Smith & Morris Holdings, LLC et al v. Smith et al

Filing 24

MEMORANDUM (Order to follow as separate docket entry) re 16 MOTION TO DISMISS FOR FAILURE TO STATE A CLAIM filed by Juanita Pisano, Harry Devrieze, Bill Canfield, James L. Brennan, Jr., F. J. Monaghan, Borough of Honesdale, Robert Jennings, Tiffany S. Kominski, Carolyn J. Lorent, Scott J. Smith Signed by Honorable A. Richard Caputo on 9/17/14. (jam)

IN THE UNITED STATES DISTRICT COURT
FOR THE MIDDLE DISTRICT OF PENNSYLVANIA
SMITH & MORRIS HOLDINGS, LLC,
MICHAEL C. MORRIS, and STEPHEN G.
SMITH,

CIVIL ACTION NO. 3:CV-14-803
(JUDGE CAPUTO)

Plaintiffs,
v.
SCOTT J. SMITH, et al.,
Defendants.
MEMORANDUM
Presently before the Court is the Motion to Dismiss (Doc. 16) filed by Defendants
Scott J. Smith, F.J. Monaghan, James L. Brennan, Jr., Juanita Pisano, Bill Canfield, Robert
Jennings, Tiffany S. Kominski, Carolyn J. Lorent, Harry Devrieze,1 and the Borough of
Honesdale (collectively, “Defendants”). Pursuant to 42 U.S.C. § 1983, Plaintiffs Smith &
Morris Holdings, LLC (“Smith & Morris Holdings”), Michael C. Morris (“Morris”), and Stephen
G. Smith (“Smith”) (collectively, “Plaintiffs”) allege that Defendants violated their rights under
the Fifth, Sixth, and Fourteenth Amendments to the United States Constitution. Plaintiffs
also assert federal law claims under 42 U.S.C. § 1985 and § 1986, as well as state law
claims for breach of contract, inducing breach of contract, and breach of the implied
covenants of good faith and fair dealings. Because Plaintiffs fail to state a claim under §
1983, § 1985, or § 1986 and there exists no affirmative justification for exercising
supplemental jurisdiction over the remaining state law claims, Defendants’ motion to dismiss
will be granted, Plaintiffs’ federal law claims will be dismissed with prejudice, and Plaintiffs’
state law claims will be dismissed without prejudice.

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Scott Smith, Monaghan, Brennan, Pisano, Canfield, Jennings, Kominski, Lorent,
and Devrieze are all alleged to have been members of the Honesdale Borough
Council at the times relevant to this action. (Compl., ¶¶ 6-14.)

I. Background
The facts as set forth in the Complaint are as follows:
In or about May 2011, Smith & Morris Holdings and the Borough of Honesdale (the
“Borough”) entered into negotiations to seek a Keystone Communities Program Grant from
the Pennsylvania Department of Community & Economic Development (“DCED”). (Compl.,
¶ 16.) Smith & Morris Holdings invested substantial resources in assisting the Borough in
applying to the DCED for grants and grants-to-loans for physical improvements to a building
owned by Smith & Morris Holdings at 560 Main Street, Honesdale, Pennsylvania, referred
to as the “Anchor Building Renovation Project.” (Id. at ¶ 17.)

The Anchor Building

Renovation Project was approved by the DCED and a grant was made to the Borough in
the amount of $255,076.00. (Id. at ¶ 18.) Smith & Morris Holdings was to act as the
contractor for the renovation project. (Id. at ¶ 19.)
As part of the understanding between Smith & Morris Holdings and the Borough,
“bridge funding” to commence the construction of the project was to be provided by the
Dime Bank of Honesdale. (Id. at ¶ 20.) To close the “bridge loan” with the Dime Bank,
Defendants required Smith & Morris Holdings to execute a Promissory Note, a Mortgage
and Security Agreement, a Construction Loan Agreement, and an Assignment of Leases
and Rents to the Borough. (Id. at ¶ 21.) Although not required by the Dime Bank, the
Borough also required Morris and Smith to execute Personal Guaranty and Suretyship
agreements in favor of the Borough. (Id. at ¶ 22.) The Borough falsely represented that this
was required by the Commonwealth of Pennsylvania when it was not. (Id.)
The Construction Loan Agreement dated April 25, 2013 provides for the Borough to
make disbursements pursuant to the schedule of progress payments set forth in the
agreement. (Id. at ¶ 23.) Smith & Morris Holdings submitted for payment on several
occasions construction progress payment authorizations. (Id. at ¶ 24.)

