Velebit WB, LLC v. Harvest 3614, Inc. et al

Filing 37

MEMORANDUM (Order to follow as separate docket entry) re 27 MOTION to Dismiss for Failure to State a Claim to Amended Complaint filed by RMLS HOP Restaurants PA, L.P., Harvest 3614, Inc., RMLS HOP, LLC Signed by Honorable Malachy E Mannion on 11/13/2023. (gg)

UNITED STATES DISTRICT COURT
MIDDLE DISTRICT OF PENNSYLVANIA
VELEBIT WB, LLC,
Plaintiff,
v.

:

CIVIL ACTION NO. 3:22-1328

:

(JUDGE MANNION)

:

HARVEST 3614, INC., RMLS
HOP, LLC,
Defendants.

:
:
:

MEMORANDUM
Pending before the court is Defendants Harvest 3614, Inc.’s
(“Harvest”), and RMLS HOP, LLC’s (“RMLS LLC”), motion to dismiss, (Doc.
27), Plaintiff Velebit WB, LLC’s (“Velebit”) amended complaint, (Doc. 26).
Velebit brings suit seeking damages based on (1) tortious interference with
contract, (2) tortious interference with prospective business relations, (3)
anticipatory breach of contract, (4) declaratory judgment, (5) breach of
contract (covenant of good faith and fair dealing), (6) breach of contract
(failure to pay taxes and rent), and (7) guarantor liability. Defendants move
to dismiss based on Velebit’s failure to state a claim upon which relief can
be granted. However, Velebit’s claims are well-plead under the federal rules.
Accordingly, the court will DENY the motion.

I.

BACKGROUND
The background of this case is taken from the factual allegations set

forth in Velebit’s amended complaint, (Doc. 26), which the court must accept
as true for purposes of Defendants’ motion to dismiss.
Plaintiff Velebit is the owner of the property located a 770 Kidder Street,
Wilkes-Bare, PA (the “Property”). Defendant Harvest assumed the tenancy
of the Property from RMLS HOP Restaurants PA, L.P. (“RMLS LP”).
Defendant “RMLS LLC” signed as guarantor of the parties’ lease (the
“Lease”) and agreed to continue as guarantor upon the assignment from
RMLS LP to Harvest.
As a result of the COVID-19 pandemic, Velebit reduced Harvest’s rent
by 50% from May 1, 2020, through August 31, 2020. Harvest never signed
a proposed Lease Amendment but did pay the reduced rate rather than the
full rate. Velebit maintains that this reduction was a mere deferment but when
it tried to collect the remaining 50% Harvest refused to pay. Eventually RMLS
LLC paid Velebit the balance to avoid liability as Guarantor.
In June 2021, Harvest offered to purchase the Property for $1.1 million.
Velebit rejected the offer because it considered that amount far less than the
value of the property. Subsequently Harvest sought to negotiate a rent
reduction but Velebit refused to agree to an amount different from that in the
-2-

Lease. On December 27, 2021, Harvest sent Velebit a document titled
“NOTICE OF LEASE TERMINATION,” which stated Harvest’s intent to
terminate the lease and vacate the property as of December 31, 2022.
In April 2022, after talks with several potential purchasers, Velebit
executed a $2,600,000 Real Estate Purchase Agreement with a purchaser
for the Property. Since the Lease contains a right to first refusal ('8.2),
Velebit notified Harvest of the offer. Harvest refused the offer. However,
Harvest also refused to sign an estoppel certificate, confirming inter alia its
status as lessee of the Property, unless Velebit first acknowledged its
termination of the lease. Velebit did not recognize Harvest’s termination and
Harvest did not sign the estoppel certificate. Without the signed estoppel
certificate the purchaser cancelled its agreement to buy the property from
Velebit citing a material change in the circumstances of the relationship
between Velebit and Harvest.
Velebit alleges that the outstanding conflict with Harvest is a problem
for all potential purchasers and that the market for the Property is now
depressed because of Harvest’s actions, which Velebit claims were
purposefully harmful to it. Accordingly, Velebit initiated this action to resolve
the dispute and recover damages for Harvest’s allegedly intentional conduct
from both Harvest and guarantor RMLS LLC.
-3-

Since the filing of this action, Harvest has refused to withdraw its Notice
of Termination but also remained in possession of the Property past its
claimed termination date of December 31, 2022. Still Velebit claims Harvest
has failed to make all payments under the Lease including for the full amount
of taxes and rent owed. As a result, Velebit amended its complaint to inter
alia allege an independent breach of the lease by Harvest/RMLS LP and the
Guaranty by RMLS LLC based on these payment defaults.
II.

