HSBC Bank USA, National Association v. Resh et al

Filing 109

MEMORANDUM OPINION AND ORDER granting in part 37 Motion to Dismiss, specifically, the Court Dismisses Count II, Count IV, Count V and Count VII as against Colliers and Mr. Steffen; additionally, Realty Concepts' 45 Motion to Dismiss is Denied. Signed by Judge Robert C. Chambers on 1/25/2013. (cc: attys; any unrepresented party) (skm)

IN THE UNITED STATES DISTRICT COURT FOR
THE SOUTHERN DISTRICT OF WEST VIRGINIA
HUNTINGTON DIVISION

HSBC BANK USA,
NATIONAL ASSOCIATION,
Plaintiff,
v.

CIVIL ACTION NO. 3:12-cv-00668

RON RESH and
VALERIE REYNOLDS-RESH,
Defendants; Counter Claimants;
and Third Party Plaintiffs,
v.
REALTY CONCEPTS, LTD; ANDREW
BROSNAC; COLLIERS INTERNATIONAL
VALUATION & ADVISORY SERVICES, LLC;
PHILIP STEFFEN; LAWYER’S TITLE
INSURANCE CORPORATION; and HELEN
SULLIVAN,
Third Party Defendants.

MEMORANDUM OPINION AND ORDER
Pending before the Court is the motion by Third Party Defendants Colliers International
Valuation & Advisory Services, LLC (“Colliers”) and Philip Steffen to dismiss the Third Party
Complaint (ECF No. 37). Also pending is the motion by Realty Concepts, LTD (“Realty
Concepts”) to dismiss the Third Party Complaint (ECF No. 45). For the reasons stated below, the
motion to dismiss by Colliers and Mr. Steffen is GRANTED in part (ECF No. 37); specifically,
the

Court

DISMISSES

Count

II

(fraudulent

concealment),

Count

IV

(negligent

misrepresentation), Count V (negligence), and Count VII (RICO) as against Colliers and Mr.

Steffen. Realty Concepts’ motion to dismiss (ECF No. 45) is DENIED.
Background
HSBC Bank USA, National Association (“HSBC Bank”) commenced the instant
litigation by filing a Complaint against Third Party Plaintiffs Ron Resh and Valerie ReynoldsResh, which sought over $2.6 million in unpaid principal due on three promissory notes executed
by Third Party Plaintiffs, as well as interest, costs, fees, and expenses. Third Party Plaintiffs
executed these three notes in order to purchase three commercial properties in Beckley,
Morgantown, and Huntington, West Virginia, which all contained “Jiffy Lube” franchises.
Third Party Plaintiffs thereafter filed their amended answer, affirmative defenses, and
third party complaint collectively as one document. ECF No. 20 (“Third Party Complaint”).
Third Party Plaintiffs allege that the appraisals of the three properties, conducted before
purchase, fraudulently over-valued the properties. Also, Third Party Plaintiffs were allegedly
misled into believing that Peanut Oil, LLC—a “dummy corporation” owned by Samuel
Pearson—owned the properties, when in reality they were owned by Adventure 2000. Peanut Oil
bought the properties from Adventure 2000, allegedly at a much cheaper price than Third Party
Plaintiffs later paid, shortly before Peanut Oil then sold the three properties to Third Party
Plaintiffs. Third Party Plaintiffs bought the properties with the understanding that Peanut Oil
would fulfill a 15-year lease of the properties. Third Party Plaintiffs purchased the properties on
or about April 28, 2006, for approximately $3.65 million, making a collective down payment of
a little less than $1 million, and executing the notes for the remainder. Just a few years later,
Peanut Oil defaulted on the lease, and in 2008 filed for bankruptcy in the Middle District of
Pennsylvania. Because of Peanut Oil’s default, Third Party Plaintiffs were unable to fulfill their

