DONALD D. SBARRA REVOCABLE TRUST UAD 11/23/1998, DONALD D. SBARRA TTEE et al v. HORIZONTAL EXPLORATION, LLC et al

Filing 77

OPINION AND ORDER denying 65 Motion to Dismiss and 68 Motion to Dismiss. Signed by Chief Magistrate Judge Maureen P. Kelly on 6/15/16. (ard)

IN THE UNITED STATES DISTRICT COURT
FOR THE WESTERN DISTRICT OF PENNSYLVANIA
DONALD D. SBARRA REVOCABLE
TRUST UAD 11/23/1998, DONALD D.
SBARRA TTEE; WILLARD LEE
FRICKEY TTE U/A DTD 9/8/99;
ROBERT E. SCHMIDT; DAVID R.
NORCOM; TIM. L. WERTH; ANTHONY
A. SCHMIDT; LORETTA SCHMIDT;
DANIEL CARNEY; GAYLA W.
CARNEY; BKF INVESTMENTS; KEN
BRAUN FAMILY, LLC; JEFF COOPER,
INC.; ROBERT DWERLKOTTE;
SATELLITE RADIO MANAGEMENT,
INC.; ALAN MOSKOWITZ; ATK
INVESTMENTS, LLC; ICT
EXPLORATION, LLC; BRUCE
PRINGLE TTEE JOINT REV TRUST
UTA 7-25-11; SHELLEY PRINGLE;
SIEBER RESOURCES, LLC; PAGE
FAMILY TRUST, ROBERT W. PAGE
AND KAY PAGE, CO-TTEES; EDWARD
C. RITCHIE,
Plaintiffs,
vs.
HORIZONTAL EXPLORATION, LLC,
MARK A. THOMPSON, MARCELLX,
LLC, DAVID M. PRUSHNOK, G.
DANIEL PRUSHNOK, JOHN P.
PRUSHNOK and BRADLEY A.
BROTHERS,
Defendants.

)
)
)
)
)
)
)
)
)
)
)
)
)
)
)
)
)
)
)
)
)
)
)
)
)
)
)
)
)
)
)
)

Civil Action No. 14-866
Chief Magistrate Judge Maureen P. Kelly

Re: ECF Nos. 65 and 68

OPINION AND ORDER
KELLY, Chief Magistrate Judge
Pending before the Court are two Motions to Dismiss: one filed by Defendants
Horizontal Exploration, LLC, Mark A. Thompson and Bradley A. Brothers (“the Horizontal
Defendants”), ECF No. 65, and one filed by Defendants MarcellX, LLC, David M. Prushnok, G.

Daniel Prushnok and John P. Prushnok (“the Prushnok Defendants”), ECF No. 68. The Motions
to Dismiss are filed pursuant to Federal Rule of Civil Procedure 12(b)(6). Also before the Court
are the respective Briefs in support of the Motions to Dismiss, ECF Nos. 66 and 69, and
Plaintiffs’ Briefs in opposition to the Motions to Dismiss, ECF Nos. 71 and 73.
For the following reasons, the Motions to Dismiss will be denied.
I.

FACTUAL ALLEGATIONS
In the operative Amended Complaint, Plaintiffs raise fourteen claims arising out their

investment in an oil and gas well drilling venture in Western Pennsylvania on the basis of the
following allegations.
Plaintiffs are a group of 22 individuals, family trusts and businesses, located in Kansas,
Texas, Ohio and Florida.

ECF No. 56 ¶¶ 1-24.

Defendant Horizontal Exploration, LLC

(“Horizontal”) is a Pennsylvania limited liability company founded by Defendant Mark A.
Thompson (“Thompson”) and managed by Thompson. Id. ¶¶ 25-26, 33. Defendant Bradley A.
Brothers (“Brothers”) is the Chief Financial Officer of Horizontal.

Id. ¶ 27.