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Defendants,

however, failed to comply with their obligations under the terms of the Grant Agreement and
caused unnecessary delays in Smith & Morris Holdings receiving the approved progress
payments which were due to contractors and suppliers. (Id. at ¶¶ 25-27.) As a result,
contractors and suppliers went unpaid and/or walked off the project. (Id.) And, because of
Defendants’ delays, vendors demanded up-front payments and inflated quotes, causing the
project’s costs to increase by an average of 30% above industry standards. (Id. at ¶ 29.)
Defendants’ failure to timely complete their obligations to the DCED resulted in the
Dime Bank freezing and placing Plaintiffs’ bank accounts into default. (Id. at ¶ 30.) The
Dime Bank also demanded payment of the balloon payment in January 2014. (Id. at ¶ 31.)
Smith & Morris Holdings thus became incapable of conducting any business. (Id. at ¶ 32.)
Defendants’ actions also forced Morris to place an additional $100,000.00 of equity from
his home to cover a new loan. (Id. at ¶ 34.) Defendants’ conduct put Plaintiffs in jeopardy
of default on the investment in the project, an investor balloon payment, other loans, and
caused investors to walk from the project, which cut the funding source for the operation of
Plaintiffs’ business. (Id. at ¶¶ 36-39.)
As a result of Defendants’ actions and Smith & Morris Holdings’ inability to carry on
the business, the property undergoing renovations suffered damages, including water
damage due to a contractor not completing work sealing windows. (Id. at ¶ 35.) Moreover,
contractors demanded up-front payment prior to providing material and/or labor for the
project. (Id. at ¶ 40.)
Since April 2013, Defendants have continuously harassed Plaintiffs in a variety of
ways, such as: permitting the Borough’s legal counsel to handle matters involving Smith &
Morris Holdings when that attorney was representing a contractor that claimed it was not
paid by Plaintiffs; the same attorney allowing statements and letters to be read by the
Borough Council into the public record; giving interviews to a local newspaper repeating

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these statements; and giving interviews to local newspapers denying such involvement
when these Council members were at that meeting. (Id. at ¶ 45.)
Based on the foregoing, Plaintiffs commenced this action on April 27, 2014. The
Complaint consists of five Counts. Count I sets forth claims for “violations of Plaintiffs’
substantive and procedural due process rights under 42 U.S.C. § 1983 and the Fifth, Sixth
and Fourteenth Amendments to the United States Constitution.” (Compl., Count I.) Count
II asserts claims for “conspiracy to deprive the Plaintiffs’ federally-protected rights under 42
U.S.C. § 1985 & § 1986 and the Fifth, Sixth and Fourteenth Amendments to the United
States Constitution.” (Id. at Count II.) Count III asserts a breach of contract claim, while
Count IV asserts a claim for inducing breach of contract. (Id. at Counts III-IV.) Lastly, Count
V alleges a breach of the implied covenants of good faith and fair dealing. (Id. at Count V.)
On July 14, 2014, Defendants filed a motion to dismiss the Complaint in its entirety.
(Doc. 16.) Defendants’ brief in support of their motion to dismiss was filed on July 28, 2014.
(Doc. 19.)

Plaintiffs’ brief in opposition was filed on August 11, 2014. (Doc. 20.)

Defendants’ reply brief in further support of their motion was filed on August 25, 2014. (Doc.
23.) Defendants’ motion to dismiss is now fully briefed and ripe for disposition.
II. Discussion
A.

Legal Standard
Federal Rule of Civil Procedure 12(b)(6) provides for the dismissal of a complaint,

in whole or in part, for failure to state a claim upon which relief can be granted. See Fed.
R. Civ. P. 12(b)(6). When considering a Rule 12(b)(6) motion, the Court's role is limited to
determining if a plaintiff is entitled to offer evidence in support of their claims. See
Semerenko v. Cendant Corp., 223 F.3d 165, 173 (3d Cir. 2000). The Court does not
consider whether a plaintiff will ultimately prevail. See id. A defendant bears the burden of
establishing that a plaintiff's complaint fails to state a claim. See Gould Elecs. v. United

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States, 220 F.3d 169, 178 (3d Cir. 2000).
“A pleading that states a claim for relief must contain . . . a short and plain statement
of the claim showing that the pleader is entitled to relief.” Fed. R. Civ. P. 8(a)(2). The
statement required by Rule 8(a)(2) must “‘give the defendant fair notice of what the . . .
claim is and the grounds upon which it rests.’” Erickson v. Pardus, 551 U.S. 89, 93, 127 S.
Ct. 2197, 167 L. Ed. 2d 1081 (2007) (per curiam) (quoting Bell Atl. Corp. v. Twombly, 550
U.S. 544, 555, 127 S. Ct. 1955, 167 L. Ed. 2d 929 (2007)). Detailed factual allegations are
not required. Twombly, 550 U.S. at 555, 127 S. Ct. 1955. However, mere conclusory
statements will not do; “a complaint must do more than allege the plaintiff's entitlement to
relief.” Fowler v. UPMC Shadyside, 578 F.3d 203, 210 (3d Cir. 2009). Instead, a complaint
must “show” this entitlement by alleging sufficient facts. Id. “While legal conclusions can
provide the framework of a complaint, they must be supported by factual allegations.”
Ashcroft v. Iqbal, 556 U.S. 662, 129 S. Ct. 1937, 1950, 173 L. Ed. 2d 868 (2009). As such,
“[t]he touchstone of the pleading standard is plausability.” Bistrian v. Levi, 696 F.3d 352,
365 (3d Cir. 2012).
The inquiry at the motion to dismiss stage is “normally broken into three parts: (1)
identifying the elements of the claim, (2) reviewing the complaint to strike conclusory
allegations, and then (3) looking at the well-pleaded components of the complaint and
evaluating whether all of the elements identified in part one of the inquiry are sufficiently
alleged.” Malleus v. George, 641 F.3d 560, 563 (3d Cir. 2011).
Dismissal is appropriate only if, accepting as true all the facts alleged in the
complaint, a plaintiff has not pleaded “enough facts to state a claim to relief that is plausible
on its face,” Twombly, 550 U.S. at 570, 127 S. Ct. 1955, meaning enough factual
allegations “‘to raise a reasonable expectation that discovery will reveal evidence of’” each
necessary element. Phillips v. County of Allegheny, 515 F.3d 224, 234 (3d Cir. 2008)

