Dommel Properties, LLC et al v. Jonestown Bank and Trust Company et al
Filing
64
MEMORANDUM AND ORDER granting in part and denying in part defts' motions to dismiss 29 & 30 - Cts I, II, III, IV, V, VI & XI dismissed in their entirety as to Leb Co Tax Claim Bureau, Cts I, III, IV & XI dismissed in their entirety as to Sal lie A. Neuin, Ct I dismissed as to Neuin w/ re: pltfs' procedural due process claim, & Cts I, II, III, IV, VI & IX dismissed in their entirety as to Jonestown Bank & Trust Co. (See memo & order for complete details.) Signed by Honorable Christopher C. Conner on 3/19/13. (ki)
IN THE UNITED STATES DISTRICT COURT
FOR THE MIDDLE DISTRICT OF PENNSYLVANIA
DOMMEL PROPERTIES, LLC,
LAND OF BELIEVE FARM, INC.,
WILLIAM J. DOMMEL, and
ROBERT W. DOMMEL,
Plaintiffs,
v.
JONESTOWN BANK AND TRUST
COMPANY, now known as JBT,
LEBANON COUNTY TAX CLAIM
BUREAU, and SALLIE A. NEUIN
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Civil Action No. 1:11-cv-2316
(Judge Conner)
MEMORANDUM
Presently before the court in the above-captioned matter are the motions to
dismiss of defendants Lebanon County Tax Claim Bureau and Sallie A. Neuin
(collectively, where appropriate, the “county defendants”), (Doc. 29), and defendant
Jonestown Bank and Trust Company, (Doc. 30). The motions are fully briefed, and
are ripe for disposition. For the reasons set forth below, the court will grant each
motion in part, and will deny each motion in part.
I.
Factual Background
When ruling on a motion to dismiss under Rule 12(b)(6), the court must
“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.” Gelman v. State Farm Mut.
Auto. Ins. Co., 583 F.3d 187, 190 (3d Cir. 2009) (quoting Phillips v. County of
Allegheny, 515 F.3d 224, 233 (3d Cir. 2008)); see also Kanter v. Barella, 489 F.3d 170,
177 (3d Cir. 2007) (quoting Evancho v. Fisher, 423 F.3d 347, 350 (3d Cir. 2005)).
Accordingly, the court will present the well-pleaded facts as set forth in the
complaint.
Plaintiffs William J. Dommel and his father Robert W. Dommel reside in
Palmyra and Drumore Pennsylvania, respectively. The Dommels engage in the
horse breeding trade, through their businesses Land of Believe Farm, Inc., and
Dommel Properties, LLC, both of which are also plaintiffs in the above-captioned
matter. Plaintiffs filed the Complaint (Doc. 1) against defendants The Lebanon
County Tax Claim Bureau (the “TCB”), a municipal agency located in Lebanon,
Pennsylvania; Jonestown Bank (the “Bank”), a banking corporation located in
Cleona, Pennsylvania; and Salle A. Neuin (“Neuin”), Director of the TCB and a
member of the Board of Directors of the Bank.
A.
The Dommel Properties and Promissory Notes
Collectively, the Dommels have been in the commercial horse breeding
business for over twenty-five years. Of relevance to this litigation are three
properties currently or at one time owned by the Dommels. The first (“Farm One”)
is located in Palmyra, and consists of 96 acres of farmland, including 62 horse stalls
in four barns, a pond, and a four bedroom home. The Land of Believe Farm (“Farm
Two”) is also located in Palmyra, and consists of 68 acres, upon which sit a twostory home and a number of horse barns and outbuildings. The Dommels live on
Farm Two, where they board, breed, and foal thirty-five thoroughbred horses.
Finally, the Dommels owned, but have sold, a property known as the “Hunting
2
Camp,” in Lycoming County, that consisted of five hundred acres of hunting land.
The Dommels sold this property in March 2010, for $575,000.
On March 26, 2006, the Dommels and Land of Believe Farm, Inc., executed a
Demand Promissory Note with the Bank (the “First Note”). The First Note
provided a $1.3 million line of credit to be used to expand the Dommels’ horse
breeding business, and was secured by a mortgage against Farm One and Farm
Two. Dommel Properties LLC signed a Guaranty and Suretyship agreement,
guaranteeing Land of Believe Farm, Inc.’s repayment of the First Note.
On January 23, 2007, the Dommels took out a construction loan with the
Bank, in the amount of $2,425,000 (the “Second Note”). The Dommels intended to
use this loan to finance construction on Farm Two. On the same day, Land of
Believe Farm, Inc. and Dommel Properties LLC signed a Guaranty and Suretyship
agreement, guarantying the Dommels’ repayment of the Second Note, which was
secured by a mortgage against Farm One and Farm Two.
On May 31, 2007, the Dommels secured a loan from the Bank in the amount
of $605,000 (the “Third Note”). Land of Believe Farm, Inc. and Dommel Properties,
LLC signed a Guaranty and Suretyship agreement, guaranteeing the Dommels’
repayment of the Third Note. The Third Note was secured by a mortgage against
the Hunting Camp.
According to the Complaint, at no time during the executions of the First,
Second, or Third Notes did the Dommels have counsel present, nor were the
agreements reviewed by counsel.
3
B.
Farm One
The Dommels listed Farm One for private sale in 2007, and received a bona
fide offer of $4.5 million dollars, but a sale was never consummated. The
unsuccessful sale of Farm One, coupled with a lull in the market for thoroughbred
horses brought on by the economic recession of recent years, put the Dommels into
a financially precarious position. Mr. Dommel1 met with bank executives to express
his concern about ongoing construction on Farm Two, given the failed sale of Farm
One. According to the Complaint, the Bank encouraged Mr. Dommel to continue
with construction on Farm Two, notwithstanding his over-extended credit line, and
“not to worry, we will work it out.” (Doc. 1 at 6).
The Dommels saw a 50% decline in business in 2007, from breeding and
boarding 80-90 horses prior to that year, to fewer than 50 horses after. They were
no longer able meet their monthly payment obligations to the Bank. On October 10,
2008, the Bank confessed judgment against the Dommels in the amount of
$1,520,827.33 on the First Note; $2,936,408.53 on the Second Note; and $716,424.24
on the Third Note.2
1
The complaint is vague as to whether this was Robert or William Dommel.
2
The Complaint contains a more detailed accounting of these figures, which
combine the unpaid balances on the notes, late charges, interest, and attorney’s
fees.
4
Plaintiffs assert that Mr. Dommel met repeatedly with executives from the
Bank throughout the fall and winter of 2008, during which time they repeatedly
assured him that the Bank would continue to work with him to resolve the debts,
notwithstanding the confessed judgments on the notes. Allegedly, the Bank also
represented to Mr. Dommel that it would not execute upon the judgments.
The Dommels held a public auction for Farm One on August 21, 2008. The
auction was attended by developers, horse breeders, and investors, numbering over
150. According to the Complaint, a Senior Vice President of the Bank announced at
the podium that any offer was “contingent upon approval by the Bank’s Board of
Directors.” (Id. at 8). Plaintiffs allege that this statement was made in an effort to
chill the bidding. Farm One received a high bid of $1,815,000,3 but the Bank
rejected it, purportedly to avoid crediting the equity against the Dommels’ debt,
and to pave the way for the Bank’s ownership of Farm One.
The Dommels had Farm One appraised in July 2008, and it was valued at $2.3
million. In June 2009, however, the Bank had its own appraiser assess Farm One,
who devalued it by 46%. The Bank conducted a sheriff’s sale of Farm One on July
23, 2009, “surreptitiously” purchasing the property for $11,053.31. Plaintiffs allege
that the sheriff’s sale was conducted to usurp the Dommels’ property.
3
Consisting of $1,650,000 plus a 10% buyer’s premium.
5
On January 18, 2010, the Bank filed a petition to fix the fair market value of
Farm One.4 At a hearing on September 27, 2011, the court fixed the fair market
value of Farm One as $1.5 million, crediting the Dommels with this amount and any
accrued interest and legal fees. According to plaintiffs’ Complaint, the Bank has
not credited the $1.5 million against the Dommels’ debt.
C.
Farm Two
Neuin is a member of the Bank’s Board of Directors. She is also the
Treasurer for Lebanon County and Director of the TCB. She is married to the
Director Emeritus and former President of Jonestown Bank, Howard M. Neuin;
together, they are two of the Bank’s largest shareholders.
Plaintiffs allege that Neuin, through her positions at the Bank and the TCB,
discovered confidential information related to the Dommels, the properties that
they owned, the value of their properties, and their businesses, collateral, and
clients. According to plaintiffs’ Complaint, Neuin was aware of the Dommels’
history with the bank, including their loan agreements and borrowing history, and
with their tax situation. On May 25, 2011 and July 7, 2011, plaintiff Dommel
Properties LLC received a notice from the TCB stating that, due to delinquent real
estate taxes during tax year 2009, the TCB would hold a tax sale of Farm Two on
September 12, 2011. Plaintiffs allege that notice of the sale for delinquent taxes was
not properly “posted.”
4
The Complaint does not specify in what court this petition was filed.
6
Throughout the spring and summer of 2011, the Dommels continued to meet
with the Bank in an effort to negotiate a resolution to their outstanding debt.