Defendant

MarcellX, LLC (“MarcellX”) is Pennsylvania limited liability company which, during 2012 and
2013, was owned by Thompson and Andray Mining Company. Id. ¶ 28. Andray Mining
Company is owned by Defendants David M. Prushnok, G. Daniel Prushnok and John P.
Prushnok (“the Prushnoks”). Id. ¶¶ 29-31. In 2012, the Prushnoks became equal partners with
Thompson in Horizontal. Id. ¶ 33.
In approximately February, 2012, MarcellX acquired the shallow oil and gas rights to the
Swamp Angel Property, a 2900-acre parcel of land on McKean County, Pennsylvania on which
approximately 75 wells had been drilled. Id. ¶¶ 44-46. Larry Dean Winckler (“Winckler”) was
retained to conduct day-to-day operations of the Swamp Angel Property. Id. ¶ 48. Winckler

2

was, at that time, facing criminal charges relating to his embezzlement from another oil and gas
drilling company. Id. ¶ 49.
In May, 2012, Horizontal prepared an initial offering memorandum for the development
of the Swamp Angel Property. Id. ¶ 52. In this memorandum, Horizontal represented that its
founders and the sponsors of the development (understood by Plaintiffs to include the
Prushnoks) would provide $2 million in minimum capital for the program. Id. ¶¶ 53-54.
In August, 2012, Horizontal prepared a revised Confidential Information Memorandum
(“the Memorandum”), in which a three-phase development plan was set forth. Id. ¶¶ 54-55. The
first phase, to be completed in 2012, was for the drilling of approximately 9 lateral walls and 10
vertical walls at a cost of $10 million. Id. ¶ 55. The Memorandum represented that permit
applications were prepared for all planned initial wells. Id. ¶ 56. Investors in “Fund I” would
receive a non-operating working interest in each well drilled in the initial phase, with the
founders of Horizontal providing up to 25% of the capital necessary to complete development of
the first phase. Id. ¶¶ 57-58. Horizontal represented that it had obtained a turnkey price of
$178,590 for the completion of each vertical well in the first phase and that that vertical wells
would be a low cost efficient way to generate cash flow with a high degree of predictability. Id.
¶ 59. Horizontal also stated that lateral wells would be drilled on a “cost plus” basis and
estimated that each lateral well would be approximately 2,500 feet long and cost $897,720 to
complete. Id. ¶ 60. Horizontal stated that it would cost Fund I $500 per month to operate each
vertical well and $1,500 per month to operate each horizontal well. Id. ¶ 61. Horizontal
emphasized the benefits of the access roads existing on the Swamp Angel Property as well as the
experience of its management team. Id. ¶¶ 63-64. Thompson, Andrew Welty, Jared Brody and

3

Andray Mining Company – MarcellX LLC were identified as members of the management team.
Id. ¶ 64.
From September through December of 2012, Thompson conducted numerous meetings
and telephone calls with Plaintiffs to convince them to participate in Fund I. Id. ¶ 65. Thompson
represented to Plaintiffs that he would personally invest cash in Fund I. Id. ¶ 66. Plaintiffs
understood that Thompson would provide up to 25% of the cash (possibly exceeding $2 million)
necessary to drill the wells in the first phase. Id. ¶ 67.
Plaintiffs purchased partnership interests in Fund I at an aggregate total of $3,350,000.
Id. ¶ 70. At the time of their investment, Plaintiffs believed Horizontal had raised at least $6
million in cash. Id. ¶ 71. A partnership agreement (“the Partnership Agreement”) was finalized
on December 28, 2012. Id. ¶ 73. By letter dated January 1, 2013, Plaintiffs were notified by
Thompson that investment in Fund I had closed, having raised more than $6 million in cash. Id.
¶¶ 72, 81.
The total cash invested in Fund I was less than $4 million, none of which came from
Thompson’s investment of his own cash. Id. ¶¶ 75-76, 82. On December 28, 2012, Fund I
transferred $1,528,332 to MarcellX. Id. ¶ 79. On the same date, Thompson transferred $764,166
to Fund I and each of the Prushnoks transferred $254,722 to Fund I, for a total investment from
Thompson and the Prushnoks of $1,528,332. Id. ¶ 79. On December 31, 2012, MarcellX
submitted an invoice to Fund I for more than $1.35 million based on false representations of
amounts owed. Id. ¶ 80. Brothers was aware that this invoice was “bogus,” but paid it anyway.
Id. ¶¶ 86-87.
Horizontal transferred Plaintiffs’ investment funds into a Horizontal account used to pay
Horizontal’s bills, some of which were not expenses of Fund I. Id. ¶¶ 92-100.

4

Horizontal began drilling the first vertical well for Fund I and then immediately began
drilling two lateral wells, in January of 2013.

Id. ¶¶ 101-102.