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(quoting Twombly, 550 U.S. at 556, 127 S. Ct. 1955). “The plausibility standard is not akin
to a ‘probability requirement,’ but it asks for more than a sheer possibility that a defendant
has acted unlawfully.” Iqbal, 556 U.S. at 678, 129 S. Ct. 1937. “When there are wellpleaded factual allegations, a court should assume their veracity and then determine
whether they plausibly give rise to an entitlement to relief.” Id. at 679, 129 S. Ct. 1937.
In deciding a motion to dismiss, the Court should consider the complaint, exhibits
attached to the complaint, and matters of public record. Mayer v. Belichick, 605 F.3d 223,
230 (3d Cir. 2010) (citing Pension Benefit Guar. Corp. v. White Consol. Indus., Inc., 998
F.2d 1192, 1196 (3d Cir. 1993)). The Court may also consider “undisputedly authentic”
documents when the plaintiff's claims are based on the documents and the defendant has
attached copies of the documents to the motion to dismiss. Pension Benefit Guar., 998 F.2d
at 1196. The Court need not assume the plaintiff can prove facts that were not alleged in
the complaint, see City of Pittsburgh v. W. Penn Power Co., 147 F.3d 256, 263 & n.13 (3d
Cir. 1998), or credit a complaint's “‘bald assertions’” or “‘legal conclusions.’” Morse v. Lower
Merion Sch. Dist., 132 F.3d 902, 906 (3d Cir. 1997) (quoting In re Burlington Coat Factory
Sec. Litig., 114 F.3d 1410, 1429–30 (3d Cir. 1997)).
B.

Defendants’ Motion to Dismiss
Defendants seek dismissal of Plaintiffs’ Complaint in its entirety. In particular,

Defendants move to dismiss Plaintiffs’ federal law claims, i.e., Counts I-II of the Complaint,
for failure to state a claim upon which relief can be granted. And, Defendants argue that
because the federal question claims are subject to dismissal, I should decline to exercise
supplemental jurisdiction over the state law claims, i.e., Counts III-V of the Complaint. For
the reasons that follow, Plaintiffs’ federal law claims will be dismissed with prejudice,
supplemental jurisdiction over the state law claims will be declined, and the state law claims
will be dismissed without prejudice.

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1.

Count I

In Count I of the Complaint, Plaintiffs set forth claims for “violations of Plaintiffs’
substantive and procedural due process rights under 42 U.S.C. § 1983 and the Fifth, Sixth
and Fourteenth Amendments to the United States Constitution.” (Compl., Count I.) Section
1983 provides that “[e]very person who, under color of any statute, ordinance, regulation,
custom, or usage . . . subjects, or causes to be subjected, any citizen . . . or other person
. . . to the deprivation of any rights, privileges, or immunities secured by the Constitution and
laws, shall be liable to the party injured, . . .” 42 U.S.C. § 1983. “To establish liability under
42 U.S.C. § 1983, a plaintiff must show that the defendants, acting under color of law,
violated the plaintiff's federal constitutional or statutory rights, and thereby caused the
complained of injury.” Elmore v. Cleary, 399 F.3d 279, 281 (3d Cir. 2005) (citing Sameric
Corp. of Del., Inc. v. City of Phila., 142 F.3d 582, 590 (3d Cir. 1998)).
a.

Fifth Amendment

Plaintiffs’ claim against Defendants for violation of the Fifth Amendment to the United
States Constitution will be dismissed. The Due Process Clause of the Fifth Amendment
applies to actions of the federal government, while the Due Process Clause of the
Fourteenth Amendment applies to state actors. See U.S. Const. amend. V; U.S. Const.
amend. XIV, § 1; see also B & G Const. Co. v. Dir., Office of Workers' Comp. Programs,
662 F.3d 233, 246 n.14 (3d Cir. 2011). Because Plaintiffs do not allege any actions on the
part of the federal government, they cannot state a claim under the Fifth Amendment.
b.

Sixth Amendment

Plaintiffs’ Complaint also purports to state a claim under the Sixth Amendment to the
United States Constitution. However, the allegations in the Complaint fail to implicate any
rights secured by the Sixth Amendment. See U.S. Const. amend. VI (listing rights protected
“[i]n all criminal prosecutions”). Thus, Plaintiffs’ Sixth Amendment claims will be dismissed

7

with prejudice.
c.

