KCE Properties, Inc v. Holy Mackerel, Inc et al

Filing 19

MEMORANDUM ORDER denying 8 Motion to Dismiss for Failure to State a Claim. Signed by District Judge Mark S. Davis and filed on 10/31/16. (tbro)

UNITED

STATES

DISTRICT

COURT

EASTERN DISTRICT OF VIRGINIA

Newport News Division
KCE PROPERTIES,

INC.,

Plaintiff,
V.

Civil No.

HOLY MACKEREL,

4;16cv42

INC.,

and

DANIEL CARPENTER,

Defendants.

MEMORANDUM ORDER

This

Dismiss^

matter

filed

is

by

before

the

Court

Holy Mackerel,

Daniel

Carpenter

(collectively,

asserts

that KCE Properties,

Inc.

on

Inc.

a

12(b) (6)

("Holy Mackerel")

"Defendants").
("KCE"

Motion

to

and

motion

"Plaintiff")

or

Such

failed

to state a claim on which relief can be granted in Count Two of

the Complaint.

Finding that oral argument

for

set

the

reasons

forth

below.

is unnecessary,

Defendants'

motion

to

and

dismiss

i s DENIED.

^ Defendants' motion and memorandum in support also cite to Rule 12(b)(1)
of the Federal Rules of Civil Procedure as a

basis for dismissal

(lack of

subject matter jurisdiction).
However, Defendants do not advance a
jurisdictional challenge within their filings, and the Court therefore
construes the pending motion as advanced solely pursuant to Rule 12(b)(6).
In the absence of any challenge to the jurisdictional allegations in the
Complaint, the Court has subject matter jurisdiction over this diversity
action.

A.

The instant civil action was filed pursuant to this Court's

diversity

jurisdiction

Commonwealth
Plaintiff,
into

of

as

a

lease

lessor.

and

Virginia.

Id.

M

implicates

Compl.

KK

in interest

successor
agreement

it

to

7-8,
a

14-16.

Daniel

premises
The

Holy

Mackerel

has

38,

ECF

further

states

1.

is

the

"owner

and

Id. ^ 13.

the

that

No.

the

Holy Mackerel's

during the pendency of

right

to

remove

from

"all fixtures not-affixed to the building."

lease

of

is

Carpenter

The terms of the lease specify that,
lease.

laws

company that entered

with Holy Mackerel,

corporate officer of Holy Mackerel."

the

the

''all

built

in

Id.

the
17.

alterations

and

improvements become the property of the Lessor upon termination
of the
the

lease

hostess

equipment.

.

.

.

Id.

counter

Id.

and

The

term,

or

during

certain

lease

concludes by stating that
lease

The only specified exceptions are
lessee-purchased

provision

governing

"[a]ny items not removed"

an

optional

3 0-day

kitchen

fixtures

during the

extension

period,

"shall become property of [KCE]Id.
Holy Mackerel gave KCE notice of termination on October 9,
2015 and vacated the premises sometime in December of that same

year.

Id.

HH

18-19.

At

some

point

in

late

2015,

Daniel

^ Pursuant to the terms of the lease, the 30-day extension period requires
the payment of '*one (1) month's rent." Compl. H 17.
2

Carpenter

allegedly

removed

numerous

fixtures

premises and caused damage to the premises.

from

Id.

the

ft 20-21.

Carpenter then later allegedly used or sold these

its

full

rent

for

rental space.

the

final

that Holy Mackerel
three months

Mackerel

breached

One)

that

property

the

lease

Two).

Defendants

of

Count

further

Two.

Defendants
(1)

dismissed; and

the
(2)

the

request

it occupied the

in

various

jointly

filed

ways

Plaintiff's
the

conversion claim set
argue

for

that,

punitive

if

{Count

instant

forth

in

Two

is

Count

damages

must

be

Daniel Carpenter must be dismissed as a party

Plaintiff timely filed a memorandum in opposition

to the dismissal motion,

brief.

failed to pay

unlawfully converted

motion seeking dismissal

to the suit.

H 37.