Plaintiffs allege “upon

information and belief,” that drilling the lateral wells out of order was undertaken to afford
Horizontal “the opportunity to attempt to justify the bogus expenses for which MarcellX had
already been paid in December 2012.” Id. ¶ 103. The work on first lateral well, which has never
been completed, cost far in excess of the estimate set forth in the Memorandum. Id. ¶ 104. The
second lateral well drilled in January 2013 was not been completed. Id. ¶ 105. In March, 2013,
Horizontal drilled three additional vertical wells, only two of which were complete. Id. ¶ 106.
In all, three vertical wells were completed and are producing oil. Id. ¶ 107. One vertical well
and two lateral wells are incomplete. Id. Fund I’s cash was depleted by approximately April
2013. Id. ¶ 108.
In May 2013, select Plaintiffs met with Thompson to discuss continued development of
the initial phase. Id. ¶ 109. Thompson confirmed that Horizontal would drill eight additional
vertical wells on the Swamp Angel property and identified the proposed locations of those wells
on a map. Id. In August 2013, Thompson advised certain Plaintiffs that Horizontal was in the
process of clearing trees to drill the wells. Id. ¶ 110. In September 2013, Thompson sent a letter
to Fund I participants (including Plaintiffs), outlining a proposal that the remaining cash in Fund
I be rolled in a separate partnership, Fund II, in which the Fund I participants would receive
interest in 40 wells to be drilled in the second phase of development of the Swamp Angel
Property. Id. ¶¶ 112-113. In discussions about the Fund II proposal with Plaintiff Donald D.
Sbarra (“Sbarra”), later reduced to a signed letter dated October 1, 2013, Thompson represented
that $1.5 million remained in Fund I. Id. ¶ 114. Sbarra communicated to the other Plaintiffs,

5

who agreed to roll the remaining case into Fund II as set forth in the October 1, 2013, letter. Id.
¶ 115.
As part of Fund II, Horizontal developed two specific wells, Well 2-146 and Well 2-147,
and represented that these wells belonged to Fund II participants. Id. ¶¶ 119, 121. These wells
are producing oil, but Plaintiffs have never received royalty payments for the production from
these wells. Id. ¶¶ 120, 122. In January 2014, Horizontal transferred these wells to MarcellX.
Id. ¶ 123. Additionally, Thompson, the Prushnoks, or MarcellX have drilled at least two vertical
wells in the same portion of the Swamp Angel Property designated for Fund II development. Id.
¶ 127.
II.

STANDARD OF REVIEW
In assessing the sufficiency of the complaint pursuant to a motion to dismiss under

Federal Rule of Civil Procedure 12(b)(6), the Court must accept as true all material allegations in
the complaint and all reasonable factual inferences must be viewed in the light most favorable to
the plaintiff. Odd v. Malone, 538 F.3d 202, 205 (3d Cir. 2008). The Court, however, need not
accept bald assertions or inferences drawn by the plaintiff if they are unsupported by the facts set
forth in the complaint. See California Pub. Employees’ Retirement System v. The Chubb Corp.,
39 F.3d 126, 143 (3d Cir. 2004) (citing Morse v. Lower Merion Sch. Dist., 132 F.3d 902, 906
(3d Cir. 1997)). Nor must the Court accept legal conclusions set forth as factual allegations.
Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 555 (2007).
Rather, “[f]actual allegations must be enough to raise a right to relief above the
speculative level.” Id. (citing Papasan v. Allain, 478 U.S. 265, 286 (1986)). Indeed, the United
States Supreme Court has held that a complaint is properly dismissed under Fed. R. Civ. P.
12(b)(6) where it does not allege “enough facts to state a claim to relief that is plausible on its

6

face,” id. at 570, or where the factual content does not allow the court "to draw the reasonable
inference that the defendant is liable for the misconduct alleged.” Ashcroft v. Iqbal, 556 U.S.
662, 678 (2009). See Phillips v. Cnty. of Allegheny, 515 F.3d 224, 231 (3d Cir. 2008) (finding
that, under Twombly, “labels, conclusions, and a formulaic recitation of the elements of a cause
of action” do not suffice but, rather, the complaint “must allege facts suggestive of [the
proscribed] conduct” and that are sufficient “to raise a reasonable expectation that discovery will
reveal evidence of the necessary element[s] of his claim”). “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 677. “When there are well-pleaded factual allegations, a
court should assume their veracity and then determine whether they plausibly give rise to an
entitlement to relief.” Id. at 679.
III.

DISCUSSION
A.

Motion to Dismiss of the Horizontal Defendants
1.