Fourteenth Amendment

Count I of the Complaint also sets forth claims under the Fourteenth Amendment to
the United States Constitution. The Fourteenth Amendment provides, in pertinent part, that
a state shall not “deprive any person of life, liberty, or property, without due process of law;
. . .” U.S. Const. amend. XIV, § 1. Plaintiffs’ submissions are not clear as to the precise
nature of the Fourteenth Amendment claims being advanced in this litigation. Nevertheless,
I construe Plaintiffs’ Complaint as attempting to state the following claims under the
Fourteenth Amendment: (i) a substantive due process deprivation of property interest claim;
(ii) a takings claim2; (iii) a procedural due process deprivation of property interest claim; and
(iv) a procedural due process deprivation of liberty interest claim. I will address each of
Plaintiffs’ due process claims separately.
i.

Substantive Due Process Property Interest Claim

According to the Third Circuit, “the fabric of substantive due process . . .
encompasses at least two very different threads.” Nicholas v. Pa. State Univ., 227 F.3d 133,
139 (3d Cir. 2000). The first of these threads (which is not at issue in this case) applies
when a “plaintiff challenges a legislative act.” Id. Plaintiffs’ claim here instead falls under
the second of these threads, which “protects against certain types of non-legislative action.”
Id. To establish a substantive due process violation under this thread, a plaintiff must
prove: (1) the deprivation of an interest protected by the substantive due process clause;
and (2) that the government’s deprivation of that protected interest shocks the conscience.
Chambers ex rel. Chambers v. Sch. Dist. of Phila. Bd. of Educ., 587 F.3d 176, 190 (3d Cir.

2

The Takings Clause of the Fifth Amendment is applicable to the states through the
Fourteenth Amendment. Webb's Fabulous Pharmacies, Inc. v. Beckwith, 449 U.S.
155, 160, 101 S. Ct. 446, 66 L. Ed. 2d 358 (1980).
8

2009) (citing Chainey v. Street, 523 F.3d 200, 219 (3d Cir. 2008)); see also Nicholas, 227
F.3d at 139-40 (“To prevail on a non-legislative substantive due process claim, a plaintiff
must establish as a threshold matter that he has a protected property interest to which the
Fourteenth Amendment’s due process protection applies.”). To state a substantive due
process claim, a plaintiff must have been deprived of a “particular quality of property
interest,” and “whether a certain property interest embodies this ‘particular quality’ is not
determined by reference to state law, but rather depends on whether that interest is
‘fundamental’ under the United States Constitution.” Nicholas, 227 F.3d at 140 (citations
omitted). The Third Circuit has “so far limited non-legislative substantive due process
review to cases involving real property ownership.” Id. at 141 (citing DeBlasio v. Zoning Bd.
of Adjustment, 53 F.3d 592, 598 (3d Cir. 1995)); Connection Training Servs. v. City of
Phila., 358 F. App’x 315, 320 (3d Cir. 2009) (same).
In their Complaint, Plaintiffs indicate that the “significant property interests” they were
deprived of under the Due Process Clause include: “diminution of the value of their real
property”; “deprivation of the use of equity in the real property”; “harming of their credit
ratings”; and “monetary losses as are set forth hereinafter.” (Compl., ¶ 65.)3 These property
interests are not of such a “particular quality” to warrant substantive due process protection.
See, e.g., Bellochio v. N.J. Dep’t of Envtl. Prot., - - - F. Supp. 2d - - -, 2014 WL 1464814,
at *7 (D.N.J. Apr. 15, 2014 (“the Court is doubtful that diminution of property value based
upon a generalized governmental action is a sufficient basis for a substantive due process
claim.”); Kriss v. Fayette Cnty., 827 F. Supp. 2d 477, 493 (W.D. Pa. 2011) (“The

3

Plaintiffs also allege that they suffered a “diminution of a real property interest.”
(Compl., ¶ 65.) Although unclear, this averment appears duplicative of Plaintiffs’
claim that the value of their real property was diminished in view of the fact that
Plaintiffs have not alleged that they were deprived of ownership in the property at
issue.
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undersigned agrees with other district courts in the Third Circuit and the Court of Appeals
for the Second Circuit, which have found that a decline in property value, by itself, cannot
support a substantive due process claim. “); Phantom of Eastern Pa. v. N.J. State Police,
No. 07-2748, 2008 WL 2039461, at *2 (E.D. Pa. May 12, 2008) (substantive due process
does not protect “mere diminution of property value”); Tri-County Concerned Citizens Ass’n
v. Carr, No. 98-4184, 2001 WL 1132227 (E.D. Pa. Sept. 18, 2001) (“the Court believes
diminution of property values does not give rise to substantive due process protection”).
Additionally, the Complaint suggests that Plaintiffs are alleging a substantive due process
violation for Defendants’ delayed processing of payments.