Plaintiff alleges that Holy

agreement

both Defendants

(Count

dismissed:

Id.

for

Id. ft 5, 22.

As set forth in the Complaint,

and

that

Mr.

fixtures

his own benefit or for the benefit of Holy Mackerel.
The Complaint further alleges

leased

and Defendants have not

filed a

reply

The motion is now ripe for adjudication.
B.

Neither

party's

established 12(b)(6)

briefing

motion,

Fed.

into

standard of review,

when a plaintiff "fail [s]
be granted."

calls

R.

question

the

well-

which permits dismissal

to state a claim upon which relief can

Civ.

P.

12(b)(6).

To survive a

12(b)(6)

a complaint must include enough facts for a claim to be

"plausible

on its

face"

and

thereby

above the speculative level."
U.S.

544,

555,

570

(2007).

"raise

Bell Atl.

a

right

Corp.

v.

to

relief

Twombly,

550

In determining the plausibility of a

claim, district courts are required to assume that all well-pled
factual allegations are true
555,

the

and must

also

plaintiff,"

County,

684

Although

the

allegations,
accepted.
Twombly,

"draw all

Kensington

F.3d

462,

2012)

(citation

all

accept

legal

Iqbal,

conclusions

556 U.S.

662,

v.

at
of

well-pled

Cir.

Dep^t

id.

favor

in

Fire

must

Ashcroft v.

inferences

(4th

plaintiff's

550 U.S.

reasonable

Volunteer

467

Court

a

"even if doubtful in fact,"

are

Montgomery
omitted).

not

678

factual

similarly

(2009)

(citing

at 555).
C.

Defendants

seek

dismissal

of

Virginia's "source of duty rule."
tort claims that implicate a
Richmond Metro.

558,

507

612,

618,

Auth.

S.E.2d

594

344,

S.E.2d

v.

count

based

613

St.

Bovis,

see

Filak

(2004)

Inc.,

v.

256 Va.

George,

(" [L] osses

267

suffered

result of the breach of a duty assumed only by agreement,

than a duty imposed by law,
of

contracts.").

independent,
to

survive

However,

a

553,

Va.

as

a

rather

remain the sole province of the law
where a

common-law duty,
alongside

on

duty owed solely through contract.

(1998);

610,

conversion

The source of duty rule bars

McDevitt

347

the

tort

claim is based upon an

Virginia law permits a

claim

based

in

contract.

tort claim
Richmond

Metro. ,

256

Va.

Mission

Bd.

v.

(1991)).

at
Wade,

action both

for

arising in tort,
loss

at

347

Va.

234,

241,

{citing

409

S.E.2d

pursuant to Virginia law,

breach

of

contract

and

for

Foreign
144,

148

"a single act

support

breach

causes

of

a

of

duty-

thus permitting a plaintiff to recover both for

including,
V.

S.E.2d

in certain circumstances,

suffered as

damages,

507

242

Accordingly,

or occurrence can,

the

558,

a

result

of

the

breach and

where appropriate,

Cloney,

278

Va.

260,

traditional

punitive damages."

Const.

Co.

(2009)

has

stated

that

"[a]

cause

682

S.E.2d

Dunn

(emphasis added)(citation omitted).

Regarding conversion claims,

266-67,

tort

943,

the Supreme Court of Virginia

of

action

for

conversion

independent of an action in contract and may provide a

basis, distinct from the contract upon which one
another."

PGI,

Inc.

v.

576

438,

443

(2003)

S.E.2d

Rathe

946

Prods. ,

(emphasis

Inc. ,

separate

[party]

265

added).

Va.

lies

may sue

334,

344,

Notwithstanding

such broad legal statement, Virginia courts have recognized that
the

Virginia

source

of

duty

rule

can act

to

bar a

conversion

claim when a

party merely "withholds money that he is supposed

to

contract,"

pay on a

Va.

Cir.

LEXIS 90,

Virginia Beach),

as

was

into

at *17

(Va.

Vieira,

Cir.

Ct.

No.

