After discovery, several motions
are now ripe for disposition: (1) a Motion to Appoint Receiver,
filed by Lieberman and the Kreibichs, Lieberman ECF No. 45;6 (2)
a Motion for Judgment on the Pleadings, filed by Defendants,
Lieberman ECF No. 57;7 and (3) a Motion for Summary Judgment,
filed by Defendants, Kreibich ECF No. 32.8
MOTION FOR JUDGMENT ON THE PLEADINGS
Though Defendants’ motion for judgment on the
pleadings was filed after their motion for summary judgment, the
Court must address it first because it challenges the Court’s
subject matter jurisdiction.
Federal Rule of Civil Procedure 12(c) provides that,
“[a]fter the pleadings are closed – but early enough not to
Both cases were filed as actions in diversity.
Lieberman Second Am. Compl. ¶ 23; Kreibich First Am. Compl.
¶ 21. Defendants challenged the Court’s personal jurisdiction
over PDV at the motion to dismiss stage, Kreibich ECF No. 11,
but – with one exception, as discussed below – have not raised
jurisdictional issues since then.
Plaintiffs also filed, with respect to this motion, a
motion for leave to file a reply brief, Lieberman No. 49, which
the Court will grant.
Defendants also filed, with respect to this motion, a
motion for leave to file a reply brief, Lieberman ECF No. 60,
which the Court will grant.
Defendants also filed, with respect to this motion, a
motion for leave to file a reply brief, Kreibich ECF No. 37,
which the Court will grant. Plaintiffs then filed motions for
leave to file sur-replies, Kreibich ECF Nos. 38, 39, which the
Court will also grant.
delay trial – a party may move for judgment on the pleadings.”9
Judgment on the pleadings is appropriate only if the moving
party “clearly establishes that no material issue of fact
remains to be resolved and that he is entitled to judgment as a
matter of law.” Society Hill Civic Ass’n v. Harris, 632 F.2d
1045, 1054 (3d Cir. 1980) (citation omitted). In reviewing a
Rule 12(c) motion, a court “must view the facts presented in the
pleadings and the inferences to be drawn therefrom in the light
most favorable to the nonmoving party.” Rosenau v. Unifund
Corp., 539 F.3d 218, 221 (3d Cir. 2008) (quoting Jablonski v.
Pan Am. World Airways, Inc., 863 F.2d 289, 290-91 (3d Cir.
In their motion for judgment on the pleadings,
Defendants argue that the Court lacks subject matter
jurisdiction over this case because Plaintiffs lack standing to
bring it. Specifically, Defendants believe that Plaintiffs’
claims are derivative, not direct, and thus that they cannot be
brought in Plaintiffs’ personal capacities.
In Pennsylvania, a shareholder lacks standing “to
Though this motion for judgment on the pleadings comes
unusually late in the litigation, no trial date has yet been
scheduled in this case, and thus the trial has not been delayed
by the filing of this motion. Moreover, “[c]hallenges to
subject-matter jurisdiction can of course be raised at any time
prior to final judgment.” Grupo Dataflux v. Atlas Global Grp.,
L.P., 541 U.S. 567, 571 (2004).
institute a direct suit for ‘a harm [that is] peculiar to the
corporation and [that is] only  indirectly injurious to [the]
shareholder.’” Hill v. Ofalt, 85 A.3d 540, 548 (Pa. Super. Ct.
2014) (alterations in original) (quoting Reifsnyder v.
Pittsburgh Outdoor Advertising Co., 173 A.2d 319, 321 (1961)).
Instead, “such a claim belongs to, and is an asset of, the
corporation.” Id. This type of claim – one belonging to the
corporation, rather than the shareholder – is called a
In order to have standing to bring a direct suit –
that is, to sue individually, rather than on behalf of the
corporation – a shareholder “must allege a direct, personal
injury – that is independent of any injury to the corporation –
and the shareholder must be entitled to receive the benefit of
any recovery.” Id. “If the injury is one to the plaintiff as a
stockholder and to him individually, and not to the corporation,
it is an individual action.” Fishkin v. Hi-Acres, Inc., 341 A.2d
95, 98 n.4 (Pa. 1975) (quoting 13 Fletcher Cyclopedia
Corporations § 5911 (Perm. Ed.)).
Accordingly, a court facing the question of whether an
action is direct or derivative must approach the inquiry as
. . . Whether a cause of action is individual or
derivative must be determined from the nature of the
wrong alleged and the relief, if any, that could
result if the plaintiff were to prevail.
In determining the nature of the wrong
alleged, the court must look to the body of the
complaint, not to the plaintiff’s designation or
stated intention. The action is derivative if the
corporation, or to the whole body of its stock or
property without any severance or distribution among
individual holders, or if it seeks to recover assets
for the corporation or to prevent dissipation of its
assets . . . . If damages to a shareholder result
indirectly, as the result of any injury to the
corporation, and not directly, the shareholder cannot
sue as an individual.
Hill, 85 A.3d at 549 (quoting 12B Fletcher Cyclopedia of the Law
of Corporations § 5911 (2013). “If the court determines that a
claim is actually derivative in nature, the plaintiff is
precluded from proceeding directly.” Resh v. Bortner, No.
16-02437, 2016 WL 6834104, at *5 (E.D. Pa. Nov. 21, 2016).
Looking to the bodies of Plaintiffs’ complaints, as
well as the relief they seek, it is evident that Plaintiffs
allege direct, rather than derivative, claims.
First, Plaintiffs are not alleging any injury to PDV.
In many derivative suits, for example, shareholders argue that
they have been injured by the devaluing of their investments due
to poor decisions that have harmed the corporation – that is,
that others have injured the corporation and the shareholders
have suffered as a result. See Kauffman v. Dreyfus Fund, Inc.,
434 F.2d 727, 732 (3d Cir. 1970) (“A stockholder of a
corporation does not acquire standing to maintain an action in
his own right, as a shareholder, when the alleged injury is
inflicted upon the corporation and the only injury to the
shareholder is the indirect harm which consists in the
diminution in value of his corporate shares resulting from the
impairment of corporate assets.”); Resh, 2016 WL 6834104, at *6.
Here, in contrast, the injuries alleged by Plaintiffs were
inflicted directly on the shareholders, by the corporation.
Indeed, Plaintiffs could not even conceivably bring these claims
on behalf of PDV because they implicitly claim that PDV
benefited from – and was not harmed by – the actions at issue.
In short, then, Plaintiffs’ claims are “independent of any
injury to the corporation.” Hill, 85 A.3d at 548.
Second, Plaintiffs would be “entitled to receive the
benefit of any recovery.” Id. The requested recovery would not
go to PDV, where it would trickle down to Plaintiffs in the form
of increased stock value, but instead would go directly to
Therefore, Plaintiffs’ claims are direct, rather than
derivative, and Plaintiffs have standing to pursue them.