But, in a comparable

circumstance, the Third Circuit concluded that an interest in the prompt receipt of payment
for professional services provided to the state is not worthy of substantive due process
protection. See Reich v. Beharry, 883 F.2d 239, 244-45 (3d Cir. 1989) (“Reich's complaint
fails to state a substantive due process claim. As we have noted, the only interest that
Reich had at stake before Beharry was his interest in avoiding delay in the receipt of
payment of a bill for professional services rendered. We can think of no basis for according
substantive due process protection to this interest . . . .”). And, any claim by Plaintiffs that
the right to engage in business is protected by substantive due process has been rejected
by the Third Circuit. See Wrench Transp. Sys., Inc. v. Bradley, 340 F. App’x 812, 815-16
(3d Cir. 2009) (“we agree with the District Court's finding that Malone's asserted intereststhe right to ‘engage in business’ and his right to the ownership of the trucks- are more
similar to the type of intangible employment rights that this Court has rejected as not
protected by substantive due process than the real property interests which can be
protected by substantive due process.”).
But, as stated, the Third Circuit has emphasized that ownership of real property
warrants substantive due process protection. See Nicholas, 227 F.3d at 140. In this case,

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Plaintiffs have not alleged that they have been deprived of ownership of the property.
Nevertheless, at least in the context of land use regulations, the Third Circuit has stated that
a plaintiff alleges a property interest worthy of substantive due process protection “in
situations where the governmental decision in question impinges upon a landowner's use
and enjoyment of property.” DeBlasio v. Zoning Bd. of Adjustment, 53 F.3d 592, 600-01 (3d
Cir.1995), abrogated on other grounds by United Artists Theatre Cir., Inc. v. Twp. of
Warrington, 316 F.3d 392, 400 (3d Cir. 2003); Andrews v. Bureau of Codes Admin. Office,
No. 08-1669, 2012 WL 610333, at *9 (M.D. Pa. Feb. 24, 2012) (same); MFS, Inc. v.
DiLazaro, 771 F. Supp. 2d 382, 440-41 (E.D. Pa. 2011) (same); Thornbury Noble, Ltd. v.
Thornbury Twp., No. 99-6460, 2002 WL 442827, at *5 (E.D. Pa. Mar. 20, 2002) (same).4
Here, assuming both that a substantive due process claim can be based on the interference
of the use and enjoyment of property in the context presented in this case and that the
allegations in the Complaint sufficiently state such an interference, Plaintiffs’ substantive
due process deprivation of property interest claim is still subject to dismissal for failure to
allege conscience-shocking conduct on the part of Defendants.
While what “shocks the conscience” may “var[y] depending on the factual context,”
the standard “encompasses ‘only the most egregious official conduct.’” United Artists
Theatre Cir., Inc. v. Twp. of Warrington, 316 F.3d 392, 399 (3d Cir. 2003) (quoting Cnty. of
Sacramento v. Lewis, 523 U.S. 833, 846, 118 S. Ct. 1708, 140 L. Ed. 2d 1043 (1998)).

4

Plaintiffs do not allege in the Complaint that its use and enjoyment of its property
was impinged by any land use regulations or zoning decisions. However, the
reasoning of some courts suggests that interfering with the use and enjoyment of
property outside of the zoning context may still form the basis of a substantive
due process claim. See, e.g., DB Enter. Developers & Builders, Inc. v. Micozzie,
394 F. App’x 916, 919 (3d Cir. 2010) (“Even assuming that Nicholas’s threats did
interfere with DB’s use and enjoyment of its property, such deprivation violates
due process only when it shocks the conscience, an extremely difficult standard to
meet.”).
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Here, Plaintiffs’ allegations fail to satisfy this standard. With respect to the interference with
their property, Plaintiffs at most allege that Defendants misrepresented that they had to
execute personal guarantees relating to the Anchor Building Renovation Project, (Compl.,
¶ 22), that Defendants failed to timely process payment requests, (Id. at ¶¶ 25-27), and, as
a result, the project was delayed and damage occurred to Plaintiffs’ property at 560 Main
Street. (Id. at ¶¶ 29, 35.) These allegations are comparable to those which the Third Circuit
found insufficient to state conscious-shocking conduct in DB Enterprise Developers &
Builders, Inc. v. Micozzie, 394 F. App’x 916 (3d Cir. 2010). There, the plaintiff’s complaint
alleged that the defendants “through atriculated threats and unfulfilled promises forced it
to perform sewer construction in exchange for the right to develop Springfield Knoll without
interruption.” Id. at 919. The DB Enterprise court likened those allegations to the dispute
in Eichenlaub v. Township of Indiana where the Third Circuit found that “the township’s
efforts in selectively enforcing zoning laws, pursuing unannounced and unnecessary
inspections, and improperly increasing tax assessments were not such that they shocked
the conscience, particularly because there were no allegations that the defendants were
motivated by corruption, self-dealing, or bias against a particular ethnic group.” Id. (citing
Eichenlaub v. Township of Indiana, 385 F.3d 274, 286 (3d Cir. 2004)). Thus, the Third
Circuit in DB Enterprises concluded that the “coercion of DB to perform services to benefit
Upper Darby’s sewer system and his false promise of reimbursement with state funds are
not such that shock the conscience.” Id. at 920. The same result is compelled here
because Plaintiffs’ allegations fail to allege any conduct by Defendants that was so
egregious as to shock the conscience. The substantive due process deprivation of property
interest claim in Count I of the Complaint will be dismissed.
ii.

Takings Claim

While Count I of Plaintiffs’ Complaint also appears to set forth an unconstitutional

12

takings claim, the nature of this claim is unclear.

