BROOKSIDE HOMES OF AMERICA, INC v. HELEN'S HOUSE, LLC et al
Filing
63
ORDER denying Motion to Dismiss for Failure to State a Claim. Signed by Judge Barbara Rothstein on 3/16/18. (hr)
UNITED STATES DISTRICT COURT FOR THE
WESTERN DISTRICT OF PENNSYLVANIA
BROOKSIDE HOMES OF AMERICA,
INC.
Plaintiff,
v.
HELEN’S HOUSE, LLC
Defendant
and
Civil Action No. 14-69
GREG CALMES, RYAN CALMES,
TONY HAWLEY, and JEREMY
VERKUILEN,
ORDER DENYING MOTION TO
DISMISS
Defendants and Third-Party
Plaintiffs
v.
CHRISTOPHER COLLAR,
Third-Party Defendant.
I.
INTRODUCTION
Third-Party Defendant Christopher Collar (“Collar”) moves to dismiss pursuant to
Federal Rule of Civil Procedure 12(b)(6) the third-party complaint filed against him by
Defendants and Third-Party Plaintiffs Greg Calmes, Ryan Calmes, Tony Hawley, and Jeremy
Verkuilen (collectively “the Purchasers”). Dkt. No. 35. The Purchasers oppose the motion. Dkt.
No. 43. Having reviewed the motion, the opposition, the reply thereto, the record of the case, and
the relevant legal authority, the Court will deny the motion to dismiss.
1
II.
BACKGROUND
This lawsuit involves a dispute between Plaintiff, Brookside Homes of America, Inc.
(“Brookside”), and Defendants, Helen’s House, LLC (“Helen’s House”) and the Purchasers who
own and operate Helen’s House, a long-term adult care facility in Wisconsin. The Purchasers
bought Helen’s House from Collar in February 2016; the sale was memorialized in the Unit
Purchase Agreement dated February 11, 2016 (“Purchase Agreement). At the time of the sale,
Helen’s House and Brookside had a non-exclusive license and service agreement whereby
Brookside agreed to provide certain services to Helen’s House in exchange for a fee (the
“License Agreement”). Helen’s House’s obligations under the License Agreement were listed in
the Purchase Agreement as one of the “Assumed Liabilities” for which the Purchasers agreed to
assume responsibility.
After the sale, the Purchasers began operating Helen’s House, including complying with
the terms of License Agreement with Brookside. However, at some point, the Purchasers became
disgruntled with the services (or lack of services) Brookside was providing to Helen’s House
and, in July 2016, they stopped paying the fees owed to Brookside under the terms of the License
Agreement. They also attempted to unilaterally terminate the License Agreement.
Thereafter, Brookside instituted this action against the Purchasers and Helen’s House,
alleging that they breached the terms of the License Agreement. The Purchasers, in turn, filed a
third-party complaint against Collar. In it, the Purchasers allege two counts: (1) a claim for
indemnification pursuant to an indemnification clause in the Purchase Agreement, and (2) a
claim for fraudulent inducement in which they allege that Collar made misrepresentation to them
with the intent to induce them to enter into the Purchase Agreement. See Dkt. No. 18. Collar
2
moves to dismiss both counts pursuant to Federal Rule 12(b)(6), alleging that they fail to state a
claim on which relief can be granted.
III.
STANDARD OF REVIEW
The moving party bears the burden on a Federal Rule of Civil Procedure 12(b)(6) motion
to dismiss for failure to state a claim. Price v. Blyth Eastman Paine Webber, Inc., 576 F. Supp.
431, 432 (W.D. Pa. 1983). When considering 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.’” Black v. Montgomery County, 835 F.3d 358, 364 (3d Cir.
2016) (quoting Phillips v. Cty. of Allegheny, 515 F.3d 224, 233 (3d Cir. 2008)). A complaint will
survive a motion to dismiss if it “contain[s] sufficient factual matter[s], accepted as true, to state
a claim to relief that is plausible on its face.” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009)
(citation omitted).
IV.
DISCUSSION
As indicated above, Collar moves to dismiss the third-party complaint pursuant to
Federal Rule of Civil Procedure 12(b)(6). He argues that neither Count I—the indemnification
claim—nor Count II—the fraudulent inducement claim—state grounds on which relief can be
granted. The Court will address each Count in turn.
A.
Count I—the Indemnification Claim
The Purchase Agreement between the Purchasers and Collar contains an indemnification
clause that states, in relevant, part:
11.2
[Collar] and [Purchasers] (each an “Indemnifying Party”) will reimburse,
indemnify, and hold each other harmless…against and in respect of:
3
(a) Any and all damages, losses, deficiencies, liabilities, costs and
expenses incurred or suffered by any Indemnified Party that results
from, relate to or arise out of:
...