Counts I, II, VII, IX(A) 1 and X: Application of the Gist-of-the-Action
Doctrine

The Horizontal Defendants first argue that Counts I, II, VII, IX(A) and X arise from the
business relationship governed by the Partnership Agreement and thus are barred by the gist-ofthe-action doctrine as improper attempts to restate contract claims as tort claims. ECF No. 66 at
5-7. The applicable legal principles are as follows:
The gist of the action doctrine is a theory under common law “designed to
maintain the conceptual distinction between breach of contract claims and
tort claims.” The doctrine is policy-based, arising out of the concern that
tort recovery should not be permitted for contractual breaches. Thus, while
the existence of a contractual relationship between two parties does not
prevent one party from bringing a tort claim against another, the gist of the
1

Plaintiffs have mistakenly numbered two of their counts as Count IX. The Court will refer to the first Count IX
(Conversion of Wells 2-146 and 2-147) as Count IX(A) and the second (Unjust Enrichment – Wells 2-146 and 2147) as Count IX(B).

7

action doctrine precludes tort suits for the mere breach of contractual duties
unless the plaintiff can point to separate or independent events giving rise to
the tort. Generally, courts apply the gist of the action doctrine when the
claims are (1) arising solely from a contract between the parties; (2) where
the duties allegedly breached were created and grounded in the contract
itself; (3) where liability stems from a contract; or (4) where the tort claim
essentially duplicates a breach of contact claim or the success of which is
wholly dependent on the terms of a contract.
Addie v. Kjaer, 737 F.3d 854, 865-66 (3d Cir. 2013) (citations omitted).
“The focus of an analysis under the ‘gist of the action’ doctrine is whether ‘actions lie
from a breach of the duties imposed as a matter of social policy’ or ‘from the breach of duties
imposed by mutual consensus.’” Toledo Mack Sales & Serv. v. Mack Trucks, Inc., 530 F.3d
204, 229 (3d Cir. 2008) (citation omitted).
a.

Count I: Fraudulent Misrepresentation

Count I is a claim for fraudulent misrepresentation, brought against Horizontal,
Thompson and the Prushnoks and based on the alleged misrepresentations concerning: (1) the
investment of cash in Fund I by Horizontal’s owners; (2) the failure to disclose the intention of
Thompson, the Prushnoks and MarcellX to drill their own wells in the same areas of the Swamp
Angel Property; (3) the failure to disclose the intention of Horizontal and Thompson to utilize
Winckler to manage Fund I; and (4) the formation of Fund II, the rollover of money from Fund I
to Fund II and the 40 permitted wells for Fund II. ECF No. 56 ¶¶ 128-140.
Plaintiffs summarize this claim as one of fraud in the inducement, to which, Plaintiffs
claim, the gist of the action doctrine is inapplicable. ECF No. 71 at 8. 2 The law is not clear that
fraud in the inducement claims are categorically barred under the gist of the action doctrine. See
2

Plaintiffs also argue that Thompson and Brothers are not parties to the Partnership Agreement and therefore
cannot invoke the gist of the action doctrine. This argument is not dispositive. The United States Court of Appeals
for the Third Circuit has explained that tort claims against corporate officers may be barred where the allegedly
tortious acts arose in the course of the contractual relationship between the plaintiff and the corporate officers’
company. Addie v. Kjaer, 737 F.3d 854, 868 (3d Cir. 2013) (citing eToll, Inc. v. Elias/Savion Adver., 811 A.2d 10,
12, 20-21 (Pa. Super. 2002)).

8

Downs v. Andrews, 2016 WL 519162, *3 (3d Cir. 2016) (citing, inter alia, Vives v. Rodriguez,
849 F.Supp.2d 507, 518-20 (E.D. Pa. 2012)). However, the law is clear that if the precontractual
statements that form the basis for the fraud in the inducement claim concern duties of the parties
set forth in the eventual contract, the claim may be dismissed under the gist of the action
doctrine. Downs, 2016 WL 519162 at *3.
At this stage of the litigation, it appears that Plaintiffs have made sufficient factual
allegations as to misrepresentations of the Horizontal Defendants which lie from a breach of the
duties imposed as a matter of social policy and not a breach of contractual duties such that Count
I is not at this point barred by the gist of the action doctrine.
b.