CL14-5437,

May 29,

2015)

2015

(City of

or seizes tangible assets pledged as collateral

"within the

the

Taveira v.

[written]

contemplation of
agreement,"

the parties

Wachovia

Bank,

when entering

N.A.

v.

Ranson

Tyler

Chevrolet,

L. L. C. ,

2007)

(City of Roanoke) ;

App'x

447,

453-54

finding

that

attempt

at

an

73

Cir.

Cir.

employer's

2003)

a

actions

vested

duty

rule

can

circumstances,

an alleged
been

act

to

bar

seizure of

Boyne,

blocking

options

an

[the employer's]
and thus,

Ct.

68 F.

law,

and

employee's

implicated

a

duty

obligations

could not support

a

conversion

claim

in

property occurring after a

sounds

in

v.

First

Inc. ,

281

Va.

(holding

Inc. v.

Cir.

While it thus appears that the source of

Servs.

Condo. ,

(Va.

certain

the Supreme Court of Virginia has recognized that

terminated

Condo.

in

stock

[Stock Option Agreement],

conversion claim).

154

(applying Virginia

that existed "solely by nature of
under the

143,

see also Worldcom,

{4th

exercising

Va.

that

because

tort

rather

Owners'
561,

the

574,

than

Ass'n
709

parties'

of

in

contract

contract.

Forty

S.E.2d

contract

Six

163,

171

had

has
See

Hundred
(2011)

terminated

before the defendant exercised dominion over the funds at issue,

the "alleged acts did constitute the

'independent,

willful tort'

of conversion").
i.

As

argued by

Plaintiff

in opposition

conversion claim against Daniel Carpenter,
not a

fact,

to

because

the

Complaint

alleges,

of

the

Daniel Carpenter was

party to the lease at issue in this case.

and

dismissal

in

Because of such

the

alternative,

that Daniel Carpenter improperly seized KCE's property for his

own

personal

benefit,

violated

is

not

implicate

the

Compl.

based

tort

duty

in

M

18.03

31,

contract,

not

to

over the property of another.

S.E.2d at 443

4,

the

but

rather,

"wrongfully
PGI,

(citation omitted);

Inc.,

cf.

duty

allegedly
can

exert[]"

265 Va.

dominion

at 344,

§

("The source of duty rule affirms the separateness of tort

added),

As

Defendants

have

failed

to

file

a

(emphasis

reply

undercutting Plaintiff's legal position on this issue,
otherwise

challenged

against Daniel Carpenter,
to

576

1-18 Virginia Remedies

and contract and the liability of those in privity.")

not

only

demonstrate

that

the

sufficiency

Defendants fail

dismissal

of

the

of

the

brief

and have

pleadings

as

to carry their burden

conversion

claim

against

Carpenter is appropriate at this time.
ii.

As

to

Defendants'
successful

the

conversion

source
to the

of

extent

claim

against

duty

defense

that;

(1)

may

Holy

Mackerel,

ultimately

prove

Holy Mackerel purchased and

installed on the leased premises each piece of property at issue
in

this

case;

property

(2)

solely

providing that,

Holy
as

a

Mackerel
result

lost
of

the

title

Compl.

each

contractual

upon termination of the lease,

the property of the Lessor,

to

U 17; and

piece

of

provision

such items became

(3)

Holy Mackerel

removed the property in violation of the lease terms while the
lease

was

still

in

force.

However,

even

assuming

that

the

allegations

in

the

Complaint

are

properly

construed

as

establishing the first two points outlined above,^ it is unclear
at

this

stage

in

the

litigation

whether

the

final

point

established based on the following factual allegations:

(1)

Mackerel gave notice of termination on October 9,

is

Compl.