III. MOTION FOR SUMMARY JUDGMENT
Summary judgment is appropriate if there is no genuine
dispute as to any material fact and the moving party is entitled
to judgment as a matter of law. Fed. R. Civ. P. 56(a). “A motion
for summary judgment will not be defeated by ‘the mere
existence’ of some disputed facts, but will be denied when there
is a genuine issue of material fact.” Am. Eagle Outfitters v.
Lyle & Scott Ltd., 584 F.3d 575, 581 (3d Cir. 2009) (quoting
Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247 (1986)). A
fact is “material” if proof of its existence or nonexistence
might affect the outcome of the litigation, and a dispute is
“genuine” if “the evidence is such that a reasonable jury could
return a verdict for the nonmoving party.” Anderson, 477 U.S. at
The Court will view the facts in the light most
favorable to the nonmoving party. “After making all reasonable
inferences in the nonmoving party’s favor, there is a genuine
issue of material fact if a reasonable jury could find for the
nonmoving party.” Pignataro v. Port Auth., 593 F.3d 265, 268 (3d
Cir. 2010). In short, the essential question is “whether the
evidence presents a sufficient disagreement to require
submission to a jury or whether it is so one-sided that one
party must prevail as a matter of law.” Anderson, 477 U.S. at
Defendants move to dismiss some, but not all, of the
claims in these two cases.10 Each of Defendants’ arguments is
analyzed in turn below.
Breach of Contract
Both Lieberman and the Kreibichs bring breach of
contract claims. Lieberman contends that Defendants breached the
Contract by: (1) failing to provide audited financial statements
for fiscal years 2004 to 2006 and 2011 until at least 2014,
Lieberman Second Am. Compl. ¶¶ 221-23; (2) using improper
accounting methodologies to arrive at a net income that allows
Defendants to avoid paying income distributions to Lieberman,
id. ¶¶ 224-28; and (3) “unilaterally and secretly modifying the
terms of” the Contract in order to refuse Lieberman access to
his Unit, id. ¶¶ 230-31. The Kreibichs contend that Defendants
breached the Contract by: (1) failing to provide audited
financial statements for fiscal years 2011, 2012, and 2013,
Kreibich First Am. Compl. ¶¶ 170-71; and (2) using improper
accounting methodologies to arrive at a net income that allows
Defendants to avoid paying income distributions to the
Kreibichs, id. ¶¶ 172-75.
judgment on Lieberman’s
or promissory estoppel.
judgment as to portions
Defendants do not move for summary
claims of conversion, private nuisance,
They also do not move for summary
of Plaintiffs’ breach of contract
Defendants move for summary judgment on only a portion
of these breach of contract claims: the claim that Defendants
breached the Contract by manipulating PDV’s accounting in such a
way that allowed PDV to avoid paying distributions to its
preferred shareholders, including Lieberman and the Kreibichs.
Defendants argue that this claim is (1) barred by the statute of
limitations, and (2) foreclosed by the language of the Contract.
First, Defendants argue that this breach of contract
claim is untimely.
The parties agree that Pennsylvania’s four-year
statute of limitations applies to this claim.11 See 42 Pa. Const.
Stat. Ann. § 5525(a). But they appear to disagree about when the
claim accrued, such that the statute of limitations began to
run. See Gleason v. Borough of Moosic, 15 A.3d 479, 484 (Pa.
2011) (“Generally, a statute of limitations period begins to run
when a cause of action accrues; i.e., when an injury is
inflicted and the corresponding right to institute a suit for
Curiously, Defendants do not actually state a specific
“[A] federal court must apply the substantive laws of
its forum state in diversity actions, and these include state
statutes of limitations.” Stephens v. Clash, 796 F.3d 281, 289
(3d Cir. 2015) (alteration in original) (quoting Lafferty v. St.
Riel, 495 F.3d 72, 76 (3d Cir. 2007)).
date on which they believe this claim accrued. They suggest that
it may have accrued sometime in 2008, because “there is no
question that Plaintiffs were aware that PDV had financial
issues in 2008” but “did nothing for seven years until filing
these actions.” Defs.’ Mem. Law at 13, Kreibich ECF No. 32. But
this is not a coherent argument concerning the accrual of the
breach of contract claim; the claim is not about PDV’s
“financial issues” generally, but PDV’s specific failure to pay
distributions from the rental pool. To that end, Defendants do
state that distributions, if any, should have been paid on
November 29, 2008; November 29, 2009; and November 29, 2010.
Id.12 Again, though, they do not explain how any or all of these
dates impact the statute of limitations – an important omission,
because those dates have different implications.
Most obviously, any claim for distributions that
should have been paid on November 29, 2010, is not time-barred,
because Plaintiffs filed their claims on June 10, 2014
(Lieberman), and September 5, 2014 (the Kreibichs) – within the
four-year limitations period, which did not expire until
They also mention November 29, 2005; November 29,
2006; and November 29, 2007, Defs.’ Mem. Law at 13, but those
dates are irrelevant because “Plaintiffs are not seeking rental
pool distributions for” those fiscal years. Pls.’ Mem. Law at 17
n.6, Kreibich ECF No. 35.
As to the 2008 and 2009 non-distributions, Plaintiffs
invoke Pennsylvania’s discovery rule to argue that those claims
did not accrue until February 15, 2011, when Defendants produced
audited financial statements and Plaintiffs discovered their
alleged rights to distributions for previous years. Pls.’ Mem.
Law at 18. In other words, their argument is that they had no
way to know, until they received the financial statements, that
they were entitled to, and should have been receiving, income
The discovery rule “tolls the accrual of the statute
of limitations when a plaintiff is unable, ‘despite the exercise
of due diligence, to know of the injury or its cause.’” Mest v.
Cabot Corp., 449 F.3d 502, 510 (3d Cir. 2006) (quoting Pocono
Int’l Raceway, Inc. v. Pocono Produce, Inc., 468 A.2d 468, 471
(Pa. 1983)); see also City of Philadelphia v. One Reading Ctr.
Assocs., 143 F. Supp. 2d 508, 526 (E.D. Pa. 2001) (“The
discovery rule is based on the notion that it would be unjust to
deprive a party of a cause of action before that party has a
reasonable basis for concluding that a viable claim exists.”).
The rule “focuses not on ‘the plaintiff’s actual knowledge, but
rather on whether the knowledge was known, or through the
exercise of diligence, knowable to’ the plaintiff.” Mest, 449
F.3d at 510 (quoting Bohus v. Beloff, 950 F.2d 919, 925 (3d Cir.
1991)). In order to demonstrate that he exercised such
“reasonable diligence,” a plaintiff must show “that he pursued
the cause of his injury with those qualities of attention,
knowledge, intelligence and judgment which society requires of
its members for the protection of their own interests and the
interests of others.” Id. (quoting Cochran v. GAF Corp., 666
A.2d 245, 249 (Pa. 1995)).
“[W]hether a plaintiff has exercised reasonable
diligence is generally a factual question reserved for the
jury,” id. at 512, because of “the fact intensive nature of the
inquiry,” Gleason, 15 A.3d at 363. Only if “the facts are so
clear that reasonable minds could not differ” may a court
determine that, as a matter of law, a party was not reasonably
diligent. Id.; see also Mest, 449 F.3d at 512. Here, then, the
question is whether the facts are so clear that reasonable minds
could not determine that Plaintiffs were reasonably diligent in
discovering their alleged injuries.