Counts VII, IX(A) and X: Conversion

The Horizontal Defendants assert that Plaintiffs’ conversion claims “are barred by the
gist of the action doctrine because they arise from the same facts that support Plaintiffs’ breach
of contract claim.” ECF No. 66 at 7.
Briefly, Count VII (against Thompson, the Prushnoks and MarcellX) concerns
conversion of the $1,528,332 that Plaintiffs invested in Fund I; Count IX(A) (against Thompson,
David Prushnok and MarcellX) concerns the conversion of Wells 2-146 and 2-147; and Count X
(against Horizontal, Thompson, the Prushnoks and Brothers) concerns comingling of Fund I
money with Horizontal’s money. ECF No. 56 ¶¶ 182-188; 197-201; 208-213. Plaintiffs’ breach
of contract claim, Count X (against Horizontal, Thompson, the Prushnoks and Brothers)
concerns the conversion and comingling of Plaintiffs’ Fund I investment. At first glance, it is
apparent that the factual basis for Count IX(A) is not the same as the basis for Count X.
Further, as this Court has recently explained:
A certain tension exists, at the motion to dismiss stage, between
Pennsylvania's “gist of the action” doctrine and Rules 8(d)(2) and (3) of the
9

Federal Rules of Civil Procedure, which expressly condone pleading in the
alternative . . .. District courts in Pennsylvania have noted that caution
should be exercised in determining the "gist of an action" at the motion to
dismiss stage.
Rhodes v. Avis Budget Car Rental, LLC, 2016 WL 1435443, *5 (W.D. Pa. April 12, 2016)
(citations omitted).
Accordingly, Plaintiffs’ use of the same factual allegations to support different claims is
not determinative of the true nature of the claims. In any event, the Court finds that at this stage,
Plaintiffs have made sufficient allegations that the conversions of property in which Plaintiffs
had an interest were a breach of the duties imposed as a matter of social policy rather than a
breach of a contractual duty. Therefore, Counts VII, IX(A) and X are not at this point barred by
the gist of the action doctrine. 3
The Horizontal Defendants’ Motion to Dismiss on this basis will be denied.
2.

Count I: Fraudulent Misrepresentation

The Horizontal Defendants also move to dismiss Count I on two additional bases: (1)
failure forward-looking statements are not fraudulent; and (2) claim is barred by the parol
evidence rule.
a. Forward-looking Statements
The Horizontal Defendants assert that Plaintiffs’ fraudulent misrepresentation claim fails
because the alleged misrepresentations concern promises of future of performance. ECF No. 68
at 8-9. While a cause of action for fraud must allege misrepresentation of a past or present
material fact, a “statement of present intention which is false when uttered may constitute a
fraudulent misrepresentation of fact.” Mellon Bank Corp. v. First Union Real Estate Equity &

3

The Horizontal Defendants briefly allude to Count II, a civil conspiracy claim against all Defendants, in their gist
of the action argument. As Plaintiffs’ tort claims underlying this conspiracy claim have been permitted to proceed,
so will Count II.

10

Mortg. Invs., 951 F.2d 1399 (3d Cir. 1991) (citations omitted). In this case, an examination of
the allegations that make up Count I reveals that the Horizontal Defendants’ characterization
thereof is false. Plaintiffs allege, for instance, “At the time that they made the representation,
Horizontal, Thompson, and the Prushnoks knew that they had no intention to make any
significant cash investment in Fund I.” ECF No. 56 ¶ 131. This allegation clearly describes a
statement of present intention which was false when uttered.

Accordingly, the Horizontal

Defendants’ Motion to Dismiss Count I on this basis will be denied.
b. Parol Evidence Rule
The Horizontal Defendants additionally assert that Count I fails because the allegations
therein amount to fraud in the inducement which is barred by the parol evidence rule because the
Partnership Agreement was an integrated agreement. ECF No. 66 at 10-12.
The Pennsylvania Supreme Court has explained the parol evidence rule as follows:
Where the parties, without any fraud or mistake, have deliberately put their
engagements in writing, the law declares the writing to be not only the best,
but the only, evidence of their agreement. All preliminary negotiations,
conversations and verbal agreements are merged in and superseded by the
subsequent written contract . . . and unless fraud, accident or mistake be
averred, the writing constitutes the agreement between the parties, and its
terms and agreements cannot be added to nor subtracted from by parol
evidence.
Therefore, for the parol evidence rule to apply, there must be a writing that
represents the "entire contract between the parties." To determine whether
or not a writing is the parties' entire contract, the writing must be looked at
and "if it appears to be a contract complete within itself, couched in such
terms as import a complete legal obligation without any uncertainty as to
the object or extent of the [parties'] engagement, it is conclusively presumed
that [the writing represents] the whole engagement of the parties . . . ." An
integration clause which states that a writing is meant to represent the
parties' entire agreement is also a clear sign that the writing is meant to be
just that and thereby expresses all of the parties' negotiations, conversations,
and agreements made prior to its execution.