18;

(2)

at "some point"

the premises,

id.

in December 2015,

H 19;

and

(3)

2015,

Holy

Holy Mackerel vacated

Holy Mackerel did not pay its

rent in full during the final three months that it occupied the

rental space, id.
(accepted as
that

Holy

2015,

HH 5, 22.

true at this

Mackerel

gave

In light of the express allegations
stage of

notice

the proceedings)

of

termination

on

indicating
October

9,

remained on the premises for two additional months without

paying rent
while

it

property

(or fully paying rent),

remained

on

purportedly

the
owned

and on an unspecified date

premises,
by

removed

KCE,

their burden to demonstrate that the

various

Defendants

fail

281

because

the

terminated,

Va.

at

574,

709

S.E.2d

challenged actions

to

''source of duty rule"

Plaintiff's conversion claim against Holy Mackerel.
Servs. ,

items

at

171

occurred after

the claims sounded in tort,

carry
bars

See Condo.

(indicating
the

of

that

contract was

not in contract).

^ The fact that the Complaint includes a non-exhaustive list of property
that

Plaintiff

asserts

"lawfully

belonged

to

KCE,"

but

was

improperly

removed by Defendants, Compl. ^ 20, arguably leaves unresolved each of the
first two points outlined above, particularly in light of the fact that
KCE
(pre-discovery)
may be operating without complete information-a
reasonable inference in light of the fact that KCE purchased the premises

only three days before Holy Mackerel gave notice of termination,
14,

18.
8

id.

51^

stated differently,

dismissal is not warranted at this time

because the facts necessary to the determination of the asserted

defense remain undeveloped at this stage in the proceedings/

As

has

of

been

Appeals

repeatedly

for

the

Rule 12(b)(6)

recognized

Fourth

Circuit,

of

claim,

N.

464

only

v.

added);

(4th Cir.

stage,

trial

"in

the

appear

on

States

motion

to

rule

Xechem,

Inc.

v.

F.2d

Goodman v.

(en banc)

face

an

of

the merits

Republican Party
(4th

Inc.,

Cir.

494

1992)

F.3d 458,

(explaining that at the 12(b)(6)

rare

of

an affirmative defense

circumstances

affirmative
the

under

importantly,

facts,

952

Praxair,

reach the merits

on

943,

Court

dismiss

complaint;

surrounding the

980

relatively

the

that is,

see

courts

to

2 004)

Martin,

2007)

sufficient

Cir.

" [a]

United

or the applicability of defenses."

Carolina

(emphasis

the

tests the sufficiency of a

it does not resolve contests
of a

by

defense

complaint")

Bristol-Myers Squibb Co.,

where

.

.

(citation
372 F.3d 899,

.

facts

clearly

omitted);
901

(7th

("Only when the plaintiff pleads itself out of court-

admits all the ingredients of an impenetrable defense-

may a complaint that otherwise states a claim be dismissed under
Rule 12(b)(6)").

^ For example,

Accordingly,

Holy Mackerel fails at this time

there is an absence of information regarding the lease

termination procedures, to include details regarding when a notice of
termination is effective.
Notably, while Plaintiff's Complaint indicates
was

not

filed as an exhibit to the Complaint.
Similarly, Defendants did
provide a copy of the lease in support of their motion to dismiss.

that

a

copy of

the

lease

is

attached

as

an

exhibit,

the

lease

not

to

demonstrate

that

dismissal

of

the

conversion

claim

is

appropriate.
iii.

Defendants acknowledge

that

Plaintiff's claim for punitive

damages is dependent upon the viability of the conversion count.
See

Defs.'

Because

count

Mem.

the

as

to

independent
damages,

in Supp.

Court

both

denies

the

Mot.

for

Court

to

motion

Defendants,

basis

the

of

and

denies

to

the
the

6-7,

dismiss

because

challenging

also

Dismiss

ECF

the

Defendants

request
motion

for

to

No.

9.

conversion

offer

no

punitive

dismiss

the

punitive damages request.
D.

For
dismiss

The
Order

to

IT

the

reasons

set

forth

above,

Defendants'

motion

to

i s DENIED.

Clerk
all

IS

SO

is

REQUESTED to

counsel

of

send a

copy of

this Memorandum

record.

ORDERED.

/s/
Mark S.
UNITED

Newport News, Virginia

October .31 , 2016

10

STATES

Davis

DISTRICT JUDGE