LEGAL STANDARD
Defendants’ motion to dismiss is brought pursuant to Rule 12(b)(6) of

the Federal Rules of Civil Procedure. Rule 12(b)(6) provides for the dismissal
of a complaint, in whole or in part, if the complaint fails to state a claim upon
which relief can be granted. The moving party bears the burden of showing
that no claim has been stated, Hedges v. United States, 404 F.3d 744, 750
(3d Cir. 2005), and dismissal is appropriate only if, accepting all the facts
alleged in the complaint as true, the non-moving party has failed to plead
“enough facts to state a claim to relief that is plausible on its face.” Bell
Atlantic Corp. v. Twombly, 550 U.S. 544, 570 (2007) (abrogating “no set of
facts” language found in Conley v. Gibson, 355 U.S. 41, 45-46 (1957)). The
facts alleged must be sufficient to “raise a right to relief above the speculative
level.” Twombly, 550 U.S. at 555. This requirement “calls for enough fact[s]
-4-

to raise a reasonable expectation that discovery will reveal evidence of”
necessary elements of the non-moving party’s cause of action. Id.
Furthermore, to satisfy federal pleading requirements, the non-moving party
must “provide the grounds of his entitlement to relief,” which “requires more
than labels and conclusions, and a formulaic recitation of the elements of a
cause of action will not do.” Phillips v. County of Allegheny, 515 F.3d 224,
231 (3d Cir. 2008) (brackets and quotations marks omitted) (quoting
Twombly, 550 U.S. 544 at 555).
In considering a motion to dismiss, the court generally relies on the
complaint, attached exhibits, and matters of public record. See Sands v.
McCormick, 502 F.3d 263 (3d Cir. 2007). The court may also consider
“undisputedly authentic document[s] that a defendant attaches as an exhibit
to a motion to dismiss if the plaintiff’s claims are based on the [attached]
documents.” Pension Benefit Guar. Corp. v. White Consol. Indus., 998 F.2d
1192, 1196 (3d Cir. 1993). Moreover, “documents whose contents are
alleged in the complaint and whose authenticity no party questions, but which
are not physically attached to the pleading, may be considered.” Pryor v.
Nat’l Collegiate Athletic Ass’n, 288 F.3d 548, 560 (3d Cir. 2002). However,
the court may not rely on other parts of the record in determining a motion to

-5-

dismiss. See Jordan v. Fox, Rothschild, O’Brien & Frankel, 20 F.3d 1250,
1261 (3d Cir. 1994).
Finally, the court should generally grant leave to amend a pleading
before dismissing it as merely deficient. See, e.g., Fletcher-Harlee Corp. v.
Pote Concrete Contractors, Inc., 482 F.3d 247, 252 (3d Cir. 2007); Grayson
v. Mayview State Hosp., 293 F.3d 103, 108 (3d Cir. 2002); Shane v. Fauver,
213 F.3d 113, 116-17 (3d Cir. 2000). “Dismissal without leave to amend is
justified only on the grounds of bad faith, undue delay, prejudice, or futility.”
Alston v. Parker, 363 F.3d 229, 236 (3d. Cir. 2004).
III.

DISCUSSION
Defendants Harvest and RMLS move to dismiss all seven of Plaintiff

Velebit’s claims: (1) tortious interference with contract, (2) tortious
interference with prospective business relations, (3) anticipatory breach of
contract, (4) declaratory judgment, (5) breach of contract (covenant of good
faith and fair dealing), (6) breach of contract (failure to pay taxes and rent),
and (7) guarantor liability. The motion to dismiss on each of these counts will
be denied since Velebit sufficiently stated claims on which relief can be
granted.

-6-

A.

Tortious Interference with Contract

In order to sufficiently plead tortious interference with contract, the
moving party must show: (1) the existence of a contractual relationship
between the complainant and a third party, (2) purposeful action on the part
of the defendant intended to harm the relationship, (3) the absence of
privilege or justification on the part of the defendant, and (4) actual damages
resulting from the defendant’s conduct. Hillis Adjustment Agency, Inc. v.
Graham Co., 911 A.2d 1008, ¶12 (Pa. Super. Ct. 2006). Here, the dispute is
whether Velebit’s pleading sufficiently satisfies the second element.
Velebit alleges that after it came to an agreement with a third-party
purchaser of the Property for $2,600,000 in April 2022, Defendant Harvest
indicated that it would not execute an estoppel certificate unless the Velebit
acknowledged that the termination of the Lease and abandonment of the
Property was valid as of December 31, 2022. (Doc. 26, ¶¶59, 62). Because
of this material change in circumstance regarding the relationship of Velebit
and Harvest, Velebit asserts that the third-party purchaser cancelled the
transaction. Id. at ¶65. Velebit theorizes that this action was taken by Harvest
to purposefully harm Velebit by damaging its deal with the third-party
purchaser, as well as potential future deals. Id. at ¶¶64, 66-67. Velebit further
alleges “two potential motivations for Harvest’s conduct: to drive the price of
-7-