(ii) As it may relate to the [Purchasers], any and all
actions, suits, claims … against the [Purchasers] that
relate to [Collar] or the Company in which the
principal event giving rise thereto occurred prior to
the Closing or which result from or arise out of any
action or inaction prior to the Closing of [Collar],
except for the Assumed Liabilities;
...
(iv) Any misrepresentation, breach of warranty or
non-fulfillment of any agreement or covenant on the
part of an Indemnifying Party under the Agreement,
or from any misrepresentation in or omission from
any certificate, schedule, statement, document or
instrument furnished to an Indemnified Party
pursuant hereto or in connection with the
negotiation, execution or performance of this
Agreement.
Dkt. No. 18, Ex. 1 at § 11.2.
The Purchasers allege that shortly before they agreed to assume the obligations under the
Licensing Agreement between Brookside and Helen’s House, Collar represented to them that
“Brookside’s services were essential and necessary to the continued operation of Helen’s
House.” Dkt. No. 18 at ¶ 14. Purchasers further allege that this representation was false, and in
fact, “Helen’s House was receiving few to no services from Brookside.” Id. ¶ 15. The Purchasers
claim that had they “known that Helen’s House was receiving few or no services from
Brookside, and that Brookside’s services were not essential and necessary to the operation of
Helen’s House, they would not have entered into the [Purchase Agreement].” Id. ¶ 18. In other
words, the Purchasers argue, they would not have agreed to assume the obligations under the
License Agreement, but for Collar’s alleged misrepresentation about the necessity of Brookside’s
4
services. Therefore, the Purchasers claim, any liability they have to Brookside for unilaterally
terminating the License Agreement is the direct result of Collar’s alleged misrepresentation and,
as such, he is required to indemnify them for that liability pursuant to the indemnification clause
in the Purchase Agreement.
Collar counters that the clear and unambiguous terms of the Purchase Agreement render
the indemnification clause inapplicable to Brookside’s claims against the Purchasers. First, he
claims that the Purchasers’ obligations to Brookside under the License Agreement are an
“Assumed Liability” under the Purchase Agreement, and the Purchase Agreement specifically
excludes Assumed Liabilities from the indemnification clause. Second, he argues that even if the
obligations are not Assumed Liabilities within the meaning of the Purchase Agreement, the
indemnification clause only applies to “claims…in which the principal event giving rise thereto
occurred prior to the Closing[.]” He claims that the principal event giving rise to Brookside’s
claim against the Purchasers is their failure to pay Brookside and their attempt to unilaterally
terminate the License Agreement, both of which occurred after the sale of Helen’s House.
As stated earlier in this order, at this nascent stage of the litigation, this Court is required
to “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.” Black, 835, F.3d at 364 (emphasis added). Reviewing the third-party
complaint and Purchase Agreement in light of this mandate, the Court concludes that Purchasers
have stated a claim on which relief may be granted. The third-party complaint alleges that Collar:
(1) made a misrepresentation (i.e., the extent and necessity of Brookside’s services), (2) the
misrepresentation occurred before the sale of Helen’s House closed, and (3) any liability to
Brookside is the result of the alleged misrepresentation. These allegations fall squarely within
5
subsection (iv) of the indemnification clause and, if proven true, may give rise to liability on the
part of Collar.
Moreover, the Court finds that the indemnification clause is ambiguous and therefore, the
parties’ intent is not discernable. For instance, on the one hand, the indemnification clause states
that there is no indemnification for “Assumed Liabilities” of which the License Agreement is
one, but on the other hand, it states that indemnification is available for “any misrepresentation”
made by an Indemnified Party “in connection with the negotiation, execution or performance of
[the Purchase Agreement].” Dkt. No. 18, Ex. at 11.2 (ii), (iv) (emphasis added). It is unclear how
the indemnification clause applies in the event that it is alleged, as here, that the Purchasers
agreed to assume a liability as a result of an alleged misrepresentation.
It is equally unclear whether the phrase “under the [Purchase] Agreement” contained in
subsection (iv) modifies the terms “misrepresentation, breach of warranty or non-fulfillment of
any agreement or covenant” or “Indemnifying Party.” Subsection (iv) can be read either way and
each reading results in a different interpretation. 1 Likewise, the term “statement” in subsection
(iv) is ambiguous. Collar reads it to mean a written statement such as a financial document, while
the Purchasers interpret it as an oral statement such as Collar’s alleged misrepresentation. The
Court agrees with Collar that if the word is read in context with subsection (iv) as a whole, it
appears to mean a written financial statement. However, the term “Financial Statement” is
defined in an earlier section of the Purchase Agreement (see section 5.3) and referred to as
“Financial Statement” throughout that section, while subsection (iv) simply uses the word
“statement.” There is simply too much uncertainty in the indemnification clause for the Court to
1
If the phrase modifies “misrepresentation” etc., then an argument can be made that the misrepresentation must be
included in the Purchase Agreement in order to trigger indemnification under subsection (iv). On the other hand, if
the phrase modifies “Indemnified Party,” then it can be argued that it is simply referring to the indemnified parties
under the Purchase Agreement, of which, Collar is one.