According to the Dommels, they were repeatedly assured by Bank executives that
the Bank had no interest in taking Farm Two. The Complaint details one occasion
in August 2011, when Mr. Dommel met with Bank Vice President Richard Rollman
(“Rollman”). Rollman allegedly agreed to negotiate in good faith with the Dommels
to reach a settlement proposal that could be taken to the Bank Board for approval.
Rollman continued to assure Mr. Dommel that the Bank would not seize the farm.
On September 9, 2011, three days before the tax sale, Mr. Dommel met with Roger
Jeremiah (“Jeremiah”), Senior Vice President of the Bank, who assured Mr.
Dommel that the bank would not bid on Farm Two. Mr. Dommel gave the Bank
$5,000 as a good faith payment toward his outstanding debt. Mr. Dommel spoke to
Rollman again on September 9, who again assured him that the Bank was not
planning to bid on Farm Two.
On September 12, 2011, the TCB held the tax sale on Farm Two. The
Dommels did not attend. According to the Complaint, notwithstanding their
assurances to the contrary, the Bank “surreptitiously” purchased the property at an
“upset price” of $110,401.95. (See Doc. 1 at 11). When Mr. Dommel called the TCB
on September 13, 2011, to inquire as to the outcome of the sale, Neuin allegedly
informed him “We own your property. You will be looking for a new place to live.”
(Id.) Mr. Dommel then spoke with Jeremiah, who advised him that the Bank
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purchased the property because “it puts us . . . in a better position.” (Id.) Mr.
Dommel stopped payment on the $5,000 check that he wrote to the Bank.
In a letter dated September 28, 2011, the Bank contacted the Dommels’
largest client, Thomas McClay. In the letter, the Bank stated that it was “the
current owner of the property. The Bank understands that you are currently
leasing the Property or have horses under a management/boarding agreement with
the prior owner, William J. Dommel . . . . the Bank demands that any and all lease
payments . . . be remitted directly to the Bank as the current owner of the
Property.” (Doc. 1 at 13).
II.
Procedural History
The Dommels challenged the Tax Sale in the Lebanon County Court of
Common Pleas. See In re Lebanon County Tax Claim Bureau Real Estate Tax Sale
2011, No. 2011-01738 (Lebanon County Court of Common Pleas). They filed
objections and exceptions to the sale, alleging that: (1) the tax sale was void because
the TCB failed to properly post Farm Two pursuant to Pennsylvania real estate law;
(2) the sale violated the Dommels’ substantive due process rights; (3) that the Bank
and TCB conspired to destroy the Dommels’ business through the tax sale; and (4)
that the Bank’s purchase of Farm Two was fraudulent, inter alia, because it was
contrary to the Bank’s prior representations to Mr. Dommel. (See Doc. 35 at 7).
The Court of Common Pleas held a hearing on June 11, 2012, at which it addressed
“the September 2011 Tax Sale, and the dealings between Tax [sic] Claim Bureau,
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the bank, and the objectors [plaintiffs]” with regard to the sale of Farm Two. (See
Doc. 31-1 at 11).
On August 17, 2012, the Court of Common Pleas overruled the Dommels’
objections and exceptions to the tax sale, ruling against them on the merits of their
claim that the TCB failed to provide statutorily required notices, and declining to
consider the Dommels’ second, third, and fourth claims. The court stated that “the
only issues that are cognizable on exceptions or objections to a tax sale are whether
the [TCB] complied with the procedures required by statute,” and that while the
Dommels’ other arguments “may present a cognizable basis for legal action in other
proceedings before this and/or other courts or tribunals, . . . [they do not] present an
actionable objection or exception to a tax sale.” In re Lebanon County Tax Claim
Bureau Real Estate Tax Sale 2011, No. 2011-01738, slip op. at 13 (Lebanon Cnty. Ct.
of Common Pleas August 17, 2012) (docketed as Doc. 41-1). Plaintiffs noticed their
appeal to the Commonwealth Court on August 24, 2012, and submitted an
emergency application for supersedeas on September 4, 2012. The court denied the
application for supersedeas on September 26, 2012, and the matter was
discontinued on November 15, 2012. See Dommel Properties v. Lebanon Co. Tax
Claim Bureau, No. 1621-CD-2012 (Pa. Commw. Ct. Nov. 16, 2012).
On February 7, 2012, Dommel Properties LLC filed a Chapter 11 Voluntary
Bankruptcy Petition in the Bankruptcy Court for the Middle District of
Pennsylvania. In re Dommel Properties LLC, No. 1-12-691 (M.D. Pa. Bankr.). On
April 3, 2012, the Bankruptcy Court entered an order lifting the automatic stay, see
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11 U.S.C. § 362(a), allowing “the parties to pursue the Federal Litigation to
judgment, including any ancillary injunctive relief.” See In re Dommel Properties
LLC, No. 1:12-691 (M.D. Pa. Bankr. April 3, 2012).
Plaintiffs bring eleven claims, alleging violations of their procedural and
substantive due process rights under § 1983 (Count I); federal inverse
condemnation under 40 U.S.C. § 3113 (Count II); state inverse condemnation (Count
III); civil conspiracy (Count IV); intentional interference with contract (Count V);
conversion (Count VI); fraud (Count VII); negligence (Count VIII); breach of
fiduciary duty (Count IX); promissory estoppel (Count X); and deepening
insolvency (Count XI). Plaintiffs seek compensatory and punitive damages, and
attorney’s fees.
III.
Jurisdiction and Standard of Review
Jurisdiction in this case is premised on the court’s power to decide questions
of federal law. District courts have original jurisdiction over “all civil actions
arising under the Constitution, laws, or treaties of the United States.” 28 U.S.C. §
1331. The court has supplemental jurisdiction to decide state law causes of action
that are “so related” to accompanying federal claims “that they form part of the
same case or controversy.” 28 U.S.C. § 1367(a).
The standard of review under Rule 12(b)(6) is well established. The court
must conduct a two-part analysis to determine the sufficiency of the complaint.
First, the court must separate the factual matters averred from legal conclusions
asserted. Fowler v. UPMC Shadyside, 578 F.3d 203, 210 (3d Cir. 2009). Although
10
facts pled in the complaint must be taken as true, the court may disregard any legal
conclusions. Id. at 210-11. Second, the court must determine whether the factual
matters averred are sufficient to show that plaintiff has a “plausible claim for
relief.” Id. at 211 (quoting Ashcroft v. Iqbal, 556 U.S. 662, 679 (2009)). Ultimately,
the analysis is “context-specific” and requires the court to “draw on its judicial
experience and common sense” to determine whether facts alleged in the complaint
suggest “more than the mere possibility of misconduct.” Ashcroft, 556 U.S. at 679.
IV.
Discussion
Presently before the court are two motions to dismiss, filed by the Bank (Doc.
30) and by the county defendants jointly (Doc. 29). The motions present arguments
distinct to their movants, and so the court will address each motion separately.
A.
The County Defendants
The county defendants raise a number of arguments in support of their
motion to dismiss. The court will address these arguments seriatim.
i.
Standing
The county defendants argue that plaintiffs Land of Believe Farm, Inc.,
William J. Dommel, and Robert W. Dommel lack Article III standing to bring these
claims, because they have no legal interest in Farm Two and have therefore
suffered no injury. They assert that Dommel Properties, LLC is the only plaintiff
that has standing. The court rejects this argument.
A motion to dismiss for lack of standing is properly brought pursuant to
Federal Rule of Civil Procedure 12(b)(1), because standing is a question of
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jurisdiction. In re Schering Plough Corp. Intron/Temodar Consumar Class Action,
678 F.3d 235, 243 (3d Cir. 2012). The requirements of Article III standing are
“familiar.” Elk Grove Unified School Dist. v. Newdow, 542 U.S. 1, 11-12 (2004). The
plaintiff must show that he or she suffered an “injury in fact,” that the complainedof conduct is the cause of the plaintiff’s injury, and that a favorable judgment from
the court will redress that injury. Id. The plaintiff carries the burden to establish
standing by the manner and degree of proof commensurate with each “successive
stage[] of the litigation.” American Civil Liberties Union of New Jersey v. Township
of Wall, 246 F.3d 258, 261 (3d Cir. 2001). To determine whether a complaint
sufficiently pleads the elements of standing to survive a motion to dismiss, the court
must adopt the standard of Rule 12(b)(6), accepting as true all material allegations
set forth in the complaint and construing those facts in the light most favorable to
the nonmoving party. In re Schering Plough, 678 F.3d at 243.
Here, the Complaint makes clear that Farm Two is the locus at which the
Land of Believe Farm business is located – thirty-five thoroughbred horses are
boarded, bred, and foaled there by the Dommels as part of the Land of Believe
Farm’s operations. (Complaint, Doc. 1 at ¶ 13(b)). The Dommels have maintained a
principal residence on Farm Two. Id. It is difficult to conceive of an injury in fact
more concrete and more particularized than the loss of the property upon which
one’s home and business are located. The county defendants’ motion to dismiss for
lack of standing is rejected.
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ii.
The Tax Injunction Act
The county defendants assert that the court lacks jurisdiction to hear this
case under the Tax Injunction Act. For the reasons to be discussed, the court finds
this argument unpersuasive.