On the record before the Court at this time, the facts
are not so clear, as potentially relevant questions remain
unanswered. For example, though Plaintiffs have admitted that
they did not contact PDV after they did not receive rental pool
distributions for the fiscal years at issue, Pls.’ Interrog.
Resps. ¶¶ 22-27, Defs.’ Mot. Summ. J. Ex. G, ECF Nos. 33-7, 338, the record appears to be silent as to whether Plaintiffs
actually had reason to expect rental pool distributions those
years. If they did not – or, especially, if they had reason not
to expect distributions – reasonable minds could conclude that
failing to contact PDV about that issue does not evidence a lack
of diligence. Accordingly, the Court will decline to remove this
question from the jury’s purview by granting judgment at this
To summarize, Plaintiffs’ claims concerning
distributions that should have been paid on November 29, 2010,
are not time-barred, and factual questions remain concerning
distributions that should have been paid in 2008 and 2009.
Accordingly, the Court will deny the motion for summary judgment
as to the timeliness of Plaintiffs’ breach of contract claims.
Defendants also argue that they are entitled, as a
matter of law, to judgment on Plaintiffs’ claims that Defendants
breached the Contract by using improper accounting methodologies
and, as a result, failing to pay rental pool income
The Rental Pool Agreement, or RPA, provides that
preferred shareholders “shall receive 60% of the net income
generated from the rental income of the apartments combined,
regardless of the occupancy rate of each individually.” Rental
Pool Agreement at 5,13 Defs.’ Mot. Summ. J. Ex. D, Kreibich ECF
No. 33-4 [hereinafter Contract]. The RPA then defines “net
the sum total income calculated after the deduction of
credit charges, insurance policies, institutional
deductions, commissions to travel agents and tour
exchanges, municipal and other (government) taxes, as
well as the cost to maintain and operate the rented
facilities, including operating personnel, maintenance
in general, gardeners, service of maids, electric
power, water and telephone, security and repairs,
whose costs shall be deducted from the income to be
The dispute here is whether this definition permits
Defendants to deduct “debt service, depreciation[,] and capital
expenditures” from PDV’s calculation of net income.14 Lieberman
Second Am. Compl. ¶ 225. According to Plaintiffs, Defendants’
deduction of expenses in these categories has resulted in a
nearly $9 million difference between the parties’ calculations.
Defendants say that they may include these deductions, and have
Cited page numbers for any portion of the Contract
refer to the page numbers imposed by ECF.
For these purposes, at least, Defendants appear to
accept Plaintiffs’ definitions of these terms. Defs.’ Mem. Law
at 8 n.6. Plaintiffs define “debt service” as “the payment of
interest on borrowed money”; “depreciation expense” as “a noncash accounting method of allocating the cost of a tangible
asset over its useful life”; and “capital costs” as “the payment
of money to acquire, construct or improve fixed, tangible assets
including but not limited to land, buildings, construction and
equipment.” Pls.’ Interrog. Resps. ¶¶ 15-17.
arrived at net losses for most fiscal years from 2008 to 2014 –
nearly $500,000 total. Pls.’ Mem. Law at 9. If correct, those
losses mean that Plaintiffs are not entitled, under the RPA, to
rental pool income distributions for those years. On the flip
side, Plaintiffs do not include deductions for those categories
of expenses, and they calculate that PDV has a cumulative
positive net income of more than $8 million for fiscal years
2008 to 2014. Id. at 9-10. If correct, Plaintiffs’ calculations
mean that Plaintiffs are theoretically entitled to rental pool
distributions from that income (provided, of course, that they
otherwise qualify for distributions under the terms of the
contract15). Accordingly, this case presents a question of
contract interpretation: does the Contract allow Defendants to
deduct these particular categories of expenses from its
calculation of net income?
A federal court sitting in diversity must apply the
substantive law as decided by the highest court of the state
whose law governs the action. Erie R.R. Co. v. Tompkins, 304
U.S. 64, 78 (1938); Orson, Inc. v. Miramax Film Corp., 79 F.3d
1358, 1373 n.15 (3d Cir. 1996). Here, the parties agree that
Pennsylvania contract law controls. See Defs.’ Mem. Law at 7
For example, the Kreibichs converted their preferred
shares to common shares at some point and thus are presumably
ineligible for rental pool distributions originating after that
conversion took effect (a date which is in dispute).
(citing Pennsylvania contract law); Pls.’ Mem. Law at 13 (citing
Pennsylvania contract law).
In American Eagle Outfitters v. Lyle & Scott Ltd., 584
F.3d 575 (3d Cir. 2009), the Third Circuit, applying
Pennsylvania law, prescribed the methodology that a court should
use when interpreting a contract. “[A]s a preliminary matter,
courts must determine as a matter of law which category written
contract terms fall into – clear or ambiguous.” Id. at 587
(quoting Duquesne Light Co. v. Westinghouse Elec. Corp., 66 F.3d
604, 613 (3d Cir. 1995)). If the contract is clear, it should be
interpreted by the court as a matter of law. Id. (citing
Gonzalez v. U.S. Steel Corp., 398 A.2d 1378, 1385 (1979);
Allegheny Int’l v. Allegheny Ludlum Steel Corp., 40 F.3d 1416,
1424 (3d Cir. 1994)). If it is ambiguous, “deciding the intent
of the parties becomes a question of fact for a jury.” Id.
(citing Cmty. Coll. of Beaver Cty. v. Cmty. Coll. of Beaver
Cty., Soc’y of the Faculty, 375 A.2d 1267, 1275 (1977)).
When interpreting a contract, the court begins with
the “firmly settled” principle that “the intent of the parties
to a written contract is contained in the writing itself.” Id.
(quoting Krizovensky v. Krizovensky, 624 A.2d 638, 642 (Pa.
Super. Ct. 1993)). Where the words of a contract are clear and
unambiguous, its meaning must be determined by its contents
alone, without reference to extrinsic aids or evidence. Id.
(quoting Steuart v. McChesney, 444 A.2d 659, 661 (Pa. 1982)).
On the other hand, “a contract is ambiguous, and thus
presents a question of interpretation for a jury, if the
contract ‘is reasonably susceptible of different constructions
and capable of being understood in more than one sense.’” Id.
(quoting Allegheny Int’l, 40 F.3d at 1425). Under such
circumstances, a court “may look ‘outside the four corners of
the contract’” and “receive extrinsic evidence . . . to resolve
the ambiguity.” Id. at 588 (quoting Duquesne Light Co., 66 F.3d
reasonably susceptible of different constructions and
capable of being understood in more than one sense.
The court, as a matter of law, determines the
existence of an ambiguity and interprets the contract
whereas the resolution of conflicting parol evidence
relevant to what the parties intended by the ambiguous
provision is for the trier of fact.