11

Once a writing is determined to be the parties' entire contract, the parol
evidence rule applies and evidence of any previous oral or written
negotiations or agreements involving the same subject matter as the contract
is almost always inadmissible to explain or vary the terms of the contract.
One exception to this general rule is that parol evidence may be introduced
to vary a writing meant to be the parties' entire contract where a party avers
that a term was omitted from the contract because of fraud, accident, or
mistake.
Yocca v. Pittsburgh Steelers Sports, Inc., 854 A.2d 425, 436 (Pa. 2004) (citations omitted).
Plaintiffs argue that the Partnership Agreement does not represent their contract to invest
in Fund I. ECF No. 71 at 16. Rather, Plaintiffs assert, basis for their fraud claims is subscription
agreements they entered into in the summer/fall of 2012 which obligated them to invest in Fund
I. Id. Thus, Plaintiffs continue, the integration of the Partnership Agreement is irrelevant. Id.
At this stage of the litigation, Plaintiffs’ assertion is sufficient to defeat the Horizontal
Defendants’ challenge to Plaintiffs’ claim. Accordingly, the Motion to Dismiss Count I on this
basis will be denied.
3.

Count III: Violation of Section 10(b) and Rule 10b-5

Plaintiffs bring Count III, for Securities Exchange Act related violations, against
Horizontal, Thompson and the Prushnoks. ECF No. 56 ¶¶ 149-154. This cause of action has six
required elements: (1) a material misrepresentation (or omission); (2) scienter; (3) a connection
with the purchase or sale of a security; (4) reliance; (5) economic loss; and (6) a causal
connection between the material misrepresentation and the loss. McCabe v. Ernst & Young,
LLP, 494 F.3d 418, 424 (3d Cir. 2007) (citation omitted).
The Horizontal Defendants assert that Plaintiffs have failed to allege the element of
reliance. ECF No. 66 at 13. For this argument, the Horizontal Defendants rely on the same
argument as above, that the integrated Partnership Agreement prohibits Plaintiffs from relying on
statements made prior to entering into the agreement. Id. Plaintiffs rely on their response to the
12

argument above in response to this argument. ECF No. 71 at 18. For the reasons set forth
above, the Horizontal Defendants’ Motion to Dismiss on this basis will be denied.
4.

Count IV: Aiding and Abetting a Violation of Section 10(b) and Rule
10b-5

Plaintiffs bring Count IV, for aiding and abetting Securities Exchange Act-related
violations, against MarcellX, the Prushnoks and Brothers.

ECF No. 56 ¶¶ 155-162.

The

Horizontal Defendants argue that there was no violation of Section 10(b) or Rule 10b-5. ECF
No. 66 at 14. This argument relies on the success of the preceding argument, which was not
successful. The Horizontal Defendants’ Motion to Dismiss on this basis will be denied.
5.

Count V: Violation of the Pennsylvania Securities Act

Plaintiff brings Count V, for violation of the Pennsylvania Securities Act, against
Horizontal, Thompson and the Prushnoks. ECF No. 56 ¶¶ 163-172. For this argument, the
Horizontal Defendants again rely on the “integrated Partnership Agreement” argument. ECF No.
66 at 15. Plaintiffs again rely on their response to the argument above. ECF No. 71 at 18. For
the reasons set forth above, the Horizontal Defendants’ Motion to Dismiss on this basis will be
denied.
6.

Count VI: Unfair Trade Practices and Consumer Protection Law

In Count VI, Plaintiffs allege violation of the Pennsylvania Unfair Trade Practices and
Consumer Protection Law (“the UTPCPL”), 73 P.S. § 201-1 et seq., against Horizontal,
Thompson and the Prushnoks. ECF No. 56 ¶¶ 173-181. The UTPCPL allows “[a]ny person who
purchases or leases goods or services primarily for personal, family or household purposes” to
bring a private action for losses suffered through use of acts or practices which are unlawful
under the UTPCPL. 73 P.S. § 201-9.2. The Horizontal Defendants argue that the UTPCPL does

13

not apply to this case because: (1) Plaintiffs are not residents of Pennsylvania; and (2) the
UTPCPL does not apply to securities or investments. ECF No. 66 at 15-17.
a.