The Tax Injunction Act, 28 U.S.C. § 1341 (“the TIA”), states that “[t]he
district courts shall not enjoin, suspend or restrain the assessment, levy or
collection of any tax under State law where a plain, speedy and efficient remedy
may be had in the courts of such State.” The TIA divests the district courts of
jurisdiction over “suits relating to the collection of State taxes,” Hibbs v. Winn, 542
U.S. 88, 104 (2004) (quoting S. Rep. No. 1035, 75th Cong., 1st Sess., 1 (1937)), and is
“first and foremost a vehicle to limit drastically federal court jurisdiction to
interfere with so important a local concern” as taxation. Rosewell v. LaSalle Nat.
Bank, 450 U.S. 503, 522 (1981).
In determining whether a claim falls within the ambit of the TIA, “it is
appropriate, first, to identify the relief sought.” Hibbs, 542 U.S. at 99. Though by its
plain language the TIA applies only to “injunctions,” the principle of comity has led
courts to interpret the TIA more broadly, as a general barrier to federal court
intervention in state tax collection. See, e.g., California v. Grace Brethren Church,
457 U.S. 393, 408 (1982) (interpreting the TIA to include declaratory judgments); see
also Behe v. Chester Cnty. Bd. of Assessment Appeals, 952 F.2d 66, 68 (3d Cir. 1991)
(“As a result of its expansive reading of the Act, the Court has woven an almost
impenetrable barrier to state tax challenges in federal court.”) (internal citation and
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quotation marks omitted). This includes damages actions brought under 42 U.S.C.
§ 1983. See Fair Assessment in Real Estate Association, Inc. v. McNary, 454 U.S.
100, 115-16 (1981); id. at 111 (“The focus was not on the specific form of relief
requested, but on the fact that ‘in every practical sense [it] operate[d] to suspend
collection of the state taxes until the litigation [was] ended.” (quoting Great Lakes
Dredge & Dock Co. v. Huffman, 319 U.S. 293, 299 (1943) (alterations in original)).
Actions for damages under § 1983 fall within the TIA’s prohibition because
they necessarily interfere with the revenue collection abilities of the state. See
McNary, 454 U.S. at 113-14 (noting that, in order for a plaintiff to recover damages
under § 1983, “in effect, the district court must first enter a declaratory judgment
like that barred in Great Lakes”). The TIA applies if the effect of the plaintiffs’
lawsuit is to challenge the “assessment, levy or collection” of a tax. Plaintiffs argue
their suit does “not seek[] to ‘enjoin, suspend, or restrain the assessment, levy or
collection of any tax under State law.’” (Doc. 35 at 12). Rather, plaintiffs challenge
“the unconstitutionality of the tax sale procedures used by defendants that
deprived plaintiffs of their due process rights.” (Id.) Thus, as a threshold matter,
the court must decide whether the tax procedures employed by the county
defendants were deficient.
As the Supreme Court explained in Hibbs, the “moorings” of the TIA can be
found in state revenue protection. 542 U.S. at 106; see also id. (explaining that prior
decisions interpreting the TIA had disallowed lawsuits that “would have operated
to reduce the flow of state tax revenue”). Plaintiffs directly challenge the validity of
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a tax collection procedure – a tax sale held to collect upon delinquent real estate
taxes. (See Complaint, Doc. 1 at 10 (“[O]wner Dommel Properties LLC received a
notice from the Tax Claim bureau stating that, due to delinquent real estate taxes
incurred in the Tax Year 2009 on Farm Two, a tax sale of Farm Two was scheduled
for September 12, 2011")). Despite the fact that plaintiffs seek damages rather than
an injunction, their suit would nonetheless disrupt the orderly collection of revenue
– precisely the concern that the TIA speaks to. See California v. Grace Brethren
Church, 457 U.S. 393, 410 (1982) (“If federal declaratory relief were available to test
state tax assessments, state tax administration might be thrown into disarray, and
taxpayers might escape the ordinary procedural requirements imposed by state
law.”). Culled to its essence, plaintiffs’ claim is a challenge to the collection of a tax,
falling squarely within the ambit of the TIA. See Potter County v. Heinrich, 408 Pa.
321, 323 (1962) (noting that the purpose of a tax sale is not to deprive the taxpayer of
property but to ensure the collection of taxes).
Because the TIA applies to plaintiffs’ suit, this court lacks jurisdiction to hear
their claims against the county defendants if the available state remedies are “plain,
speedy and efficient.” See § 1341. State remedies satisfy the TIA if they meet
“certain minimal procedural criteria,” but need not be “the best, most convenient,
or speediest” remedies. Gass v. Cnty. of Allegheny, PA, 371 F.3d 134, 137 (3d Cir.
2004) (quoting Rosewell v. La Salle Nat’l Bank, 450 U.S. 503, 512 (1981)) (emphasis
in original). The state must provide the taxpayer with “a full hearing and judicial
determination of the controversy,” id., and “a fair opportunity to challenge the
15
accuracy and legal validity of their tax obligation.” Berne Corp. v. Government of
The Virgin Islands, 570 F.3d 130, 137 (3d Cir. 2009) (quoting McKesson Corp. v.
Division of Alcoholic Beverages and Tobacco, 496 U.S. 18, 39 (1990)).
Pennsylvania law sets forth a scheme by which real estate tax sales may be
held to satisfy delinquent tax debts. See generally 72 PA . CONS. STAT. § 5860.101 et
seq. Pennsylvania law requires that tax claim bureaus must, within 30 days of sale,
give notice to owners that the property was sold, and that the owner “may file
objections or exceptions with the court relating to the regularity and procedures
followed during the sale” within 30 days after the court has made a confirmation
nisi of the tax claim bureau’s consolidated return. § 5960.607(a.1)(1). Bureaus are
also required to publish notice of tax sales in newspapers and legal journals.
§ 5960.607(b.1). Taxpayers may then raise objections or exceptions to the
“regularity or legality of the proceedings” undertaken in the course of the sale, but
may not challenge the validity of the taxes upon which the sale was held, the tax
collector’s return to the bureau, or the claim entered. § 5860.607(d). Taxpayers are
“clearly and unequivocally” limited in the types of objections they can raise, to
“whether the Bureau complied with the procedures delineated by the legislature to
bring a delinquent tax property to a public sale and the return and confirmation
thereof.” Appeal of Yardley, 646 A.2d 751, 755 (Pa. Commw. Ct. 1994).
Hence, the courts of common pleas have only limited power to review tax
sales. Consistent with this limited authority, the Lebanon County Court of
Common Pleas held that plaintiffs’ constitutional arguments were not cognizable as
16
objections or exceptions to the tax sale. See In re Lebanon County Tax Claim
Bureau Real Estate Tax Sale 2011, No. 2011-01738, at 13 (Lebanon Cnty. Ct. of
Common Pleas August 17, 2012) (docketed as Doc. 41-1). The circumscribed nature
of the court’s review renders plaintiffs’ state remedies inadequate, because a
taxpayer must be able to pursue federal constitutional claims in the state
proceedings. If the taxpayer is precluded from asserting federal constitutional
claims, the state proceeding cannot be regarded as “plain, speedy, or efficient.” See
Strescon Industries, Inc. v. Cohen, 664 F.2d 929, 931-32 (4th Cir. 1981) (citing
Township of Hillsborough v. Cromwell, 326 U.S. 620, 623 (1946)). Here, plaintiffs
attempted to raise their constitutional claims in the state court and were denied the
ability to do so. In light of deficient state court remedies, this court has subject
matter jurisdiction to hear their claims.
Defendants urge the court, in the alternative, to abstain from hearing this
case under Colorado River Water Conservation Dist. v. United States, 424 U.S. 800,
817 (1976). The court declines to do so. “‘[T]he pendency of an action in . . . state
court is no bar to proceedings concerning the same matter in the Federal court
having jurisdiction.’” Marshall v. Lauriault, 372 F.3d 175, 183 (3d Cir. 2004) (quoting
Colorado River, 424 U.S. at 817)); id. (abstention is appropriate only in “exceptional
circumstances” and the court’s analysis should be “heavily weighted in the favor of
the exercise of jurisdiction”) (internal citations omitted)). Plaintiffs in this matter
have been denied a state forum to air their constitutional claims; to abstain from
hearing the case would put plaintiffs “effectively out of court.” Quackenbush v.
17
Allstate Ins. Co., 517 U.S. 706, 713 (1996) (internal citation and quotation marks
omitted). Abstention is therefore inappropriate in the instant matter.
iii.
Substantive and Procedural Due Process (Count I)
County defendants have moved to dismiss plaintiffs’ claims alleging
violations of their procedural and substantive due process rights. In Count I of the
Complaint, plaintiffs allege that the defendants collectively violated their due
process rights by (1) orchestrating the Tax Sale with the specific intent of depriving
the Dommels of their property; (2) surreptitiously buying Farm Two at the sale; (3)
misleading Mr. Dommel into believing that the Bank would not bid at the sale, and
failing to inform Mr. Dommel that he may lose Farm Two to the Bank; (4)
misrepresenting the Bank’s intent to purchase Farm Two, and failing to credit the
equity in Farm Two to the Dommels’ debt; and (5) failing to comply with certain
elements of Pennsylvania law regarding notice of tax sales. Plaintiffs’ procedural
and substantive due process claims require distinct analyses, and so will be
addressed separately.