In re Old Summit Mfg., LLC, 523 F.3d 134, 137 (3d Cir. 2008)
(quoting Hutchison v. Sunbeam Coal Corp., 519 A.2d 385, 390 (Pa.
1986)). The first question, then, is whether the Contract in
this case is clear or ambiguous concerning the scope of the
deductions permitted in PDV’s calculation of “net income.”
Defendants do not argue that the expense categories at
issue actually fall into any of the categories explicitly
articulated in the RPA’s definition of net income. Certainly, at
least, they do not point to any particular portion of the
definition. As a result, Defendants arguably concede that the
deductions at issue do not appear in the plain words of the
Contract. To cure this problem, they argue that their own
reading of the RPA is “the only sensible and reasonable
interpretation” of the contract because Plaintiffs’
interpretation would essentially require PDV to “default on its
mortgage and divert the funds properly due under the loan to the
Rental Pool for the preferred shareholders’ benefit.” Defs.’
Reply at 4-5, Kreibich ECF No. 37-1. If PDV was forced to follow
this path, Defendants say, “the lender would foreclose on the
Resort, and all shareholders, Plaintiffs included, would be in
peril of completely losing their investment.” Id.
It is true that, where “the plain meaning of a
contract term would lead to an interpretation that is absurd and
unreasonable, Pennsylvania contract law allows a court to
construe the contract otherwise in order to reach ‘the only
sensible and reasonable interpretation’ of the contract.”
Bohler-Uddeholm Am., Inc. v. Ellwood Grp., Inc., 247 F.3d 79, 98
(3d Cir. 2001) (quoting United Refining Co. v. Jenkins, 189 A.2d
574, 580 (Pa. 1963)). But in order to do that here, the Court
would need to assume or accept that complying with Plaintiffs’
interpretation of the RPA would cause PDV to default on its
mortgage, as Defendants have not advanced any other reasons that
Plaintiffs’ interpretation would be absurd. The Court is
obviously not in a position, at the summary judgment stage, to
draw factual conclusions about the financial implications of a
theoretical result. Rather, if Defendants believe that
Plaintiffs’ interpretation of the Contract would necessarily
lead to the financial collapse of PDV, they must present
relevant evidence to a trier of fact.
Defendants also argue that when the Contract is read
in its entirety,16 the deductions at issue are clearly permitted.
They point to five excerpts from other portions of the Contract:
Article 9(a) of the Regulations requires preferred
shareholders to “cover the expenses of management,
preservation and operation of common areas, services
and assets in the amount corresponding to the
preferred shares in accordance with the Rental Pool
Agreement and all other agreements herewith attached
and subscribed to for the [sic] purpose.” Contract at
Article 9(b) of the Regulations obligates preferred
shareholders to “cover, in proportion to their number
of shares, the expenses incurred for expansion,
reconstruction or improvement of common areas, or for
acquisition of assets and common equipment when
authorized in accordance by [sic] the By-Laws or a
resolution adopted by a majority vote of the preferred
shareholders.” Id. at 9.
See Commonwealth ex rel. Kane v. UPMC, 129 A.3d 441,
463-64 (Pa. 2015) (“[T]he entire contract should be read as a
whole . . . to give effect to its true purpose.” (ellipsis in
original) (quoting Pritchard v. Wick, 178 A.2d 725, 727
Article 10(b) of the Regulations requires preferred
shareholders to “pay any admission, special and/or
maintenance fees established by the Board of
Directors.” Id. at 9.
Article 13 of the Regulations states that, for the
purposes of Article 10, “common expenses” include
“[l]ocal taxes and municipal charges which may affect
the company, the ownership of the [Resort] and any
other compulsory charge”; and expenses “incurred for
maintenance and preservation of services, real
property and common equipment.” Id. at 10.
Section F of the PSCFS, entitled “Insurance & All
General Expenses,” provides that the Resort’s
insurance policy, “like all operating expenses as
described herein these contracts and Annexes herewith
attached, are and will be paid annually through the
income of the rental pool, and if those funds are not
sufficient from the ‘pool’ to cover said policy and
expenses, then the Shareholder/Condo Apartment Owner
will be billed their proportional amount according to
their total ownership of preferred shares.” Id. at 14.
For the most part, these excerpts do not, as
Defendants claim, create indisputable clarity concerning the
Contract. Indeed, in some ways, they increase the amount of
ambiguity here. Each excerpt is taken in turn below.
First, one plausible reading of Article 9(a) might
suggest that one or more of the disputed categories are covered
by the Contract. Specifically, a broad reading of “the expenses
of management, preservation and operation of common areas,
services and assets” could encompass, at least, debt service
(that is, mortgage payments) and depreciation costs, both of
which might fall under the preservation of assets, if nothing
else. But Article 9(a) immediately confuses the situation by
stating that those expenses must be covered “in accordance with
the Rental Pool Agreement.” Therefore, a different reading of
Article 9(a) plausibly suggests that the expenses summarized in
the article are those already delineated in the Rental Pool
Agreement, rather than additional – and much broader – types of
expenses. And as discussed above, Defendant seems to concede
that the language of the Rental Pool Agreement does not itself
encompass the categories at issue. Accordingly, Article 9(a)
does not clearly state that PDV can, in effect, charge the
preferred shareholders for the disputed categories of expenses
by deducting the expenses from the rental pool income.
Article 9(b) does clearly appear to cover the disputed
category of capital costs, which Plaintiffs define as “the
payment of money to acquire, construct or improve fixed,
tangible assets including but not limited to land, buildings,
construction and equipment.” Pls.’ Interrog. Resps. ¶ 17. This
language is similar to Article 9(b), which requires preferred
shareholders to cover “the expenses incurred for expansion,
reconstruction or improvement of common areas, or for
acquisition of assets and common equipment.” Accepting
Plaintiffs’ own definition of capital costs, the only reasonable
reading of Article 9(b) includes a requirement to pay those
capital costs. However, Article 9(b) qualifies its requirement
by stating that the expenses must be “authorized in accordance
by the By-Laws or a resolution adopted by a majority vote of the
preferred shareholders.” Contract at 9. The parties do not
discuss whether the specific capital costs in dispute were
properly authorized. Accordingly, genuine issues of material
fact remain concerning the category of capital costs.
Article 10(b), which requires preferred shareholders
to “pay any admission, special and/or maintenance fees
established by the Board of Directors,” id. at 9, is ambiguous.
In particular, the word “special” is inherently unclear.