The Takings Clause of the Fifth

Amendment prohibits the federal government from taking private property for public use
without providing just compensation, see U.S. Const. amend. V, and the Takings Clause
applies to state action through the Fourteenth Amendment. See Am. Express Travel
Related Servs., Inc. v. Sidamon-Eristoff, 669 F.3d 359, 370 (3d Cir. 2012). Takings claims
generally fall into two categories: physical and regulatory. See Yee v. City of Escondito, 503
U.S. 519, 522-23, 112 S. Ct. 1522, 118 L. Ed. 2d 153 (1982). A physical taking occurs
when there is either a condemnation or a physical appropriation of property. See TahoeSierra Pres. Council, Inc. v. Tahoe Reg'l Planning Agency, 535 U.S. 302, 322, 122 S. Ct.
1465, 152 L. Ed. 2d 517 (2002). By contrast, a regulatory taking occurs when “government
regulation of private property [is] . . . so onerous that its effect is tantamount to a direct
appropriation or ouster.” Lingle v. Chevron U.S.A. Inc., 544 U.S. 528, 537, 125 S. Ct. 2074,
161 L. Ed. 2d 876 (2005) (quoting Pa. Coal Co. v. Mahon, 260 U.S. 393, 415, 43 S. Ct. 158,
67 L. Ed. 322 (1922) (Holmes, J.)). A regulation violates the Takings Clause “where
government requires an owner to suffer a permanent physical invasion of her property,” or
where the owner is completely deprived of “all economically beneficial use” of the property.
Id. at 538, 125 S. Ct. 2074 (internal citations omitted).
Plaintiffs fail to state a claim under the Takings Clause. First, Plaintiffs do not allege
that their property has been condemned or physically appropriated. Thus, they have not
alleged a physical taking. Second, Plaintiffs fail to allege that a regulatory taking has
occurred as they have not cited any regulatory action by Defendants. Moreover, Plaintiffs
have not indicated that their has been a permanent physical invasion to their property, nor
have they alleged that they have been deprived of all economically beneficial uses of the
property. See, e.g., Munoz v. City of Union City, 481 F. App’x 754, 759 (3d Cir. 2012) (“A
Takings Clause claim cannot lie where the plaintiff was not deprived of all beneficial uses

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of his property. Munoz concedes that he retains a possessory interest in the property.
Indeed, Munoz is still entitled to put the property to any number of beneficial uses. The
record reflects that Munoz simply lacks sufficient funds to do so, at present.”). Plaintiffs’
Takings Clause claim will therefore be dismissed.
iii.

Procedural Due Process Property Interest Claim

Count I of the Complaint also asserts that Defendants deprived Plaintiffs of their right
to procedural due process. “To state a claim under § 1983 for deprivation of procedural due
process rights, a plaintiff must allege that (1) he was deprived of an individual interest that
is encompassed within the Fourteenth Amendment's protection of ‘life, liberty, or property,’
and (2) the procedures available to him did not provide ‘due process of law.’ ” Hill v.
Borough of Kutztown, 455 F.3d 225, 233-34 (3d Cir.2006) (citing Alvin v. Suzuki, 227 F.3d
107, 116 (3d Cir. 2000)). For purposes of procedural due process, courts look to state law
to determine whether a property interest exists. Dee v. Borough of Dunmore, 549 F.3d 225,
229 (3d Cir. 2008) (citing Board of Regents v. Roth, 408 U.S. 564, 577, 92 S. Ct. 2701, 33
L. Ed. 2d 548 (1972) (“Property interests are not created by the Constitution. Rather they
are created and their dimensions are defined by existing rules or understandings that stem
from an independent source such as state law.”)).
The basis of the procedural due process claim is not apparent from the Complaint
or Plaintiffs’ brief in opposition to the motion to dismiss. As such, I construe the procedural
due process claim to be based on Plaintiffs’ contracts and agreements with the Borough.
“[I]t is well-settled that state-created property interests, including some contract
rights, are entitled to protection under the procedural component of the Due Process
Clause.” Nicholas, 227 F.3d at 140. Nevertheless, while “state contract law can give rise
to a property interest protectible by procedural due process, not every interest held by virtue
of a contract implicates such process.” Reich v. Beharry, 863 F.2d 239, 242 (3d Cir. 1989)

14

(citations omitted). Such is the case because “if every breach of contract by someone
acting under color of state law constituted a deprivation of property for procedural due
process purposes, the federal courts would be called upon to pass judgment on the
procedural fairness of the processing of a myriad of contractual claims against public
entities.” Id. (citations omitted); see also Unger v. Nat’l Residents Matching Program, 928
F.2d 1392, 1398 (3d Cir. 1991) (“we are faced with an equally compelling necessity to
recognize that not every interference with contractual expectations does so. It is neither
workable nor within the intent of section 1983 to convert every breach of contract claim
against a state into a federal claim.”). And, the Third Circuit has recognized only two
general types of contract interests as property interests protected by procedural due
process: (1) where “the contract confers a protected status, such as those ‘characterized
by a quality of either extreme dependence in the case of welfare benefits, or permanence
in the case of tenure, or sometimes both, as frequently occurs in the case of social security
benefits’”; or (2) where “the contract itself includes a provision that the state entity can
terminate the contract only for cause.” Linan-Faye Constr. Co. v. Hous. Auth. of Camden,
49 F.3d 915, 932 (3d Cir. 1995) (quoting Unger, 928 F.2d at 1399). Here, Plaintiffs’
allegations do not implicate these types of contract interests. Thus, Plaintiffs have not
stated a procedural due process claim in Count I of the Complaint.
iv.