A threshold issue exists, however, as to whether plaintiffs can pursue either
due process claim against the TCB under a theory of municipal liability. In Monell
v. New York City Department of Social Services, 436 U.S. 658 (1978), the Supreme
Court held that municipalities and other local government entities may be held
liable under § 1983. See Indep. Enterprises Inc. v. Pittsburgh Water and Sewer
Authority, 103 F.3d 1165, 1173 (3d Cir. 1997). When a plaintiff brings suit against a
municipality under § 1983, “the municipality can only be liable when the alleged
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constitutional transgression implements or executes a policy, regulation or decision
officially adopted by the governing body or informally adopted custom.” Mulholland
v. Government Cnty. of Berks, Pa., 706 F.3d 227, 237 (3d Cir. 2013) (internal citation
and quotation marks omitted). Courts have recognized two distinct theories under
which Monell liability can lie: “policy” and “custom.”
Policy is made when a “decisionmaker possess[ing] final authority to
establish municipal policy with respect to the action” issues an official
proclamation, policy, or edict. A course of conduct is considered to be
a “custom” when, though not authorized by law, “such practices of
state officials [are] so permanent and well-settled” as to virtually
constitute law.
Andrews v. City of Phila., 895 F.2d 1469, 1480 (3d Cir. 1990) (internal citations
omitted; alterations in original).
Here, plaintiffs have pled no facts tending to show either a policy or custom
on the part of the TCB to engage in deprivations of the Dommels’ procedural or
substantive due process rights. Indeed, the only allegations of wrongdoing
attributed to the TCB derive from Neuin’s alleged misconduct. (See, e.g.,
Complaint, Doc. 1 at 11 (“Mr. Dommel telephoned County Treasurer Neuin at the
Tax Claim Bureau to ask how the Tax Sale went. . . . Neuin told Mr. Dommel ‘We
own your property. You will be looking for a new place to live.’”) (emphasis
omitted)). Plaintiffs make no allegation that the TCB adopted an official policy or
maintained an unofficial custom of engaging in fraudulent tax sales. Plaintiffs seek
to hold the TCB liable for the acts of Neuin under what amounts to nothing more
than a theory of respondeat superior vicarious liability, which is not permitted under
19
§ 1983. Andrews, 895 F.2d at 1480. Plaintiffs’ § 1983 claim against the TCB must
therefore be dismissed.
The court will turn now to plaintiffs’ § 1983 claim against Neuin. To survive a
motion to dismiss for failure to state a claim, a plaintiff alleging deprivation of their
procedural due process rights “must allege that they were deprived of an interest
encompassed within the Fourteenth Amendment’s protection of life, liberty, or
property and that available procedures did not provide due process of law.”
Association New Jersey Rifle and Pistol Clubs v. Governor of New Jersey, — F.3d
—, 2013 WL 336680, at *3 (3d Cir. January 30, 2013). “The fundamental
requirement of due process is the opportunity to be heard ‘at a meaningful time and
in a meaningful manner.’” Miller v. City of Philadelphia, 174 F.3d 368, 373 (3d Cir.
1999) (quoting Mathews v. Eldridge, 424 U.S. 319, 333 (1976); internal quotation
marks omitted). To determine whether the plaintiff has been given due process, a
court must consider the factors set forth by the Supreme Court in Mathews:
[F]irst, the private interest that will be affected by the official action;
second, the risk of an erroneous deprivation of such interest through
the procedures used, and the probable value, if any, of additional or
substitute procedural safeguards; and finally, the Government’s
interest, including the function involved and the fiscal and
administrative burdens that the additional or substitute procedural
requirement would entail.
424 U.S. at 335.
Plaintiffs do not facially challenge the manner in which Pennsylvania real
estate tax sales are conducted; i.e., they do not allege that the statutory scheme
enacted to govern tax sales is inherently constitutionally deficient. Rather, their
20
argument is that Neuin’s alleged conflict of interest and deleterious intent in
bringing Farm Two to sale violated their right to due process.
Plaintiffs allege that they have been wrongly deprived of their property, an
injury that clearly falls within the protections guaranteed by the Fourteenth
Amendment. See Chambers ex rel. Chambers v. School Dist. of Phila. Bd. of Educ.,
587 F.3d 176, 194 (3d Cir. 2009). As was discussed at length supra, Pennsylvania law
implements procedures that must be followed in order to execute a tax sale for the
collection of unpaid taxes. These procedures also provide for review of tax sales,
including judicial review. See, e.g., 72 PA . CONS. STAT . § 5020-511 (allowing for
appeal to the Board of Revision for the revision of taxes); § 5020-518.1 (allowing for
appeal to the Court of Common Pleas of a county board’s tax assessment); § 5020519 (allowing for appeal to the Superior Courts or to the Supreme Court). As
previously noted, Pennsylvania law provides an opportunity to challenge
confirmation of a tax sale in a state court, see § 5860.607(d), and to appeal an
adverse decision, which plaintiffs have done. See Dommel Properties v. Lebanon
Co. Tax Claim Bureau, No. 1621-CD-2012 (Pa. Commw. Ct. Nov. 16, 2012); cf. Berne
Corp. v. Government of the Virgin Islands, 570 F.3d 130 (3d Cir. 2009) (“[D]ue
process requires . . . notice and opportunity for hearing appropriate to the nature of
the case.”); id. (“[P]rocedural due process requires at a minimum that the taxpayer
have both notice of the appeal and the right to participate.”). Plaintiffs have availed
themselves of Pennsylvania’s “fully-developed administrative and judicial
apparatus” for challenging taxes, and have not been deprived of their procedural
21
due process rights. See Gass v. Cnty. of Allegheny, PA, 371 F.3d 134, 140 (3d Cir.
2004).
Turning now to plaintiffs’ substantive due process claim against Neuin, we
note that the core concept of substantive due process is “protection against
arbitrary action” on the part of government officials, and “only the most egregious
official conduct can be said to be ‘arbitrary in the constitutional sense.’” United
Artists Theatre Circuit, Inc. v. Township of Warrington, PA, 316 F.3d 392, 399 (3d
Cir. 2003) (quoting County of Sacramento v. Lewis, 523 U.S. 833, 845-46 (1998)). A
government employee violates the substantive component of the Due Process
Clause when their “conduct amounts to an abuse of official power that ‘shocks the
conscience.’” Fagan v. City of Vineland, 22 F.3d 1296, 1303 (3d Cir. 1994) (internal
citation omitted). “State conduct violates an individual’s substantive-due-process
rights when it is ‘so brutal, demeaning, and harmful that it is shocking to the
conscience.’” Elena v. Municipality of San Juan, 677 F.3d 1, 7-8 (1st Cir. 2012)
(quoting Maymi v. P.R. Ports Auth., 515 F.3d 20, 30 (1st Cir. 2008)).
What qualifies as conscience shocking is an intensely fact-specific inquiry
and is likely to vary from case to case. See Lewis, 523 U.S. at 847 (“the measure of
what is conscience-shocking is no calibrated yard stick”). Generally, “it is
governmental conduct intended to injure that is most likely to rise to the
conscience-shocking level.” Evans v. Sec’y of Pa. Dep’t of Corr., 645 F.3d 650, 660
(3d Cir. 2011). The Third Circuit has suggested that some allegations of corruption
and self-dealing may suffice to state a claim for violation of a plaintiff’s substantive
22
due process rights. See Eichenlaub v. Township of Indiana, 385 F.3d 274, 285-86 (3d
Cir. 2004); see also Chainey v. Street, 523 F.3d 200, 220 (3d Cir. 2008) (allegations of
“corruption, [or] self-dealing” may suggest conscience-shocking behavior).
In the instant matter, plaintiffs’ allegations against Neuin may be readily
construed as claims of corruption and self-dealing. The Complaint asserts that
Neuin used knowledge of the Dommels’ finances, gained through her role as a
member of the Bank’s Board of Directors, to drive the Dommels out of business,
acquire their property and home, and expand her own assets. The Complaint
further alleges that all of Neuin’s actions were executed under color of state law in
her role as Lebanon County Treasurer and as Director of the TCB. These
allegations are sufficient to plead a claim for violation of the Dommels’ substantive
due process rights.
The county defendants’ motion to dismiss Count I as to Neuin will be denied
with respect to the substantive due process argument, but granted with respect to
the procedural due process argument. As to the TCB, Count I will be dismissed in
its entirety.
iv.
Inverse Condemnation (Counts II and III)
Plaintiffs bring claims for inverse condemnation under 40 U.S.C. § 3113
(Count II) and 26 PA. CONS. STAT . § 101 et seq. (Count III).5 They allege that
5
The court notes that, in both the Complaint and in their brief, plaintiffs cite
28 PA . CONS. STAT . § 101 as the statutory provision governing their state inverse
condemnation claim. Title 28 of the Pennsylvania statutes is reserved for the law of
escheats; title 26 contains the law of eminent domain.
23
defendants, “by preventing [the Dommels] . . . from generating the cash flow
necessary to fulfill their financial obligations, including paying their property taxes,
. . . depriv[ed] the Dommels of their property without just compensation.”
(Complaint, Doc. 1 at 19-20).