Defendants contend that the Board could simply classify PDV’s
mortgage payments as a “special” fee and charge it to the
preferred shareholders. Defs.’ Mem. Law at 10. Even assuming
that argument is true under one plausible reading of Article
10(b), Defendants have – again – not explained why it is the
only plausible reading, particularly in light of the broad
implications of their argument. Indeed, because “special”
appears in the same list of fees as admission fees and
maintenance fees,17 it is reasonable to conclude that Article
10(b) does not give the Board a blank check to impose virtually
Elsewhere, for example, the Contract clarifies that
there is an annual “established maintenance fee of [$]70.00 per
share owned, per year,” which is “to cover the costs of any
general maintenance, alterations, additions, improvements of the
ground and installations, minor repairs, and external paint of
the apartment.” Contract at 14. This fee is to “be deducted from
net profits derived per the Rental pool agreement.” Id.
any fee, no matter whether it is contemplated by the Contract,
and label it “special.” See Defs.’ Mem. Law at 10-11 (“[I]t is
PDV’s position that preferred shareholders can be subject to a
special assessment (i.e., a capital call) by a duly-approved
resolution of PDV’s Board of Directors without any
limitation.”). At the least, Defendants have failed to provide
extrinsic evidence that illuminates the meaning of the word
“special” in this context and justifies their position as the
only reasonable one. Therefore, this Article remains ambiguous.
At a broad level, Article 13 is simply confusing, and
may be the result of a drafting error. It begins: “For purposes
of Article 10, the following are some of the common expenses.”
Contract at 10. It then goes on to list a number of different
types of expenses. But Article 10 – which Article 13 is
apparently intended to illuminate – makes no mention of “common
expenses.”18 Accordingly, it is unclear what exactly Article 13
is meant to modify – and thus, what effect it has within the
Article 10 does contain the clause requiring preferred
shareholders to “pay any admission, special and/or maintenance
fees established by the Board of Directors.” Contract at 9. It
is conceivable that these fees might be the Article 13 “common
expenses.” But Defendant has not argued as much, or explained
why that would be the only reasonable reading of these two
articles – especially considering the fact that not all of the
expenses listed in Article 13 would be set by the Board of
Finally, Section F of the PSCFS simply clarifies that
“all operating expenses as described herein these contracts” are
to be paid by deducting them from the rental pool income.
Contract at 14. This section provides no additional clarity
concerning which operating expenses are “described herein these
contracts.” If the Contract does not contemplate a particular
operating expense, it appears – or at least, it is reasonable to
conclude that – that expense is not relevant to Section F, and
In short, the contract – by and large – remains
ambiguous.19 Accordingly, the Court may consider extrinsic
evidence to resolve the ambiguity. Am. Eagle Outfitters, 584
F.3d at 588. Defendants have pointed to no such evidence and
thus have given the Court no way to attempt to resolve the
To summarize, Defendants appear to concede that the
plain language of the RPA does not support its interpretation.
At best, then, for Defendants, either their interpretation is
the only reasonable one – an argument that requires the
demonstration of disputed facts – or the Contract is ambiguous.
And because contractual ambiguities are also to be resolved by
The only exception is the question of capital costs,
as discussed above, which must also survive summary judgment due
to general issues of material fact.
triers of fact, the Court will deny the motion for summary
judgment as to Plaintiffs’ claims for breach of contract.
Piercing the Corporate Veil
As a general rule, members of a limited liability
company or shareholders of corporations are “not personally
liable to perform corporate obligations.” Kaplan v. First
Options of Chicago, Inc., 19 F.3d 1503, 1520-21 (3d Cir. 1994).
But in some rare instances, courts will disregard that rule by
“piercing the corporate veil,” which is “an equitable remedy
whereby a court disregards ‘the existence of a corporation to
make the corporation’s individual principals and their personal
assets liable for the debts of the corporation.’” In re
Blatstein, 192 F.3d 88, 100 (3d Cir. 1999) (quoting In re
Schuster, 132 B.R. 604, 607 (Bankr. D. Minn. 1991)). A court
should pierce the corporate veil only when “the corporation was
an artifice and a sham to execute illegitimate purposes and [an]
abuse of the corporate fiction and immunity that it carries.”
Kaplan, 19 F.3d at 1521 (alteration in original) (quoting
Wheeling-Pittsburgh Steel Corp. v. Intersteel, Inc., 758 F.
Supp. 1054, 1058 (W.D. Pa. 1990)).
The doctrine of piercing the corporate veil
encompasses several different theories. Here, Plaintiffs
apparently seek to pierce the corporate veil through the “alter
ego” theory,20 which “is applicable where the individual or
Plaintiffs’ intentions are not particularly clear;
indeed, they actually conflate several meanings of “alter ego
liability.” In their complaints, they style this claim as “Alter
Ego Liability/Piercing the Corporate Veil,” and cite a case
about piercing the corporate veil in support of their
description of the alter ego theory. Lieberman Second Am. Compl.
¶ 203; Kreibich First Am. Compl. ¶ 152. It thus appears from the
complaints that they intend to pierce the corporate veil under a
theory of alter ego liability. But in their response to the
motion for summary judgment – which itself confuses the issue as
well – they assume that alter ego liability and piercing the
corporate veil are two “separate” theories of liability. Pls.’
Mem. Law at 27. Indeed, they even cite two different legal
standards for alter ego liability and piercing the corporate
veil. Id. at 21, 28.
However, the “alter ego liability” to which Plaintiffs
refer and cite in that response is alter ego liability for the
purposes of jurisdiction. That is, “a court may exercise
personal jurisdiction, consistent with the Constitution, over a
corporate entity that is the alter ego of a party over which
jurisdiction is proper.” Atl. Pier Assocs., LLC v. Boardakan
Rest. Partners L.P., No. 08-4564, 2010 WL 3069607, at *3 (E.D.
Pa. Aug. 2, 2010) (citing Simeone ex rel. Estate of Albert
Francis Simeone, Jr. v. Bombardier-Rotax GmbH, 360 F. Supp. 2d
665, 675 (E.D. Pa. 2005)). As a result, courts have developed a
number of factors that bear on whether entities are alter egos
for the purposes of jurisdiction – and Plaintiffs cite to cases
explaining these factors. See Renner v. Roundo AB, No. 08-209,
2010 WL 3906242, at *5 (W.D. Pa. Sept. 29, 2010); Atl. Pier
Assocs., 2010 WL 3069607, at *3; Oeschle v. Pro-Tech Power,
Inc., No. 03-6875, 2006 WL 680908, at *4 (E.D. Pa. Mar. 15,
2006); Gammino v. Verizon Commc’ns, Inc., No. 03-5579, 2005 WL
3560799, at *4 (E.D. Pa. Dec. 27, 2005); In re Latex Gloves
Prods. Liab. Litig., No. MDL 1148, 2001 WL 964105, at *3-4 (E.D.
Pa. Aug. 22, 2001). But what Plaintiff does not acknowledge is
that these cases all specifically address the question of
jurisdiction, and no more – this particular use for alter ego
liability ends when jurisdiction is or is not found to exist.
Though Defendants challenged personal jurisdiction at
the motion to dismiss stage, they are not challenging personal
jurisdiction in their motion for summary judgment. Accordingly,
the type of alter ego liability addressed by Plaintiffs is no
corporate owner controls the corporation to be pierced and the
controlling owner is to be held liable.” Miners, Inc. v. Alpine
Equip. Corp., 722 A.2d 691, 695 (Pa. Super. Ct. 1998) (emphasis
omitted). It is appropriate to pierce the corporate veil through
this theory only where “a corporation’s affairs and personnel
were manipulated to such an extent that it became nothing more
than a sham used to disguise the alter ego’s use of its assets
for his own benefit in fraud of its creditors. In short, the
evidence must show that the corporation’s owners abused the
legal separation of a corporation from its owners and used the
corporation for illegitimate purposes.” Kaplan, 19 F.3d at 1521.