Non-resident of Pennsylvania

To support their first argument, the Horizontal Defendants cite to a single district court
case, Stone St. Services, Inc. v. Daniels, 2000 WL 1909373 (E.D. Pa. Dec. 29, 2000), which does
not hold that the UTPCPL cannot apply to non-residents of Pennsylvania. Plaintiffs cite to a
more recent case from this Court, Haggart v. Endogastric Solutions, Inc., 2011 WL 466684, *7
(W.D. Pa. Feb. 4, 2011), which found no such blanket rule exists and permitted UTPCPL claims
brought by a non-resident of Pennsylvania to survive a motion to dismiss on the basis asserted
herein.
This Court finds sufficient Pennsylvania connections in order to permit this claim to
survive at this stage of the litigation. Accordingly, the Motion to Dismiss Count VI on this basis
will be denied.
b.

Securities/Investments

The Horizontal Defendants next argue that Plaintiffs’ investments are not covered by the
UTPCPL because they do not qualify as goods or services. ECF No. 66 at 16-17. In support of
their argument, the Horizontal Defendants cite to Algrant v. Evergreen Valley Nurseries Ltd.
P’ship, 941 F. Supp. 495 (E.D. Pa. 1996). That case was appealed to the United States Court of
Appeals for the Third Circuit, wherein the Court explained that cases in which the purchase of
securities is at issue, not the securities themselves, fall within the protections of the UTPCPL
because they involve the provision of services. Algrant v. Evergreen Valley Nurseries Ltd.
P’Ship, 126 F.3d 178, 187-88 (3d Cir. 1997). In Murphy v. Mid East Oil Co., 2007 WL 527715

14

(W.D. Pa. February 14, 2007), this Court applied the Third Circuit’s holding in Algrant to
determine whether an investment fell within the purview of the UTPCPL, finding:
Algrant teaches that investment securities are not goods for purposes of the
UTPCPL, and that the sale of investment securities does not fall within its
reach if the plaintiffs allege fraud in the securities themselves. Id. However,
the Court in Algrant acknowledged that where a plaintiff alleges fraud in
the actual sale of securities purchased, such as in receiving inaccurate
information or fraudulent assurances concerning the securities (so as to
constitute fraud in the transaction, or for services provided), it may state a
claim under the UTPCPL. Id. at 187-188, citing S. Kane & Son Profit
Sharing Trust v. Marine Midland Bank, 1996 WL 200603 (E.D. Pa. Apr.
25, 1996); Advest Inc. v. Kirschner, 1994 WL 18592 (E.D. Pa. Jan. 21,
1994); Denison v. Kelly, 759 F. Supp. 199 (M.D. Pa. 1991); McCullough v.
Shearson Lehman Bros., Inc., 1998 WL 23008 (W.D. Pa. Feb. 18, 1988).
Here, the plaintiffs allege that [a defendant] induced them to invest in the
limited partnerships by falsely representing their profit recovery. They also
contend that [defendants] made false or misleading representations in the
letter agreement, which induced them to remain participants in the [limited
partnerships] instead of recouping their investments. Since these claims
may be construed as constituting fraud in the transaction or for services
provided, [the UTPCPL violation claim] should not be dismissed.
Murphy, 2007 WL 527715 at *8 (record citations omitted).
As was the case in Murphy, Plaintiffs’ claims in the instant action may be construed as
constituting fraud in the transaction or for services provided.

Accordingly, the Horizontal

Defendants’ Motion to Dismiss on this basis will be denied.
7.

Counts VIII, IX(B) and XI: Unjust Enrichment

The Horizontal Defendants next argue that Plaintiffs cannot pursue unjust enrichment
claims against them because the relationship between the parties is contractually based. ECF No.
66 at 18-19. The Horizon Defendants cite to, inter alia, Wilson Area Sch. Dist. v. Skepton, 895
A.2d 1250, 1254 (Pa. 2006), for the principle that “the doctrine of unjust enrichment is
inapplicable when the relationship between parties is founded upon a written agreement or
express contract.” ECF No. 66 at 18. Plaintiffs characterize the application of this legal
15

principle to this case, “misguided.” ECF No. 71 at 22. Plaintiffs first point out that neither
Thompson nor Brothers are parties to any relevant contract. Id. Plaintiffs further argue that their
claim of fraud in the inducement permits their unjust enrichment claims. Id.
The Court is unable review the Horizontal Defendants’ argument. Despite basing their
argument on the relationship between the “parties” and “an express contract,” later identified as
two contracts: the subscription agreement and the Partnership Agreement, ECF No. 66 at 18, 19,
and despite the varying defendants for the three claims involved, 4 the Horizontal Defendants’
argument fails to identify any party to either contract or connect any party to a relevant claim. In
light of this underdeveloped argument, the Court cannot say that Plaintiffs have failed to make a
plausible claim for relief. Accordingly, the Horizontal Defendants’ Motion to Dismiss on this
basis will be denied.
8.