6
ascertain the intent of the parties. Given this ambiguity, the Court concludes that the Purchasers
have alleged facts sufficient to state a claim on which relief could be granted.
B.
Count II—the Fraudulent Inducement Claim
The Purchase Agreement contains the following merger clause:
12.5 Entire Agreement and Modification. This Agreement supersedes all prior
agreements, whether written or oral, between the parties with respect to its subject
matter (including any letter of intent and any confidentiality agreement between
Buyers and Sellers) and constitutes (along with exhibits and other documents
delivered pursuant to this Agreement) a complete and exclusive statement of the
terms of the agreement between the parties with respect to its subject matter. This
Agreement may not be amended, supplemented, or otherwise modified except by a
written agreement executed by the party to be charged with the amendment.
Dkt. No. 18, Ex. 1 at § 12.5. Collar argues that because his alleged statements regarding the
necessity of Brookside’s services are not specifically enumerated in the Purchase Agreement and
because the merger clause prohibits incorporating prior agreements into the terms of the
Purchase Agreement, Purchasers cannot state a claim for fraudulent inducement based on his
alleged misrepresentation.
Collar cites to two cases from Wisconsin 2 in which the courts held that the merger
clauses in the contracts in question were specific enough to make it clear that the parties had not
relied on pre-contract representations in entering the contract, and thus, allegations of fraud
could not overcome the prohibition against introducing parol evidence. See Bourne v. Quarles &
Brady, LLP, No. 2013AP211, 2013 WL 5354402, unpublished slip opinion (WI App. Sept. 26,
2013) and Peterson v. Cornerstone Property Development, LLC, 294 Wis. 2d 800 (WI App.
2006). These cases are easily distinguishable from the present case. First, both were decided on
summary judgment, after the benefit of discovery, not on a motion to dismiss. Second, the
merger clauses in those cases were much more specific than the one at hand. Indeed, the merger
2
The Purchase Agreement is governed by Wisconsin state law. Dkt. No. 18, Ex. 1 § 12.11.
7
clause in Peterson specifically stated that the buyer plaintiff “has not relied on any
representations made by the Seller in entering into the Condominium Offer to Purchase…”
Peterson, 294 Wis. 2d at 820, see also, Bourne, 2013 WL 5354402, *5 (the parties to the
agreement attested that they were not relying “upon any representation or statements made by
any person”). The merger clause in the instant case contains so such representation. To the
contrary, here, Collar specifically represented that he did not make any false statements or omit
any relevant information in connection with the sale of Helen’s House. See Dkt. No. 18, Ex. 1 at
§5.16(a) (“No representation, warranty or other statement made by [Collar] in connection with
the transaction contemplated by this [Purchase] Agreement contain any untrue statement of
material fact or omits to state a material fact necessary in light of the circumstances in which it
was made.”). Therefore, the merger clause does not bar the Purchasers’ fraud in the inducement
claim.
Finally, Collar urges this Court to dismiss the fraudulent inducement claim because, in
his view, it does not allege fraud with the requisite specificity required by Federal Rule of Civil
Procedure 9(b). This Court disagrees. Under the facts of this case, the Court concludes that the
third-party complaint alleges the fraud with sufficient particularity to satisfy the heightened
pleading requirement of Federal Rule 9(b). See AnchorBank, FSB v. Hofer, 649 F.3d 610, 615
(7th Cir. 2011) (noting that the heightened pleading requirement of Federal Rule 9(b) “ordinarily
requires describing the ‘who, what, when, where, and how’ of the fraud, although the exact level
of particularity that is required will necessarily differ based on the facts of the case’”); Spector v.
Mondelez Internations, Inc., 178 F. Supp. 3d 657, 671 (N.D. Ill. 2016) (the precise level of
particularity required by Rule 9(b) depends on the facts of the case). 3
3
The Purchasers allege that Collar did not comply with the conferral requirements set forth in this Court’s Standing
Order. See Dkt. No. 26. It recently came to the Court’s attention that an error in the Standing Order may have caused
8
V.
CONCLUSION
Based on the foregoing reasons, the Court HEREBY DENIES Collar’s motion to dismiss
the third-party complaint.
Dated this 16th day of March, 2018.
A
Barbara Jacobs Rothstein
U.S. District Court Judge
confusion regarding the conferral requirement. This error has been corrected (see dkt. no. 61) and the Court expects
strict compliance with the terms of the Standing Order henceforth.
9
Disclaimer: Justia Dockets & Filings provides public litigation records from the federal appellate and district courts. These filings and docket sheets should not be considered findings of fact or liability, nor do they necessarily reflect the view of Justia.
Why Is My Information Online?