In determining whether to pierce the corporate veil,
courts are instructed to consider, among other things, whether:
(1) the company is undercapitalized; (2) there has been a
failure to observe corporate formalities; (3) the company is not
paying dividends; (4) the dominant shareholder has siphoned
funds from the company; (5) other officers or directors are not
functioning; (6) there is an absence of corporate records; and
(7) “the corporation is merely a facade for the operations of
the dominant stockholder or stockholders.” Id. (quoting United
States v. Pisani, 646 F.2d 83, 88 (3d Cir. 1981)).
Here, Plaintiffs allege that “Defendant Callan used
longer relevant. Rather, the relevant standard now is alter ego
liability for the purposes of piercing the corporate veil.
co-Defendants PDV, Hawk Management, HWC, and HOF extensively and
interchangeably in his fraudulent dealings with Plaintiffs.”
Pls.’ Mem. Law at 21. Defendants, in their motion for summary
judgment, argue that Plaintiffs have “presented scant evidence”
in support of this claim, and thus that Defendants are entitled
to judgment on the matter of piercing the corporate veil. Defs.’
Mem. Law at 16.
Defendants are correct. Though Plaintiffs have put
forth evidence showing that all Defendants were connected in
various ways, they have not demonstrated that PDV is a “sham
used to disguise” the misdeeds of Callan and/or the Hawk
Defendants. Kaplan, 19 F.3d at 1521.
Plaintiffs point to four of the relevant factors.
Pls.’ Mem. Law at 28-30. First, they argue that PDV was
undercapitalized, as evidenced by its failure to pay income
distributions, as well as its need to take out a mortgage on the
property and to receive advanced funding from HOF in order to
complete construction of the hotel. But these facts are
insufficient to support veil-piercing: PDV’s failure to pay
income distributions is evidence not of undercapitalization, but
of underperformance, and it is patently absurd to suggest that
the need to borrow money – especially at the beginning of a
project – proves, on its own, that a company is
undercapitalized. Indeed, that conclusion would, presumably,
expose nearly every company to the possibility of veil-piercing.
Moreover, Plaintiff has failed to present “any evidence . . . as
to the level of capital required for a corporation of [PDV’s]
size to conduct” its business. Trs. of Nat’l Elevator Indus.
Pension, Health Benefit & Educ. Funds v. Lutyk, 332 F.3d 188,
197 (3d Cir. 2003). Accordingly, the record contains no basis
upon which a reasonable finder of fact could conclude that PDV’s
initial capitalization was not “sufficient for that corporate
undertaking under normal operating conditions.” Id.
Second, Plaintiffs argue that PDV failed to observe
corporate formalities, as evidenced by:
a) Callan’s attempts to place investors into PDV and
HOF as an investment vehicle; b) the significant
overlap in ownership among PDV, HOF, HWC, and Hawk
Management; c) the entities[’] operation out of the
exact same address; d) the instructions of PDV for
investors to send their funds to HOF; e) PDV’s
instructions to return subscription forms for PDV to
Hawk Management; f) the dominant control exerted by
HOF over PDV; g) Hawk Management’s role as general
partner of and sole investment adviser to HOF with
exclusive discretion to manage and invest its assets;
and h) HWC’s role as general partner of Hawk
Management and ownership thereof along with its only
two limited partners, Callan and [Scott] Williams.
Pls.’ Mem. Law at 28-29. These assertions are, by and large,
entirely irrelevant to the question of whether PDV observed
corporate formalities. Rather, they form the basis of a general
argument that the entities (and Callan) were impermissibly
intertwined. Plaintiffs do not attempt to refute Defendants’
contentions that PDV adhered to “formalities such as conducting
board and shareholder meetings, maintaining insurance, filing
tax returns, electing officers, titling assets in the corporate
name, keeping books and records, and producing audited financial
statements.” Defs.’ Mem. Law at 19.
Third, Plaintiffs argue that there “is significant
evidence of intermingling of funds among the entities.” Pls.’
Mem. Law at 29. Apparently, Plaintiffs intend this allegation to
relate to Pennsylvania’s rule that “substantial intermingling of
corporate and personal affairs” may, in part, justify piercing
the corporate veil. Lumax Indus., Inc. v. Aultman, 669 A.2d 893,
895 (Pa. 1995) (quoting Kaites v. Dept. of Envtl. Res., 529 A.2d
1148, 1151 (Pa. Commw. Ct. 1987)). In support of this claim,
Plaintiffs cite to several transfers of money between PDV and
HOF.21 Pls.’ Mem. Law at 29. Plaintiffs do not explain how these
transfers rise to the level of “substantial intermingling of
corporate and personal affairs.” To the contrary, the fact that
these transfers were memorialized in the companies’ records,
rather than undocumented, “undercuts an alter ego theory.” Wen
v. Willis, No. 15-1328, 2015 WL 6379536, at *6 (E.D. Pa. Oct.
Plaintiffs also reference a number of transfers
between HOF and HWC, and between HOF and Callan, but do not
explain how those transfers, which did not involve PDV, are
relevant when the question is whether to pierce PDV’s corporate
Fourth, Plaintiffs contend that “PDV was clearly used
by Callan and the other Defendants to perpetuate a fraud.” Pls.’
Mem. Law at 29. Specifically, they say, “[t]here is substantial
evidence to support a finding that the co-Defendants defrauded
Plaintiffs into converting their preferred shares into worthless
common shares. There is also ample evidence to support a finding
that PDV’s co-Defendants actively worked to deny Plaintiffs
their rightful distributions under the rental pool agreements.”
Id. at 29-30. Plaintiffs do not cite to any of this evidence –
or, in fact, to anything at all, in support of this argument.
Broad assertions without any specific evidence whatsoever are
insufficient to support a claim at summary judgment. See
Anderson, 477 U.S. at 249 (“[I]n the face of [a] defendant’s
properly supported motion for summary judgment, the plaintiff
[cannot] rest on his allegations . . . to get to a jury without
‘any significant probative evidence tending to support the
complaint.’” (quoting First Nat’l Bank of Arizona v. Cities
Serv. Co., 391 U.S. 253, 290 (1968))).
Finally, Plaintiffs also generally contend that
Callan, PDV, and the relevant Hawk entities have a fatal “degree
of commonality of ownership and function.” Pls.’ Mem. Law at 22.
Plaintiffs point specifically to the facts that HOF owns a
majority of outstanding PDV common stock, and that Callan is
PDV’s President and Director while also a principal of HOF,
owner of Hawk Management, and member of HWC. Id. But these
relationships do not justify piercing the corporate veil.
“Control through the ownership of shares does not fuse the
corporations, even when the directors are common to each.”