A claim for inverse condemnation requires a taking by the government. See
Cowell v. Palmer Tp., 263 F.3d 286, 290 (3d Cir. 2001) (“Pennsylvania’s Eminent
Domain Code provides inverse condemnation procedures through which a
landowner may seek just compensation for the taking of property.” (citing 26 PA .
CONS. STAT . §§ 1-408, 1-502(e), 1-609)). “The Fifth Amendment's guarantee that
private property shall not be taken for a public use without just compensation was
designed to bar Government from forcing some people alone to bear public burdens
which, in all fairness and justice, should be borne by the public as a whole.”
Armstrong v. United States, 364 U.S. 40, 49 (1960). A tax sale, however, is not a
taking for a public purpose pursuant to a state’s power of eminent domain, but is
instead an exercise of the state’s taxing power. See In re Murphy, 331 B.R. 107, 128
(S.D.N.Y. Bankr. 2005). The purpose of a tax sale is not to deprive the taxpayer of
property but to ensure the collection of taxes. Potter County v. Heinrich, 408 Pa.
321, 323 (1962); see also Golden v. Mercer Cty. Tax Claim Bureau (In re Golden), 190
B.R. 52, 57 (W.D. Penn. Bankr. 1995) (“In a tax sale context, the takings clause is not
dispositive nor the appropriate basis for starting an inquiry.”); Industrial Bank of
Washington v. Sheve, 307 F. Supp. 98, 99 (D.D.C. 1969) (“A tax sale is not a
24
government taking for which just compensation must be paid under the
Constitution after judicial proceedings.”).
Plaintiffs cite Villareal v. Harris County, 226 S.W.3d 537 (Tex. App. 2006), for
the proposition that an irrational and egregious misuse of a state’s taxing power
could constitute a taking. In Villareal, the Texas state court held that “if the
government improperly uses its taxing power to take private property for public
use, then an article I, section 17 taking has occurred.” Id. at 544. The court does
not find this case persuasive. The limitations of the Texas court’s holding
undermines plaintiffs’ argument, because the court concluded only that a use of the
taxing power to take private property for public use could constitute a taking. Even
if the Tax Sale was fraudulently conducted, it would not constitute a taking because
it benefitted a private entity – specifically, by enhancing the Bank’s equity position
with respect to the property – and is therefore not a taking “for public use.”
Plaintiffs’ Complaint fails to state a claim for inverse condemnation.
Therefore, the county defendants’ motion to dismiss will be granted as to Counts II
and III.
v.
The TCB’s Municipal Immunity
The Pennsylvania Political Subdivision Tort Claims Act (“PSTCA”) provides
that, “[e]xcept as otherwise provided in this subchapter, no local agency shall be
liable for any damages on account of any injury to a person or property caused by
any act of the local agency or an employee thereof or any other person.” 42 PA .
CONS. STAT . § 8541. The PSTCA expresses the legislature’s “intent . . . to shield
25
government from liability.” Jones v. Southeastern Pennsylvania Transp. Auth., 772
A.2d 435, 440 (Pa. 2001).
There are instances, however, in which a local agency will not be immune
under the PSTCA. See § 8542. For municipal liability to be abrogated, the allegedly
tortious conduct must satisfy two preconditions and fall into one of eight exemption
categories. First, the tort must be one that would be recoverable from a defendant
not having a defense of governmental immunity under § 8541, or official immunity
under § 8546. § 8542(a)(1). The injury also must have been “caused by the negligent
acts of the local agency or an employee thereof acting within the scope of his office
or duties,” and does not include any “acts or conduct which constitutes a crime,
actual fraud, actual malice or willful misconduct.” § 8542(a)(2). If a plaintiff’s claim
satisfies these two prerequisites, then local agencies and their employees may be
liable if the claim involves vehicular liability; the agency’s care, custody or control
of personal property or real property; trees, traffic controls and street lighting;
utility service facilities; streets; sidewalks; or the care, custody or control of animals.
§ 8542(b).
Plaintiffs do not argue that their claims fall into one of these eight
enumerated exceptions. Instead, they seek to circumvent § 8542(a)(2) under a
theory of vicarious liability. Plaintiffs argue that § 8550 strips Neuin of official
immunity because their claims against her allege intentional misconduct. Section
8550 states
26
In any action against a local agency or employee thereof for damages
on account of an injury caused by the act of the employee in which it is
judicially determined that the act of the employee caused the injury
and that such act constituted a crime, actual fraud, actual malice or
willful misconduct, the provisions of sections 8545 (related to official
liability generally), 8546 (relating to defense of official immunity), 8548
(relating to indemnity) and 8549 (relating to limitation on damages)
shall not apply.
Plaintiffs claim that Neuin’s intentional misconduct can be attributed to the TCB
under a theory of vicarious liability. This argument is unpersuasive. Plaintiffs cite
general propositions of agency law, but fail to comprehend the differences that
inhere when the principal is a government agency. Although § 8550 abrogates
official immunity for intentional torts, that abrogation does not extend to
municipalities such as the TCB. See Udujih v. City of Philadelphia, 513 F. Supp. 2d
350, 357-58 (E.D. Pa. 2007). Indeed, to hold otherwise would negate the express
exclusion of “crime, actual fraud, actual malice or willful misconduct” from the torts
for which municipal immunity is waived under § 8542(a)(2). Therefore, defendants’
motion to dismiss Counts IV, V and VI as to the TCB will be granted.
vi.
Neuin’s Official Immunity
County defendants next move to dismiss Counts IV, V, and VI as against
Neuin, on the grounds that she is cloaked in official immunity for conduct
performed in the course of her duties as Lebanon County Treasurer. (Doc. 32 at
27
17).6 Section 8546 grants official immunity to employees of local agencies, but an
“employee is not protected by the local agency’s immunity if his act constitutes a
crime, actual fraud, actual malice, or willful misconduct.” Lancie v. Giles, 572 A.2d
827, 830 (Pa. Commw. Ct. 1990) (citing § 8550). Pennsylvania courts have
interpreted “willful misconduct” to mean intentional torts. Id. Counts IV, V, and VI
allege civil conspiracy, intentional interference with contract, and conversion,
respectively. Each is an intentional tort. See Weaver v. Franklin Cnty., 918 A.2d
194, 202 (Pa. Commw. Ct. 2007) (conspiracy); Walnut Street Assoc., Inc. v.
Brokerage Concepts, Inc., 982 A.2d 94, 97 (Pa. Super. Ct. 2009) (interference with
contract); Snead v. Society for Prevention of Cruelty to Animals of Pennsylvania,
929 A.2d 1169, 1183 (Pa. Super. Ct. 2007) (conversion). Therefore, Nuein is not
immune from liability by virtue of her official employment, and the county
defendants’ motion to dismiss Counts IV, V, and VI as against Neuin, on the
grounds of official immunity, will be denied.
vii.
Civil Conspiracy (Count IV)
County defendants have moved to dismiss Count IV, civil conspiracy, as to
both the TCB and Neuin. To state a claim for civil conspiracy, a plaintiff must set
6
Defendants argue in their reply brief, for the first time, that Neuin is
immune from liability, notwithstanding the intentional misconduct provision of §
8550, because she is a “high public official.” (Doc. 37 at 11-13). Arguments raised
for the first time in a reply brief are generally waived because fairness requires that
nonmovants have the opportunity to respond to any arguments presented by the
movant. Tristate HVAC Equipment, LLP v. Big Belly Solar, Inc., 752 F. Supp. 2d
517, 529 n.8 (E.D. Pa. 2010). Accordingly, the court deems this argument waived,
and declines to consider it. Id.
28
forth the following allegations: “(1) a combination of two or more persons acting
with a common purpose to do an unlawful act or to do a lawful act by unlawful
means or for an unlawful purpose; (2) an overt act done in pursuance of the
common purpose; and (3) actual legal damage.” General Refractories Co. v.
Fireman’s Fund Ins. Co., 337 F.3d 297, 313 (3d Cir. 2003) (quoting Strickland v.
Univ. of Scranton, 700 A.2d 979, 987-988 (Pa. Super. Ct. 1997)).
In Capogrosso v. The Supreme Court of New Jersey, 588 F.3d 180, 184-85 (3d
Cir. 2009), the Third Circuit emphasized that “allegations of a conspiracy must
provide some factual basis to support the existence of the elements of a conspiracy:
agreement and concerted action.” The Complaint “must include at least a
discernible factual basis” to survive a motion to dismiss. Id. at 184; see also Feliz v.
Kintock Group, 297 Fed. App’x 131, 136 (3d Cir. 2008) (recognizing that “conclusory
allegations of concerted action are insufficient to satisfy the notice-pleading
standard”) (internal citation and quotation marks omitted); Adams v. Teamsters
Local 115, 214 Fed. App’x 167, 175 (3d Cir. 2007) (noting that the complaint must
“set[] forth a valid legal theory and . . . adequately state[] the conduct, time, place,
and persons responsible” for the alleged conspiracy).