Procedural Due Process Liberty Interest Claim

Lastly, insofar as Plaintiffs are attempting to assert a procedural due process
deprivation of liberty interest in reputation claim, i.e., a stigma-plus claim, in Count I of the
Complaint, they fail to state a claim upon which relief can be granted. The Supreme Court
held in Wisconsin v. Constantineau, 400 U.S. 433, 91 S. Ct. 507, 27 L. Ed. 2d 515 (1971)
that an individual has a protectable interest in reputation. “Where a person's good name,
reputation, honor, or integrity is at stake because of what the government is doing to him,

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notice and an opportunity to be heard are essential.” Id. at 437, 91 S.Ct. 507. Courts
“subsequently clarified, however, that ‘reputation alone is not an interest protected by the
Due Process Clause.’” Hill v. Borough of Kutztown, 455 F.3d 225, 236 (3d Cir. 2006)
(quoting Versarge v. Twp. of Clinton, 984 F.2d 1359, 1371 (3d Cir. 1993)). “Rather, to make
out a due process claim for deprivation of a liberty interest in reputation, a plaintiff must
show a stigma to his reputation plus deprivation of some additional right or interest.” Id.
(citing Paul v. Davis, 424 U.S. 693, 701, 96 S. Ct. 1155, 47 L. Ed. 2d 405 (1976)).
Here, any stigma-plus claim alleged by Plaintiffs in the Complaint fails for two
reasons.

First, Plaintiffs fail to sufficiently plead the “stigma” prong of the claim.

Specifically, other than claiming that Defendants placed Plaintiffs in a “false light,” (Compl.,
¶ 45), Plaintiff did not identify in the Complaint the purportedly stigmatizing statement[s] or
allege that these statement[s] were false. See Hill, 455 F.3d at 236 (“To satisfy the ‘stigma’
prong of the test, it must be alleged that the purportedly stigmatizing statement(s) (1) were
made publicly, and (2) were false.”). Second, and of greater significance to the stigma-plus
claim in this case, Plaintiffs have not identified the “plus,” that is the “additional deprivation
needed to transform a stigmatizing statement into a § 1983 claim.” D & D Assoc., Inc. v. Bd.
of Educ. of N. Plainfield, 552 F. App’x 110, 113 (3d Cir. 2014). For example, the Third
Circuit has indicated that a “constitutionally protected property interest qualifies as a
sufficient ‘plus.’” Dee v. Borough of Dunmore, 549 F.3d 225, 234 (3d Cir. 2008); see also
Burns v. Alexander, 776 F. Supp. 2d 57, 80 (W.D. Pa. 2011) (“A property interest that
independently enjoys due process protection constitutes a sufficient ‘plus’. . . .
Nevertheless, it is not always necessary for a plaintiff to allege the deprivation of an interest
entitled to independent due process protection in order to establish the existence of a
reputation-based ‘liberty interest.’”). In this case, Plaintiffs have not alleged the deprivation
of an “additional right or interest” sufficient to satisfy the “plus” prong of their stigma-plus

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claim. See, e.g., Good v. City of Sunbury, 352 F. App’x 688, 691-92 (3d Cir. 2009)
(collecting cases and discussing sufficiently tangible “plus” interests). Accordingly, Plaintiffs’
stigma-plus claim will be dismissed.
2.

Count II

In Count II of the Complaint, Plaintiffs assert that Defendants violated their rights
under 42 U.S.C.§ 1985 and § 1986. Defendants move to dismiss the claims under both of
these sections.
a.

Section 1985

42 U.S.C. § 1985 has three subsections: § 1985(1) deals with preventing an officer
from performing duties; § 1985(2) addresses obstruction of justice or intimidating a party,
witness, or juror; and § 1985(3) focuses on the deprivation of rights or privileges. See
generally 42 U.S.C. § 1985. Although the Complaint does not specify which subsection
they believe Defendants violated, Plaintiffs’ brief in opposition to the motion to dismiss
indicates that the claim is based on § 1985(3). (Doc. 20, 20.)
Section 1985(3) provides, in pertinent part:
If two or more persons in any State or Territory conspire . . . for the purpose
of depriving, either directly or indirectly, any person or class of persons of the
equal protection of the laws, or of equal privileges and immunities under the
laws; . . . in any case of conspiracy set forth in this section, if one or more
persons engaged therein do, or cause to be done, any act in furtherance of the
object of such conspiracy, whereby another is injured in his person or property,
or deprived of having and exercising any right or privilege of a citizen of the
United States, the party so injured or deprived may have an action for the
recovery of damages occasioned by such injury or deprivation, against any
one or more of the conspirators.
42 U.S.C. § 1985(3).
To state a claim under § 1985(3), a plaintiff must allege:
(1) a conspiracy; (2) motivated by a racial or class based discriminatory
animus designed to deprive, directly or indirectly, any person or class of
persons to the equal protection of the laws; (3) an act in furtherance of the
conspiracy; and (4) an injury to person or property or the deprivation of any
right or privilege of a citizen of the United States.