United States v. Bestfoods, 524 U.S. 51, 69 (1998) (quoting
Kingston Dry Dock Co. v. Lake Champlain Transp. Co., 31 F.2d
265, 267 (2d Cir. 1929)). Moreover, even where “dual officers
and directors ma[k]e policy decisions and supervise
activities” at the other company, liability does not exist
unless a party can present facts showing that, “despite the
general presumption to the contrary, the officers and directors
were acting in their capacities as” officers and directors for
the wrong company “when they committed those acts.” Id. at 6970. If no such evidence exists, the “general presumption” holds:
“directors and officers holding positions with a parent and its
subsidiary can and do ‘change hats’ to represent the two
corporations separately, despite their common ownership.” Id. at
69 (quoting Lusk v. Foxmeyer Health Corp., 129 F.3d 773, 779
(5th Cir. 1997)). Plaintiffs repeatedly suggest that common
ownership itself is evidence of PDV’s corporate unity with the
Hawk Defendants. It is not.
Plaintiffs do provide a few instances that, Plaintiffs
believe, demonstrate that PDV was, in effect, a single entity
with the Hawk Defendants. For example, a portion of the
Kreibichs’ investment in PDV was paid to HOF, and Callan
suggested that the Kreibichs could “participate in [the Resort]”
by investing in HOF. Pls.’ Mem. Law at 23; Kreibich First Am.
Compl. Ex. H at 35, Kreibich ECF No. 9-1. Even viewing these and
other facts in the light most favorable to Plaintiffs, they do
not present “specific, unusual circumstances” that overcome the
strong presumption against piercing the corporate veil. Official
Comm. of Unsecured Creditors v. R.F. Lafferty & Co., Inc., 267
F.3d 340, 353 (3d Cir. 2001); see also Sugartown Worldwide LLC
v. Shanks, No. 14-5063, 2015 WL 1312572, at *10 (E.D. Pa. Mar.
24, 2015) (noting that even “[s]elf-dealing, fraudulent
transfers and fiduciary misconduct do not alone ‘abuse the
To summarize, Plaintiffs have failed to offer evidence
from which a reasonable jury could conclude that PDV and
Defendants, “in all aspects of the[ir] businesses, . . .
actually functioned as a single entity and should be treated as
such.” Pearson v. Component Tech. Corp., 247 F.3d 471, 485 (3d
Cir. 2001). Nor have they demonstrated that PDV might be merely
“an artifice and a sham to execute illegitimate purposes and
[an] abuse of the corporate fiction and immunity that it
carries.” Kaplan, 19 F.3d at 1521 (alteration in original)
(quoting Wheeling-Pittsburgh Steel Corp., 758 F. Supp. at 1058).
Accordingly, the Court will grant judgment to Defendants on
Plaintiffs’ claims of piercing the corporate veil.
Next, Defendants argue that they are entitled to
summary judgment on the Kreibichs’ fraud claims. Two fraud-based
counts remain: Count 5 (fraud/misrepresentation) and Count 8
(fraud in the inducement). In both claims, the Kreibichs allege
that Defendants committed fraud in their efforts to convince the
Kreibichs to convert their preferred shares to common stock.
Defendants argue that (1) these claims are barred by the statute
of limitations and (2) Defendants did not, as a matter of law,
The parties agree that a two-year statute of
limitations applies to these claims. Defs.’ Mem. Law at 24;
Pls.’ Mem. Law at 31. Defendants argue that the time period
began to run no later than July 2011, when the conversion of the
stock was completed. Defs.’ Mem. Law at 24. If Defendants are
correct, Plaintiffs’ claims – filed in September 2014 – were
more than a year too late. Plaintiffs, on the other hand, assert
the discovery rule again: they argue that the two-year period
did not begin to run until May 2014, when they learned in a
phone call with Callan what their PDV shares were then worth.
Pls.’ Mem. Law at 31.
Again, the discovery rule “tolls the accrual of the
statute of limitations when a plaintiff is unable, ‘despite the
exercise of due diligence, to know of the injury or its cause.’”
Mest, 449 F.3d at 510 (quoting Pocono Int’l Raceway, Inc., 468
A.2d at 471). The rule “focuses not on ‘the plaintiff’s actual
knowledge, but rather on whether the knowledge was known, or
through the exercise of diligence, knowable to’ the plaintiff.”
Mest, 449 F.3d at 511 (quoting Bohus, 950 F.2d at 925). In order
to demonstrate that he exercised such “reasonable diligence,” a
plaintiff must show “that he pursued the cause of his injury
with those qualities of attention, knowledge, intelligence and
judgment which society requires of its members for the
protection of their own interests and the interests of others.”
Id. (quoting Cochran, 666 A.2d at 249).
As with Plaintiffs’ breach of contract claims, the
question whether the Kreibichs exercised reasonable diligence in
discovering their alleged injuries is a question properly
reserved for the jury. See id. at 512. Accordingly, the statute
of limitations does not provide a basis for entering judgment on
the Kreibichs’ fraud claims at this time.
Defendants also briefly argue that they are entitled
to judgment on the fraud claims because, in the Preferred
Shareholders Letter at issue, “there was no representations
[sic] made falsely, with knowledge of its falsity or
recklessness as to whether it is true or false or made with the
intent of misleading another into relying on it.” Defs.’ Mem.
Law at 25. Curiously, Defendants raise this argument in only
five sentences, one of which is a citation. They do not even set
forth the legal standards governing fraud/misrepresentation or
fraud in the inducement. Nor do they undergo any meaningful
analysis of the issues at stake, including the specific portions
of the Letter that Plaintiffs claim were fraudulent.
Accordingly, the Court will deny Defendants’ motion for summary
judgment as to the Kreibichs’ claims of fraud.
Finally, Defendants argue that they are entitled to
summary judgment on Plaintiffs’ tortious interference claims
against Callan and the Hawk Defendants. In those claims,
Plaintiffs allege that Callan and the Hawk Defendants caused
“PDV to withhold contractually obligated net income
distributions from preferred shareholders.” Kreibich First Am.
Compl. ¶ 214. Lieberman further contends that these Defendants
deprived him of his use and enjoyment in his Unit, Lieberman
Second Am. Compl. ¶ 267, and the Kreibichs further claim that
these Defendants interfered with the Contract by convincing the
Kreibichs to convert their stock, Kreibich First Am. Compl.
In order to prove tortious interference under
Pennsylvania law, Plaintiffs must establish:
(1) the existence of a contractual, or prospective
contractual relation between the complainant and a
third party; (2) purposeful action on the part of the
defendant, specifically intended to harm the existing
relation, or to prevent a prospective relation from
justification on the part of the defendant; and (4)
the occasioning of actual legal damage as a result of
the defendant’s conduct.
CGB Occupational Therapy, Inc. v. RHA Health Servs. Inc., 357
F.3d 375, 384 (3d Cir. 2004) (quoting Crivelli v. Gen. Motors
Corp., 215 F.3d 386, 394 (3d Cir. 2000)). Defendants contend
that Plaintiffs have not presented evidence of the second
element – that is, that they have not demonstrated a purposeful
action on the part of Callan and/or the Hawk Defendants. Indeed,
Defendants say, Plaintiffs offer no relevant facts, but make
only “conclusory statements that [Defendants] are all alter egos
of each other.” Defs.’ Mem. Law at 25-26.