Plaintiffs’ Complaint fails to plead a sufficient factual basis to support the
existence of a conspiracy. The Complaint alleges that “Defendants knowingly and
willfully conspired to maximize the assets of the Bank for the benefit of the Bank’s
shareholders . . . [or] of the Tax Claim Bureau, at the expense and destruction of the
Dommels’ businesses,” (Doc. 1 at 21), but this allegation amounts to nothing more
29
than a conclusory assertion of misconduct. The Complaint fails to identify any
specific individuals, other than Neuin, who were parties to the alleged conspiracy,
and seeks to extrapolate a conspiracy between the Bank, Neuin, and the TCB based
principally upon Nuein’s alleged misuse of confidential information about the
Dommels’ finances. (Id. at 21-23). Plaintiffs do not allege facts that would
circumstantially suggest an agreement or conduct undertaken in furtherance of an
agreed-upon endeavor. They merely make conclusory allegations that defendants
acted in concert and with improper motives, without factual support. Plaintiffs
have not plead sufficient facts to create a plausible inference of a conspiracy.
Accordingly, the county defendants’ motion to dismiss will be granted as to
Count IV.
viii.
Deepening Insolvency (Count XI)
Count XI of the Complaint alleges that defendants fraudulently expanded the
Dommels’ corporate debt, increasing “their insolvency to a point that they could
never recover.” (Complaint, Doc. 1 at 33). Count XI names all defendants, but the
allegations of fraudulent conduct relate only to the Bank. Count XI does not levy
allegations of fraud against either county defendant, nor are the county defendants
named in Count VII, which alleges a separate count of fraud against the Bank.
Defendants argue that deepening insolvency is not a valid cause of action under
Pennsylvania law, and that plaintiffs’ claim fails as a matter of law. (Doc. 32 at 2122).
30
Plaintiffs are correct that no Pennsylvania state court has directly addressed
whether a claim for deepening insolvency exists under Pennsylvania law. However,
the Third Circuit has “don[ned] the soothsayer’s garb” and predicted that the
Pennsylvania Supreme Court would hold that deepening insolvency may give rise
to a cognizable injury. Official Comm. of Unsecured Creditors v. R.F. Lafferty &
Co., 267 F.3d 340, 349-50 (3d Cir. 2001). In the absence of an authoritative ruling
from the Pennsylvania Supreme Court, the court is compelled to follow the Third
Circuit’s lead.7
Deepening insolvency occurs when “corporate property is injured through
the fraudulent or concealed expansion of corporate debt and prolongation of
corporate life.” Corporate Aviation Concepts, Inc. v. Multi-Service Aviation Corp.,
No. 03-3020, 2004 WL 1900001, at *3 (E.D. Pa. Aug. 25, 2004) (citing R.F. Lafferty,
267 F.3d at 347). As the county defendants correctly observe, integral to the claim
of deepening insolvency is an act of fraud or the concealment of debt. Count XI
simply does not allege fraud or concealment on the part of the county defendants –
all allegedly fraudulent actions were undertaken by the Bank. The Complaint is
devoid of any allegations of fraud on the part of the county defendants. Thus,
plaintiffs have failed to state a claim for deepening insolvency against the county
7
Defendants suggest that the Pennsylvania Supreme Court’s decision in
Official Comm. of Unsecured Creditors v. Pricewaterhousecoopers, LLP, 989 A.2d
313, 332 n.25 (2010) (hereinafter, “PWC”), casts doubt on the continued viability of
the R.F. Lafferty decision. PWC, however, did not address the Third Circuit’s
prediction regarding the claim of deepening insolvency; hence, it does not control
the court’s ruling in the instant matter.
31
defendants, and the county defendants’ motion to dismiss will be granted as to
Count XI.
B.
The Bank
The Bank alleges numerous grounds for dismissing the Complaint. Several
of their arguments substantially track those made by the county defendants, and
where appropriate the court will simply refer back to its previous analysis.
However, as a private actor, the Bank must be distinguished from the county
defendants, and certain arguments are unique to it. The court will therefore
address each argument discretely.
i.
Ripeness
Notwithstanding the allegata, the Bank argues that each of plaintiffs’ claims
arises out of the Tax Sale during which the Bank purchased Farm Two. It argues
that because the state court proceedings determining the validity of the Tax Sale
have not yet been resolved, the plaintiffs’ claims against the Bank are premature.
However, during the pendency of the instant motions to dismiss, the Pennsylvania
Commonwealth Court discontinued plaintiffs’ appeal. Dommel Properties v.
Lebanon Co. Tax Claim Bureau, No. 1621-CD-2012 (Pa. Commw. Ct. Nov. 16, 2012)
(notice of discontinuance). For the reasons discussed below, the court disagrees
with the Bank’s argument, and finds that plaintiffs’ claims are ripe for review.
Article III limits federal court jurisdiction to “cases and controversies,” and
“[r]ipeness is among the requirements for a case or controversy to exist.” Birdman
v. Office of the Governor, 677 F.3d 167, 173 (3d Cir. 2012). Ripeness is “peculiarly a
32
question of timing.” Taylor Inv., Ltd. v. Upper Darby Twp., 983 F.2d 1285, 1290 (3d
Cir. 1993). The ripeness analysis involves two discrete steps: first, the court must
determine the fitness of the issue for judicial decision; and second, the court must
weigh the relative hardships the parties would face if the court withheld
consideration. Abbott Labs. v. Gardner, 387 U.S. 136, 149 (1967), abrogated on other
grounds by Califano v. Sanders, 430 U.S. 99 (1977). For a dispute to be ripe, there
must exist a “concrete set of facts” upon which the court could render a decision.
Presbytery of New Jersey of Orthodox Presbyterian Church v. Florio, 40 F.3d 1454,
1455-56 (3d Cir. 1994).
With regard to the “fitness” prong of the ripeness analysis, the Third Circuit
has identified a non-exclusive list of factors that courts should consider to
determine whether a case is “fit” for judicial review. These considerations include
whether the dispute is “purely legal” rather than factual, “the degree to which the
challenged action is final, whether the claim involves uncertain and contingent
events,” whether further factual development is necessary to aid decision, and
whether the parties are sufficiently adverse. NE Hub Partners, L.P. v. CNG
Transmission Corp., 239 F.3d 333, 342 n.8 (3d Cir. 2001). With respect to the
“hardship” prong, the court should consider “whether a plaintiff faces a direct and
immediate dilemma, such that lack of review will put it to costly choices.” Id.
The gravamen of the Bank’s ripeness argument is that the validity of the Tax
Sale remains unsettled in the Pennsylvania court system. Plaintiffs respond that
the Pennsylvania court has declined to hear their constitutional challenges to the
33
Tax Sale, and that the only issue addressed by the state courts is whether sufficient
notice was provided to the Dommels in anticipation of the Tax Sale to comply with
Pennsylvania law. On August 17, 2012, the Court of Common Pleas overruled the
Dommels’ objections and exceptions to the tax sale. See In re Lebanon County Tax
Claim Bureau Real Estate Tax Sale 2011, No. 2011-01738, slip op. at 13 (Lebanon
Cnty. Ct. of Common Pleas August 17, 2012) (docketed as Doc. 41-1). The
Commonwealth Court denied plaintiffs’ application for emergency supersedeas on
September 26, 2012, and the matter was discontinued on November 16, 2012.
Dommel Properties v. Lebanon Co. Tax Claim Bureau, No. 1621-CD-2012 (Pa.
Commw. Ct. Nov. 16, 2012).
The court concludes that plaintiffs’ claims are ripe for review. First, plaintiffs
claims in the instant matter differ materially from the claims they brought in state
court. As previously discussed, the Lebanon County Court of Common Pleas
expressly limited the scope of its review to whether the Tax Sale was conducted in
compliance with statutory procedure, and it declined to consider various
constitutional and state law claims presented sub judice. The outcome of plaintiffs’
federal litigation does not depend on the outcome of the state proceedings, nor is
further factual development necessary to resolve the dispute. In addition, the
Complaint alleges several claims that arise out of factual circumstances separate
from the Tax Sale. For example, plaintiffs have alleged that the Bank committed
the tort of intentional interference with contract, by contacting the Dommels
largest client and suggesting that the Dommels no longer held title to Farm Two.
34
Should the court decline to consider the claims, the hardship to plaintiffs would be
significant, in light of the state court’s refusal to consider plaintiffs’ federal
constitutional arguments, and the ancillary state law claims challenging more than
the procedural propriety of the Tax Sale proceedings. Therefore, the court finds
that plaintiffs’ claims are ripe under Article III, and the Bank’s motion to dismiss
based upon ripeness will be denied.
ii.
Civil Conspiracy (Count IV)
Count IV of the Complaint alleges civil conspiracy to interrupt business
operations against all defendants. As the court previously noted, plaintiffs have
failed to plead facts sufficient to raise a plausible inference of conspiracy against the
county defendants. See supra Part IV(A)(vii). Plaintiffs’ conspiracy claims against
the Bank suffer from the same infirmities, namely: the claims consist of little more
than conclusory allegations of concerted action.
As discussed at length supra, “allegations of a conspiracy must provide some
factual basis to support the existence of the elements of a conspiracy: agreement
and concerted action.” Capogrosso v. The Supreme Court of New Jersey, 588 F.3d
180, 184-85 (3d Cir. 2009). Beyond bald conclusions, the Complaint fails to allege
any facts supporting an inference of an agreement to engage in collusive activity,
between the Bank and either the TCB or Neuin, or any other party for that matter.