Counts VII, IX(A) and X: Conversion

The Horizontal Defendants argue that Plaintiffs cannot maintain claims for conversion of
funds that they voluntarily invested, citing a definition of conversion which specifies that a lack
of consent to possession of the converted property is a required element. ECF No. 66 at 19-20
(citing Chrysler Credit Corp. v. Smith, 643 A.2d 1098, 1100 (Pa. Super. Ct. 1994)). In response,
Plaintiffs cite to Cenna v. United States, 402 F.2d 168, 170-71 (3d Cir. 1996), 5 which provides a
more expansive definition of conversion under Pennsylvania law:
A deliberate taking of another's personal property without consent is the
strongest and clearest case of conversion. But the deliberate taking of
another's personal property with the consent of that person to use it for one
purpose, but with the intent of using it for another in conflict with that
person's interest is also conversion.

4

Counts VIII and IX(B) are raised against Thompson, the Prushnoks and MarcellX; Count XI is raised against
Horizontal, Thompson and the Prushnoks. ECF No. 56 ¶¶ 189-196, 202-207, 214-219.
5
ECF No. 71 at 23.

16

Plaintiffs also cite to law concerning the nullification of consent via fraud. ECF No. 71 at
23 (citations omitted).
At this stage of the litigation, the Court cannot say that Plaintiffs cannot establish
plausible claims for conversion under the legal theories they advance.

Accordingly, the

Horizontal Defendants’ Motion to Dismiss on this basis will be denied.
9.

Count XII: Breach of Fiduciary Duty

The Horizontal Defendants argue that this claim, which was brought against Horizontal,
Thompson, the Prushnoks and Brothers, should be dismissed against Thompson and Brothers
because Plaintiffs have no fiduciary relationship with Thompson or Brothers. ECF No. 66 at 2022. In response, Plaintiffs observe that the Horizontal Defendants do not deny a fiduciary
relationship between Plaintiffs and Horizontal and allege that Thompson and Brothers, as
officers of Horizontal, can be liable for breaching Horizontal’s fiduciary duties. ECF No. 71 at
24-25.
At this stage of the litigation, the Court cannot say that Plaintiffs cannot establish
plausible claims against Thompson and Brothers for breach of fiduciary duty under the theory
they advance. Accordingly, the Horizontal Defendants’ Motion to Dismiss on this basis will be
denied.
B.

Motion to Dismiss of the Prushnok Defendants

In support of their Motion to Dismiss, ECF No. 68, the Prushnok Defendants filed a
Brief, ECF No. 69, which is divided into two sections.
The first section merely incorporates the Horizontal Defendants’ Motion to Dismiss and
Brief in support thereof. Id. at 1-4. To that extent, the Court incorporates its analysis of the

17

Horizontal Defendants’ Motion to Dismiss and Brief in support thereof. Accordingly, on those
bases, the Prushnok Defendants’ Motion to Dismiss will be denied.
In the second section, id. at 4-7, the Prushnok Defendants seek dismissal of Plaintiffs’
claims for the reasons set forth in the documents supporting their August 29, 2014, Motion to
Dismiss, ECF No. 15, and this Court’s March 16, 20165, Opinion and Order granting that
Motion, ECF No. 28. The earlier Motion to Dismiss and this Court’s Opinion and Order
concerned Plaintiffs’ 22-page original Complaint, ECF No. 1. Because Plaintiffs have filed a 40page Amended Complaint, ECF No. 56, both the original Complaint and any argument based
thereupon is moot. Accordingly, on those bases, the Prushnok Defendants’ Motion to Dismiss
will be denied.
ORDER
AND NOW, this 15th day of June, 2016, IT IS HEREBY ORDERED that the Motion to
Dismiss filed by Horizontal Exploration, LLC , Mark A. Thompson and Bradley A. Brothers,
ECF No. 65, is DENIED. IT IS FURTHER ORDERED that the Motion to Dismiss filed by
MarcellX, LLC, David M. Prushnok, G. Daniel Prushnok and John P. Prushnok, ECF No. 68, is
DENIED.

BY THE COURT:

/s/ Maureen P. Kelly
MAUREEN P. KELLY
CHIEF UNITED STATES MAGISTRATE JUDGE

cc:

All counsel of record via CM-ECF

18