the Property down closer to its prior offer . . . or to create leverage to force
Velebit to renegotiate the Lease terms for a lesser rent amount.” (Doc. 31 at
14). Velebit’s theory is sufficiently supported by the accompanying factual
allegations in its amended complaint such that it is plausible. See Bell
Atlantic Corp., 550 U.S. 544, 570 (discussing plausibility requirement for a
well-plead complaint).
Defendant argues that the refusal to sign the estoppel certificate could
not have been purposeful action with intent to harm Velebit because
Pennsylvania law “is clear that if a tenant executes an estoppel certificate
and does not identify and outline any and all oral modifications to the subject
lease, he is estopped from enforcing those said oral modifications in the
lease.” (Doc. 30 at 12). Thus, because executing the estoppel certificate
would result in the Defendant waiving its legal rights, it could not have
intended to cause harm as it was merely protecting its legal rights. See id.
This may be a reasonable argument in defense of Velebit’s claim, but it is a
factual argument rather than a legal one challenging the sufficiency of
Velebit’s pleading. Defendant has not shown Velebit failed to adequately
plead this claim at this stage; thus, Defendant’s 12(b)(6) motion to dismiss
count one (tortious interference with contract) will be denied.

-8-

B.

Tortious Interference with Prospective Business Relations

The same elements as those of tortious interference with contract
apply here, with the distinction that the first element is changed to the
existence of a prospective contractual relation. See Cloverleaf Development,
Inc. v. Horizon Financial F.A., 500 A.2d 163, 167 (Pa. Super. Ct. 1985).
Further, in order to show tortious interference with prospective business
relations, a plaintiff must be able to show more than a “mere hope” of future
business relations. See Glenn v. Point Park College, 272 A.2d 895, 899 (Pa.
1971). Indeed, there must be a “reasonable likelihood,” or a probability, of
future business relations with third parties. See id.
Here, the third and fourth elements are not at issue. Regarding the first
element, the Velebit claims that Defendant Harvest’s refusal to execute the
estoppel certificate resulted in the subsequent material change in
relationship between Velebit and Harvest, and that the cancellation of the
deal between Velebit and the third party also impacted Velebit’s future ability
to sell the Property. (See Doc. 26 at ¶66). The outstanding conflict with
Harvest depressed the value of the Property and extinguished the potential
market of purchasers. See id. Furthermore, Velebit indicates that it received
inquiries from “several” prospective purchasers prior to the deal with the
third-party purchaser. Id. at ¶76. The allegation that Velebit had several
-9-

interested third-party potential purchasers before the deterioration of its
relationship with Harvest sufficiently demonstrates more than a “mere hope”
about the potential market of purchasers.
Regarding the second element, Defendant’s motion to dismiss on this
count offers the same argument as that for count one—i.e., the Defendant
offers a factual quibble with the allegations rather than a legal challenge
sufficient to demonstrate a failure to state a claim by Velebit. Velebit’s
allegation regarding the motivation of Defendant Harvest in its decision to
not execute the estoppel certificate meets the plausibility requirement to
survive a motion to dismiss. Thus, the motion to dismiss this count will be
denied.
C.

Anticipatory Breach of Contract

Anticipatory breach of contract requires a “definite and unconditional
repudiation of a contract by one party communicated to another.” Jonnet
Development Corp. v. Dietrich Industries, Inc., 463 A.2d 1026, 1031 (Pa.
Super. Ct. 1983) (citing Wolgin v. Atlas United Financial Corp., 397 F.Supp.
1003, 1014 (E.D. Pa. 1975)). Further, “[a] statement by a party that [they] will
not or cannot perform in accordance with the agreement creates such a
breach.” Id.