Nor does the Complaint allege facts regarding the “conduct, time, place, and
persons responsible” for the alleged conspiracy. Adams v. Teamsters Local 115, 214
Fed. App’x 167, 175 (3d Cir. 2007). Thus, plaintiffs have failed to set forth a
35
plausible claim for relief based upon civil conspiracy. The Bank’s motion to dismiss
will be granted as to Count IV.
iii.
Substantive and Procedural Due Process (Count I)
Plaintiffs bring their due process claims under 42 U.S.C. § 1983. A properly
plead § 1983 claim must allege “(1) a violation of a federally protected constitutional
or statutory right; (2) by state action or action under color of law.” Jordan v. Fox,
Rothschild, O’Brien & Frankel, 20 F.3d 1250, 1264 (3d Cir. 1994). Critically – and
fatal to plaintiffs’ claim – section 1983 applies only to state action, excluding “merely
private conduct, no matter how discriminatory or wrongful.” American Mfrs. Mut.
Ins. Co. v. Sullivan, 526 U.S. 40, 50 (1999) (quoting Blum v. Yaretsky, 457 U.S. 991,
1003 (1982)). State action is part of the prima facie case under § 1983, and the
plaintiffs bear the burden of proof. Groman v. Township of Manalapan, 47 F.3d 628,
638 (3d Cir. 1995). “[T]he defendant in a § 1983 action [must] have exercised power
‘possessed by virtue of state law and made possible only because the wrongdoer is
clothed with the authority of state law.’” Id. (quoting West v. Atkins, 487 U.S. 42, 49
(1988)).
There is no dispute that the Bank is a private entity, not a state actor.
Plaintiffs attempt to shoehorn the Bank into their § 1983 claim through a narrow
exception for conspiratorial, collusive, or concerted action between private and
state actors. See United States v. Price, 383 U.S. 787, 794 (1966). However, as
discussed supra, plaintiffs have failed to plead a claim of conspiracy between the
Bank and the county defendants. The allegata fail to establish even a “tenuous
36
connection” between the Bank and the alleged misconduct of the county
defendants. See Groman, 47 F.3d at 638. The Bank’s motion to dismiss will
therefore be granted as to Count I.
iv.
Inverse Condemnation (Counts II and III)
The Bank has moved to dismiss Counts II and III for inverse condemnation,
on the grounds that, as a private actor, the Bank is incapable of committing a
government taking. See 40 U.S.C. § 3113 (“An officer of the Federal Government
authorized to acquire real estate for . . . public uses may acquire the real estate for
the Government by condemnation, under judicial process . . .”); see also Elena v.
Municipality of San Juan, 677 F.3d 1, 7 (1st Cir. 2012) (“The Fifth Amendment . . .
permits government takings of private property only for public use and with just
compensation . . .”) (emphasis added). The Bank argues, in the alternative, that
Counts II and III fail to state a claim upon which relief can be granted because tax
sales are not takings for purposes of an inverse condemnation claim. As discussed
supra, the court agrees with the latter contention. A tax sale is not a government
taking pursuant to the state’s power of eminent domain; rather, it is an exercise of
the state’s taxing power, intended to enforce tax laws and ensure the collection of
revenue. See Bank of Washington v. Sheve, 307 F. Supp. 98, 99 (D.D.C. 1969) (“A
tax sale is not a government taking for which just compensation must be paid under
the Constitution after judicial proceedings.”). It is therefore unnecessary for the
court to address the Bank’s state action argument. The Bank’s motion to dismiss
will be granted as to Counts II and III.
37
v.
Tortious Interference with Contract (Count V)
In Count V, plaintiffs allege that the Bank intentionally and tortiously
interfered with the Dommels’ contractual relationship with Thomas McClay
(“McClay”), their largest client and a tenant of Farm Two. They assert that the
Bank’s September 28, 2011 letter to McClay (the “McClay letter”), in which the
Bank claimed that it was the lawful owner of Farm Two, and demanded that
McClay remit all rent payments to the Bank, constituted tortious interference with
contract.
Pennsylvania courts have adopted § 766 of the RESTATEMENT (SECOND ) OF
TORTS, which states:
One who intentionally and improperly interferes with the performance
of a contract (except a contract to marry) between another and a third
person by inducing or otherwise causing the third person not to
perform the contract, is subject to liability to the other for the
pecuniary loss resulting to the other from the failure of the third
person to perform the contract.
The Restatement articulates seven factors that a court should consider in
determining whether interference is “improper” – and thus actionable. See
RESTATEMENT § 767. In Walnut Street Associates, Inc. v. Brokerage Concepts, Inc.,
20 A.3d 468 (Pa. 2011), the Pennsylvania Supreme Court formally adopted § 772 of
the Restatement. Section 772 states that intentional interference with a contract or
prospective contractual relation is not improper if the interference consists of
giving either truthful information, or honest advice within the scope of a request for
advice. RESTATEMENT § 772; see also Brokerage Concepts, 20 A.3d at 476-77. The
38
Supreme Court held that § 772 specifically excludes imparting truthful information
from the realm of improper interference, and that this specific exclusion trumps the
general principles enunciated in § 767. Id. at 477.
The dispute between the Bank and plaintiffs is whether the McClay letter
contains truthful or false information. If the Bank actually owned Farm Two after
purchasing it at the Tax Sale, then the letter contains only truthful information, and
plaintiffs’ claim is barred as a matter of law. See id. at 478 (noting that the
information imparted in an allegedly improper interference was indisputably true,
and therefore if § 772 applied then the defendant would be entitled to judgment as a
matter of law). The Bank argues that there is no dispute that it purchased Farm
Two at the Tax Sale, thus making it the lawful owner of the property
notwithstanding the fact that the Dommels were still in possession of the land.
(Doc. 34 at 21) (“While Plaintiff subsequently challenged the tax sale, without a
ruling from the Common Pleas Court, Jonestown Bank remains the owner of the
real property.”). Plaintiffs view the issue in precisely the opposite way. They argue
the Bank was not the lawful owner of Farm Two at the time of the letter, because
the objections and exceptions to the Tax Sale were pending before the
Pennsylvania courts. The essential question, then, is: who owns the real property
pending final disposition of objections to the Tax Sale?
The answer lies within Pennsylvania statutes governing tax sales. Within
sixty days following a tax sale, the tax claim bureaus are required to file a
consolidated return with the court of common pleas of the appropriate county
39
setting forth, inter alia, the name of the owner in whose name the property was
assessed, the name of the owner at the time of sale and who was notified, and the
name of the purchaser. See 72 PA . CONS. STAT . § 5860.607(a). Upon satisfactory
review of the consolidated return by the court of common pleas, the return will then
be confirmed nisi. Id. The owner then has thirty days following confirmation nisi
of the consolidated return to file objections and exceptions. § 5860.607(b). If no
objections or exception to the sale are filed within thirty days after confirmation
nisi, or if the court of common pleas overrules or sets aside the objections, then the
prothonotary must then enter a decree of absolute confirmation. § 5860.607(d). If,
however, the objections or exceptions are sustained, the court then must enter an
order invalidating the sale and ordering another sale to be held to collect the
delinquent taxes. § 5860.607(e). Once a sale is confirmed absolutely, the “sale shall
be deemed to pass a good and valid title to the purchaser, free from any liens or
encumbrances whatsoever, except such liens as are hereafter specifically saved,
and in all respects as valid and effective as if acquired by a sheriff’s deed.” §
5860.607(g). Critically, title to the land does not pass to the purchaser, in this case
the Bank, until the sale is confirmed absolutely. At the time that the Bank mailed
the McClay letter, the sale had not been confirmed absolutely, meaning that the
Bank did not have title to Farm Two. Hence, the Bank’s argument that its claim of
ownership in the McClay letter was factually accurate, barring as a matter of law
plaintiffs’ tortious interference with contract claim, is without merit. The Bank’s
motion to dismiss will be denied as to Count V.
40
vi.
Conversion (Count VI)
In Count VI, plaintiffs’ allege conversion against all defendants. The Bank
has moved to dismiss on the grounds that Pennsylvania does not recognize the tort
of conversion of real property. The court agrees.
Conversion is, by definition, “an act of willful interference with a chattel,
done without lawful justification, by which any person entitled thereto is deprived
of use and possession.” Norriton East Realty Corp. v. Central-Penn Nat’l Bank, 254
A.2d 637, 638 (Pa. 1969) (emphasis added); see also Stevenson v. Economy Bank of
Ambridge, 197 A.2d 721, 726 (Pa. 1964) (“A conversion is the deprivation of
another’s right of property in, or use or possession of, a chattel, or other
interference therewith, without the owner’s consent and without lawful
justification.”) (emphasis added). And it is black letter law that a chattel is defined
as “an article of personal property: any species of property not amounting to a
freehold or fee in land.” Commonwealth v. Rosicci, 186 A.2d 648, 652 (Pa. Super. Ct.
1963) (quoting BLACK ’S LAW DICTIONARY 316 (3d ed. 1933)) (emphasis added).