In response, Plaintiffs offer only two allegedly
relevant facts (both of which relate only to the Kreibichs, not
to Lieberman). First, they say that Callan “purposefully induced
[the Kreibichs] to convert their preferred shares of PDV into
common shares so as to deprive them of their distribution rights
from the rental pool, as well as to deprive them of rights to
their Unit.” Pls.’ Mem. Law at 34. But, as discussed above, the
law presumes that Callan was acting on behalf of PDV, not
himself or the Hawk Defendants, when he took those actions. See
Bestfoods, 524 U.S. at 67-70. Plaintiffs have not offered any
evidence that overcomes that presumption. Second, Plaintiffs say
that Callan “repeatedly, albeit unsuccessfully, attempted to
have Plaintiffs convert their PDV common shares into shares of
Defendant HOF.” Pls.’ Mem. Law at 34. But Plaintiffs do not
explain how, if Callan’s efforts were unsuccessful, they
suffered “actual legal damage” as a result of these particular
actions. CGB Occupational Therapy, 357 F.3d at 384.
Defendants correctly identify that Plaintiffs have
offered no specific facts demonstrating action with the intent
to interfere on the part of Callan or any of the Hawk
Accordingly, no reasonable jury could find, on the
evidence presented, that Callan and/or the Hawk Defendants
committed tortious interference here. The Court will therefore
grant judgment to Defendants on Plaintiffs’ tortious
As an aside, this claim appears to conflict with
Plaintiffs’ insistence that all of the Defendants are alter egos
of each other. That is, if Callan or the Hawk Defendants are
actually alter egos of PDV – and thus, one entity for legal
purposes – there presumably could be no “third party” here and
thus no possibility of tortious interference.
At any rate, because the Court is granting judgment as
to alter ego liability, the Court need not wade into this
MOTION TO APPOINT RECEIVER
Plaintiffs – and non-party Richard Trout, who is
currently suing PDV in the Bucks County Court of Common Pleas23 –
have also moved for the appointment of a receiver “to assess and
monitor the finances” of PDV. Pls.’ Mem. Law at 1, Lieberman ECF
“The appointment of a receiver is an equitable
remedy . . . available at the discretion of the court.” Mintzer
v. Arthur L. Wright & Co., 263 F.2d 823, 824 (3d Cir. 1959).
There is no precise formula for determining whether a receiver
should be appointed, but the parties agree that the Court should
consider the following factors:
the possibility of irreparable injury
plaintiff’s interests in the property;
the probability that fraudulent conduct
the financial position of the debtor;
the imminent danger of the property being lost,
concealed, injured, diminished in value, or
the probability of the plaintiff’s success in the
the inadequacy of available legal remedies;
A motion for summary judgment is pending in that case.
the lack of a less drastic equitable remedy; and
the likelihood that appointing a receiver will do
more harm than good.
Comerica Bank v. State Petroleum Distribs., Inc., No. 08-678,
2008 WL 2550553, at *4 (M.D. Pa. June 2, 2008).
Considered in sum, these factors weigh against
appointing a receiver.
Plaintiffs argue that the first factor – the
probability of their success – weighs in their favor because the
remaining claims survived Defendants’ motions to dismiss. Pls.’
Mem. Law at 20-21. However, all that means is that they stated
claims upon which relief could be granted; surviving a motion to
dismiss does not necessarily mean that the claim is likely to
succeed. Indeed, if survival of a motion to dismiss was all that
was required to demonstrate a probability of success, this
factor would be virtually meaningless.
As to the second factor, Plaintiffs contend that their
interests in PDV may be irreparably injured because only a
receiver could “capture the full story” of PDV’s finances. Id.
at 21-22. This argument is not responsive to the second factor,
however, because Plaintiffs have not explained how these alleged
injuries would be irreparable without a receiver.
The parties agree that the third factor – the adequacy
of the security – is irrelevant here. Id. at 22; Defs.’ Mem. Law
Regarding the fourth factor – the probability of
fraud – Plaintiffs say that “PDV has continuously and
systematically fraudulently withheld distribution payments to
preferred shareholders.” Pls.’ Mem. Law at 23. But that is the
basis of Plaintiffs’ breach of contract claim, not a fraud
claim – Plaintiffs have not even brought claims of fraud with
respect to this conduct. And certainly, not all claims for
breach of contract involve fraudulent actions. Accordingly,
Plaintiffs have not shown that there is a probability of fraud.
The parties agree that the fifth factor – the
financial position of the debtor – is not relevant here. Id. at
24; Defs.’ Mem. Law at 10.
The sixth factor is whether there is an imminent
danger of property being lost, concealed, injured, diminished in
value, or squandered. Plaintiffs argue that the financial and
accounting books and records of PDV may be in imminent danger
because PDV has previously failed to provide timely financial
statements. Pls.’ Mem. Law at 24-25. But Plaintiffs do not claim
that any of the requested financial statements remain missing;
indeed, they managed to make detailed and specific
calculations – based on the financial statements – in responding
to the motion for summary judgment. Nor have Plaintiffs pointed
to any reasons to believe that Defendants are likely to destroy
documents, or that the money to which Plaintiffs believe they
are entitled is likely to go missing.
As to the seventh factor – the inadequacy of available
legal remedies – Plaintiffs argue that receivership is the sole
adequate legal remedy because they seek a receiver for the
limited purpose of reviewing PDV’s financial information. Id. at
25. But Plaintiffs fail to explain why a receiver is even
necessary, much less the sole legal remedy, when the damages
they seek are already defined. That is, Plaintiffs have
determined – based on PDV’s financial statements – how much
money to which they are entitled under their interpretation of
the contract. It is not a mystery to be revealed at some future
date through financial statements that remain missing. And,
critically, if their interpretation of the contract is wrong –
which is yet to be determined – they are not entitled to that
The eighth factor is whether another equitable remedy
is available to movants. As it seems there are no such remedies,
this factor may weigh in favor of Plaintiffs. But, as discussed
above, Plaintiffs have not persuasively explained why any
equitable remedy is necessary in the first place.
Similarly, the ninth and final factor – whether a
receiver would do more harm than good – also does not help
Plaintiffs much. That is, they have not demonstrated that a
receiver would even do good in the first place, under the
circumstances of this case.
Considering all of these factors, Plaintiffs have
failed to show that they are entitled to the appointment of a
financial receiver. Accordingly, the Court will deny this
For the foregoing reasons, the Court will: (1) deny
Defendants’ Motion for Judgment on the Pleadings; (2) grant
Defendants’ Motion for Summary Judgment as to Plaintiffs’ claims
of piercing the corporate veil and tortious interference with
contract, but deny the remainder of the motion; and (3) deny
Plaintiffs’ Motion to Appoint a Receiver.
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