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Lake v. Arnold, 112 F.3d 682, 685 (3d Cir. 1997) (citations omitted). Thus, to state a §
1985(3) claim, a plaintiff must allege discrimination against a “specific, identifiable class,”
not merely “a group of individuals who share a desire to engage in conduct that the . . .
defendant disfavors.” Farber v. City of Paterson, 440 F.3d 131, 135 (3d Cir. 2006) (“In order
to ensure that a § 1985(3) class has an independent identifiable existence, a reasonable
person must be able to ‘readily determine by means of an objective criterion or set of criteria
who is a member of the group and who is not.’”).
Plaintiffs’ § 1985(3) claim will be dismissed. Here, the Complaint fails to allege
discrimination against a “specific, identifiable class of persons.” And, in their brief in
opposition to Defendants’ motion to dismiss, Plaintiffs did not even attempt to identify such
a class. Thus, Plaintiffs fail to state a claim under § 1985(3).
b.

Section 1986

In Count II of the Complaint, Plaintiffs also allege that Defendants violated 42 U.S.C.
§ 1986. “Section 1986 imposes civil liability on persons who have knowledge that violations
of section 1985 ‘are about to be committed,’ have the ‘power to prevent or aid in preventing
commission of the same,’ and refuse to do so.” Foskey v. Rendell, 261 F. App’x 428, 430
(3d Cir. 2008) (quoting 42 U.S.C. § 1986).

Section 1986 “constitutes an additional

safeguard for those rights protected under 42 U.S.C. § 1985, and ‘transgressions of § 1986
by definition depend on a preexisting violation of § 1985.’” Clark v. Clabaugh, 20 F.3d 1290,
1295 (3d Cir. 1994) (quoting Rogin v. Bensalem Township, 616 F.2d 680, 696 (3d Cir.
1980), cert. denied, 450 U.S. 1029, 101 S. Ct. 1737, 68 L. Ed. 2d 223 (1981)). As
explained above, Plaintiffs fail to state a claim under § 1985(3). Therefore, “[h]aving failed
to allege any violation of § 1985(3), the complaint cannot state a claim under § 1986.”
Foskey, 261 F. App’x at 430. The § 1986 claim will be dismissed.

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3.

Counts III-V

Plaintiffs’ remaining claims are their state law claims for breach of contract, inducing
breach of contract, and breach of the implied covenant of good faith and fair dealing. Under
28 U.S.C. § 1367(a), district courts have supplemental jurisdiction “over all other claims that
are so related to claims in the action within such original jurisdiction that they form part of
the same case or controversy under Article III of the United States Constitution.” 28 U.S.C.
§ 1367(a). A district court may refuse to exercise such jurisdiction where, as in the instant
case, it “has dismissed all claims over which it has original jurisdiction.” 28 U.S.C. §
1367(c)(3). Indeed, “where the claim over which the district court has original jurisdiction
is dismissed before trial, the district court must decline to decide the pendent state claims
unless considerations of judicial economy, convenience, and fairness to the parties provide
an affirmative justification for doing so.” Borough of W. Mifflin v. Lancaster, 45 F.3d 780,
788 (3d Cir. 1995).
Here, there is no affirmative justification for exercising supplemental jurisdiction over
Plaintiffs’ state law claims beyond any ordinary inconvenience associated with dismissal on
this ground. Therefore, as the claims forming the basis of the Court’s jurisdiction under 28
U.S.C. § 1331 in this action will be dismissed, i.e., the § 1983, § 1985, and § 1986 claims,
the Court will decline to exercise supplemental jurisdiction over Plaintiffs’ remaining state
law claims. Thus, the claims in Counts III, IV, and V of the Complaint will be dismissed
without prejudice to allow Plaintiffs to re-file them in state court if they so desire.
C.

Leave to Amend
Rule 15 of the Federal Rules of Civil Procedure permits a court to grant a party leave

to amend its pleadings. See Fed. R. Civ. P. 15(a)(2). “The court should freely give leave
when justice so requires.” Id. As such, “if a complaint is subject to a Rule 12(b)(6)
dismissal, a district court must permit a curative amendment unless such an amendment

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would be inequitable or futile.” Phillips v. Cnty. of Allegheny, 515 F.3d 224, 245 (3d Cir.
2008) (citing Alston v. Parker, 363 F.3d 229, 235 (3d Cir. 2004)). In this context, “‘futility’
means that the complaint, as amended, would still fail to state a claim upon which relief
could be granted.” Shave v. Fauver, 213 F.3d 113, 115 (3d Cir. 2000) (citing In re Burlington
Coat Factory Sec. Litig., 114 F.3d 1410, 1434 (3d Cir.1997)). In this case, because the
deficiencies identified with regard to Plaintiffs’ federal law claims are not curable by
amendment, granting leave to amend the § 1983, § 1985, and/or § 1986 claims would be
futile. Therefore, Plaintiffs’ claims under federal law will be dismissed with prejudice.
III. Conclusion
For the above stated reasons, Defendants’ motion to dismiss will be granted.
Plaintiffs’ federal law claims will be dismissed with prejudice, while Plaintiffs’ state law
claims will be dismissed without prejudice.
An appropriate order follows.

September 17, 2014
Date

/s/ A. Richard Caputo
A. Richard Caputo
United States District Judge

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