Plaintiffs cite James v. City of Philadelphia, Civ. Action No. 98-4916, 1999 WL
674371, at *3 n.2 (E.D. Pa. August 18, 1999), for the proposition that “at best, it is
unclear whether Pennsylvania courts would hold real property cannot be the
subject of conversion.” Plaintiffs overstate the value of James to their argument by
an extraordinary degree. The sum total of the James court’s discussion of this issue
appears in a footnote, and is reproduced here in full:
41
Plaintiff's complaint describes count I as [sic] claim for conversion.
Pennsylvania defines the tort of conversion as “the deprivation of
another's right of property in, or use or possession of, a chattel, without
the owner's consent and without lawful justification.” Bernhardt v.
Needleman, 705 A.2d 875, 878 (Pa. Super. 1998). As a real property is
not a chattel, it is unclear whether a claim of conversion can be
maintained under Pennsylvania law. However, as this count cannot,
in any case, be maintained, it is unnecessary to struggle with that
question today.
Id. First, the court’s single sentence, that supposedly casts doubt on the prodigious
volume of contrary precedent, was pure dictum, as the court expressly stated that it
was unnecessary to address that issue. Id. The court eschewed any review of
Pennsylvania precedent because it concluded that the conversion claim “cannot, in
any case, be maintained . . . .” Id. Plaintiffs also fail to acknowledge the
introductory clause of the court’s sentence, which clearly states that “ a real
property is not a chattel.” Plaintiffs assert that “the Bank has not cited any
authority which states this proposition definitively,” patently ignoring the syllogism,
rife in the case law, that conversion is interference with an owner’s interest in
chattel, and chattel definitionally excludes real property. See, e.g., Rosicci, 186 A.2d
at 652. In sum, plaintiffs have failed to state a claim for conversion, and the Bank’s
motion to dismiss will be granted as to Count VI.
vii.
Breach of Fiduciary Duty (Count IX)
The Bank has moved to dismiss Count IX of the Complaint, alleging breach
of fiduciary duty, on the grounds that no such duty arose through the course of the
lender-borrower relationship between the Bank and plaintiffs.
42
A fiduciary relationship exists when a party acts as an “advisor or counselor”
to another, such that they may reasonably be expected to act with good faith in the
other’s best interest. Silver v. Silver, 219 A.3d 659, 662 (Pa. 1966). Typically, the
lender-borrower relationship does not create a fiduciary duty. Federal Land Bank
of Baltimore v. Fetner, 410 A.2d 344, 348 (Pa. Super. Ct. 1979) (citing Grace et ux. v.
Moll, 132 A. 171, 171 (Pa. 1926)). Lenders and borrowers are presumed to have
conducted their transactions at arms-length. Clark Motor Co., Inc. v.
Manufacturers and Traders Trust, Co., No. 4:07-CV-856, 2007 WL 2155528, at *8
(M.D. Pa. July 26, 2007) (citing Temp-Way Corp. v. Continental Bank, 139 B.R. 299,
318 (E.D. Pa. 1992)). However, a fiduciary duty may arise in situations where the
creditor “gains substantial control over the debtor’s business affairs.” Blue Line
Coal Co., Inc. v. Equibank, 683 F. Supp. 493, 496 (E.D. Pa. 1988) (quoting Stainton v.
Tarantino, 637 F. Supp. 1051, 1066 (E.D. Pa. 1986)). To establish a fiduciary
relationship, plaintiffs must show that the Bank exercised control over the “day-today management and operations” of plaintiffs’ business, or that the Bank “had the
ability to compel . . . [plaintiffs] to engage in unusual transactions.” Temp-Way, 139
B.R. at 318. “[T]he mere monitoring of the borrower’s operations and the
proffering of management advice by lenders without more is not enough to create a
fiduciary duty.” Clark Motor Co., 2007 WL 2155528, at *8.
Plaintiffs assert that the power disparity between the Bank and plaintiffs,
coupled with the Bank’s recommendation that plaintiffs press forth with their
construction loan despite being over-extended, gave rise to a fiduciary duty. (See,
43
e.g., Complaint, Doc. 1 at ¶ 12 (“the Dommels relied upon the Bank’s superior
expertise, knowledge and advice in connection with the Dommels loans and
business dealings with the Bank”); ¶ 23 (plaintiffs did not seek the advice of counsel
before executing promissory notes); ¶ 26 (the Bank advised plaintiffs to continue
construction on Farm Two); ¶ 27 (Mr. Dommel believed that the Bank would act in
the Dommels’ best interests)). These allegations, plaintiffs suggest, demonstrate
that the Bank had become so ensconced in the financial affairs of plaintiffs horsebreeding business that a duty arose to act in plaintiffs’ best interests. The court
disagrees.
The critical element necessary to establish a fiduciary duty between a lender
and a borrower is the lender’s control over the borrower’s business. None of
plaintiffs’ allegations come close to establishing that the Bank exercised the kind of
control over the Dommels’ business necessary to trigger that type of relationship.
The only allegation that edges in the right direction is that the Bank advised the
Dommels to continue with construction on Farm Two, and that is plainly
insufficient to demonstrate that the Bank exercised day-to-day control over
management decisions. See Temp-Way, 139 B.R. at 318. Similarly, the Bank’s
purported assertions that it would continue to act “in good faith” with the Dommels
in attempting to settle their debt did not create a fiduciary duty, because a lender’s
mere attempt to minimize risk does not establish the lender’s “control” over the
borrower. James E. McFadden, Inc. v. Baltimore Contractors, Inc., 609 F. Supp.
1102, 1105 (E.D. Pa. 1985).
44
Plaintiffs fail to plead facts sufficient to support their claim for breach of
fiduciary duty, and so the Bank’s motion to dismiss will be granted as to Count IX.
viii.
Deepening Insolvency (Count XI)
The only ground that the Bank asserts for dismissing plaintiffs’ claim for
deepening insolvency is that this tort is not recognized in Pennsylvania. The Bank
does not challenge the claim on its merits. As discussed supra, however, the court
is bound by the Third Circuit’s holding in Official Committee of Unsecured
Creditors v. R.F. Lafferty & Co., 267 F.3d 340, 349 (3d Cir. 2001), predicting that
Pennsylvania courts would in fact recognize such a tort. Therefore, the Bank’s
motion to dismiss Count XI will be denied.
ix.
Supplemental Jurisdiction
The Bank argues that if the federal claims are dismissed, the court should
decline to exercise supplemental jurisdiction over the remaining state law claims.
District courts have supplemental jurisdiction over state law claims that are “so
related” to federal claims “that they form part of the same case or controversy
under Article III.” 28 U.S.C. § 1367(a). District courts, however, “may” decline
supplemental jurisdiction if all claims over which it had original jurisdiction are
dismissed. See 28 U.S.C. § 1367(c)(3). However, § 1367(c)(3) is not implicated here
because a district court’s supplemental jurisdiction extends even over “claims
asserted by or against additional parties,” so long as the claims “form part of the
same case or controversy” over which the court has original jurisdiction. HB
General Corp. v. Manchester Partners, L.P., 95 F.3d 1185, 1197-98 (3d Cir. 1996). As
45
noted previously, the court will dismiss the federal claims against the Bank, but a
federal claim remains against Neuin. The remaining claims against the Bank share
a “common nucleus of operative fact,” see City of Chicago v. Intern’l College of
Surgeons, 522 U.S. 156, 164-65 (1997), with the remaining constitutional claim
against Neuin, such that it is appropriate for the court to exercise jurisdiction over
the remaining claims against the Bank. Therefore, the Bank’s motion to dismiss for
want of supplemental jurisdiction will be denied.
V.
Conclusion
For the reasons previously discussed, the defendants’ motions to dismiss will
be granted in part and denied in part. An appropriate order will issue.
S/ Christopher C. Conner
CHRISTOPHER C. CONNER
United States District Judge
Dated:
March 19, 2013
IN THE UNITED STATES DISTRICT COURT
FOR THE MIDDLE DISTRICT OF PENNSYLVANIA
DOMMEL PROPERTIES, LLC,
LAND OF BELIEVE FARM, INC.,
WILLIAM J. DOMMEL, and
ROBERT W. DOMMEL,
Plaintiffs,
v.
JONESTOWN BANK AND TRUST
COMPANY, now known as JBT,
LEBANON COUNTY TAX CLAIM
BUREAU, and SALLIE A. NEUIN
:
:
:
:
:
:
:
:
:
:
:
:
Civil Action No. 1:11-cv-2316
(Judge Conner)
ORDER
AND NOW, this 19th day of March, 2013, upon consideration of the motions
to dismiss of defendants Lebanon County Tax Claim Bureau and Sallie A. Neuin
(Doc. 29), and defendant Jonestown Bank and Trust Company (Doc. 30), and for the
reasons discussed in the accompanying memorandum, it is hereby ORDERED that:
1.
Defendants’ motions to dismiss are GRANTED in part and DENIED in
part.
2.
Counts I, II, III, IV, V, VI and XI are dismissed in their entirety as to
the Lebanon County Tax Claim Bureau.
3.
Counts II, III, IV, and XI are dismissed in their entirety as to Sallie A.
Neuin. Count I is dismissed as to Neuin with respect to plaintiffs’
procedural due process claim.
4.
Counts I, II, III, IV, VI, and IX are dismissed in their entirety as to
Jonestown Bank and Trust Company.
S/ Christopher C. Conner
CHRISTOPHER C. CONNER
United States District Judge
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