- 10 -

Here, Defendant Harvest’s counsel sent a letter to Velebit’s counsel
titled, in part, “NOTICE OF LEASE TERMINATION,” and stated “I would like
to take this opportunity to advise that the Tenant, Harvest 3614, Inc., has
elected to termination [sic] the Lease effective December 31, 2022 . . . . The
Tenant shall vacate the Leased Premises on the Termination Date.” (Doc.
26 at Exhibit A). Harvest argues that this was not an unequivocal refusal to
perform the contract, but rather an “honest disagreement over the language
of the lease and the status of the terms contained therein.” (See Doc. 31 at
14) (citing Andrews v. Cross Atlantic Capital Partners, 158 A.3d 123 (Pa.
Super. Ct. 2017)). While Harvest’s argument may be of merit, it would need
to be established by a trier of fact. Again, Harvest raises factual defenses
better suited for a motion for summary judgment or trial rather than
challenging the sufficiency of the amended complaint.
Velebit’s amended complaint sufficiently alleges a definite and
unconditional repudiation by Harvest. Thus, Defendants’ motion to dismiss
for failure to state a claim of anticipatory repudiation of contract will be
denied.
D.

Declaratory Judgment

In addition to the aforementioned counts Velebit has pled in the
alternative a claim seeking a declaratory judgment that the Lease and
- 11 -

Guaranty remain in full effect. Defendants rightfully acknowledge that the
Declaratory Judgment Act does not provide an independent basis for subject
matter jurisdiction, but the court still has jurisdiction over this claim because
it is uncontested the parties otherwise meet the criteria for diversity
jurisdiction.
Furthermore, Velebit’s request for declaratory judgment is ripe. To
determine if a declaratory judgment claim is ripe, a court considers: (1) the
adversity of the interest between the parties to the action; (2) the
conclusiveness of the declaratory judgment; and (3) the practical help, or
utility of the declaratory judgment. Alpart v. Gen. Land Partners, Inc., 574 F.
Supp. 2d 491 (E.D. Pa. 2008). Here the parties disagree on a number of
factual issues and are in turn adverse. A declaratory judgment would also
conclusively clarify a key issue for prospective purchasers helping Velebit to
sell the property. Thus, Velebit’s claim for declaratory judgment is ripe and
Defendants’ motion to dismiss for failure to state a claim for declaratory
judgment will be denied.
E.

Breach of Contract (Covenant of Good Faith and Fair
Dealing)

A plaintiff must generally establish three elements to support a breach
of contract claim: (1) “the existence of a contract, including its essential
- 12 -

terms”; (2) “a breach of a duty imposed by the contract”; and (3) “resultant
damages.” See Gorski v. Smith, 812 A.2d 683, 692 (Pa. Super. Ct. 2002)
(citing Corestates Bank v. Cutillo, 723 A.2d 1053, 1058 (Pa. Super. Ct.
1999)). Here Velebit has established the existence of a contract with
Defendants and its essential terms including the covenant of good faith and
fair dealing incorporated into all Pennsylvania contracts. (Doc. 26 &105). It
has also pled a breach of that contract as well as damages in terms of the
Property’s decreased value from that breach. (Doc. 26 &110). As previously
stated Velebit’s allegation regarding the motivation of Harvest to breach
meets the plausibility requirement to survive a motion to dismiss. Thus,
Defendants’ motion to dismiss for failure to state a breach of contract will be
denied.
F.

Breach of Contract (Failure to Pay Taxes and Rent)

Velebit makes a second claim for breach of contract based on
Defendants’ failure to pay all taxes and rent on the property as required by
the lease. (Doc. 26 at ¶¶114, 118). Defendants counter without citing any
evidence that they have paid all taxes and rent to date. (Doc. 30 at 22)
Likewise, Defendants construe the lease to only impose tax liability on them
once taxes become delinquent. Id. Velebit does not construe the contract
this way and asserts that this is a factual argument not appropriate for
- 13 -

consideration on a 12(b)(6) Motion. (Doc. 31 at 21). The court agrees.
Construing the facts in Velebit’s favor, as it is required to do so, the court
finds Velebit has stated a plausible breach of contract claim with regards to
unpaid taxes and rent. Thus, Defendants’ motion to dismiss as to this count
will be denied as well.
G.

Guarantor Liability

Under the terms of the contract, Defendant RMLS is Defendant
Harvest’s guarantor and, therefore, must indemnify and hold harmless
Velebit from and against any and all damages, liability, loss, cost or expense
which arises out of or results from Harvest’s breach or default under the
lease. (Doc. 1 at ¶¶121, 123). Because Velebit’s preceding claims against
Harvest are not denied, RMLS’ liability is not extinguished. Thus, the motion
to dismiss this claim will be denied.
IV.

CONCLUSION
In light of the foregoing, the court will DENY the Defendants’ motion to

dismiss, (Doc. 27). An appropriate order follows.

s/ Malachy E. Mannion

MALACHY E. MANNION
United States District Judge
DATE: November 13, 2023
22-1328-01

- 14 -