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obligations to repay the underlying notes.
Third Party Plaintiffs allege that they are the victims of a fraudulent scheme, in which
they were induced to purchase the properties based on fraudulent information about the
properties’ ownership and value, and were led to enter into a lease with a party who had no
intentions of fulfilling that lease. This scheme was perpetrated so that the other parties could
collect a huge windfall at the expense of Third Party Plaintiffs. Specifically, Third Party
Plaintiffs allege:
Count I: Fraudulent Misrepresentation
Count II: Fraudulent Concealment
Count III: Breach of Duty of Good Faith and Fair Dealing
Count IV: Negligent Misrepresentation
Count V: Negligence
Count VI: Unjust Enrichment
Count VII: Violations of the Racketeer Influenced & Corrupt Organizations Act
(“RICO”)
Third Party Plaintiffs assert these claims against:1 HSBC Bank; Andrew Brosnac, who allegedly
completed the property sales on behalf of Realty Concepts; Realty Concepts, a real estate firm;
Lawyer’s Title Insurance Corporation; Helen Sullivan, a former employee of Lawyer’s Title
Insurance Corporation; Colliers, the successor in interest to PGP Valuation, Inc., the company
that completed the appraisals; and Philip Steffen, an employee of PGP Valuation, and later an
employee of Colliers.
Colliers and Mr. Steffen filed a motion to dismiss the Third Party Complaint on
September 25, 2012, and Realty Concepts filed a motion to dismiss the Third Party Complaint on
October 8, 2012. Though the claims in these two motions and the accompanying pleadings do

1

This is a complete list of all Third Party Defendants, but not all claims are brought against each
Third Party Defendant.
3

not overlap completely, there is sufficient commonality to justify addressing both motions in this
single Memorandum and Opinion.
Section I addresses the Court’s jurisdiction over Realty Concepts. Section II examines
whether any of the claims are time-barred. Section III assesses whether the claims that do not
sound in fraud survive Rule 12(b)(6) of the Federal Rules of Civil Procedure. Section IV
examines whether the fraudulent misrepresentation and fraudulent concealment claims satisfy
Rule 9(b). Lastly, Section V addresses Third Party Plaintiffs’ RICO claims.
I. Assessment of the Court’s Personal Jurisdiction over Realty Concepts
A. Standard of Review
Realty Concepts argues that all claims against it must be dismissed because this Court
lacks personal jurisdiction over Realty Concepts. At this stage, Third Party Plaintiffs need only
make a prima facie showing of jurisdiction, though at later stages they must prove such
jurisdiction by a preponderance of the evidence. New Wellington Fin. Corp. v. Flagship Resort
Dev. Corp., 416 F.3d 290, 294 (4th Cir. 2005). The court, pursuant to a motion to dismiss, need
only make a limited inquiry into the facts surrounding the jurisdictional question:
If the existence of jurisdiction turns on disputed factual questions the court may
resolve the challenge on the basis of a separate evidentiary hearing, or may defer
ruling pending receipt at trial of evidence relevant to the jurisdictional question.
But when, as here, the court addresses the question on the basis only of motion
papers, supporting legal memoranda and the relevant allegations of a complaint,
the burden on the plaintiff is simply to make a prima facie showing of a sufficient
jurisdictional basis in order to survive the jurisdictional challenge.
Combs v. Bakker, 886 F.2d 673, 676 (4th Cir. 1989) (citation omitted). Additionally, a court’s
decision that the plaintiff has made a prima facie showing of jurisdiction for purposes of a
motion to dismiss does not preclude a court from ultimately finding jurisdiction lacking when
ruling at later stages. Id. (After finding that a prima facie showing of jurisdiction had been made,
4

noting that “[t]his [showing] does not of course relieve the plaintiffs of the burden ultimately to
prove the existence of statutory grounds by a preponderance of evidence, whether in a separate
evidentiary hearing adequate to resolve dispositive factual questions, or as an incident to trial on
the merits.”).
Under Rule 12(b)(2), the plaintiff bears the burden of producing facts supporting the
existence of jurisdiction upon a challenge by the defendant. See Carefirst of Md., Inc. v. Carefirst
Pregnancy Ctrs., Inc., 334 F.3d 390, 396 (4th Cir. 2003). The district court may exercise
personal jurisdiction over a non-consenting, non-resident defendant if authorized by the long-arm
statute of the state in which it sits, and the exercise is consistent with the Due Process Clause of
the Fourteenth Amendment. Consulting Eng’rs Corp. v. Geometric, Ltd., 561 F.3d 273, 277 (4th
Cir. 2009). West Virginia’s long-arm statute permits jurisdiction to the extent of the Due Process
Clause. See W. Va. Code § 56-3-33; Charter Commc’ns. VI, LLC v. Eleazer, 398 F. Supp. 2d
502, 505 (S.D. W. Va. 2005). Therefore, the Court must assess whether the exercise of
jurisdiction in this case would comport with the applicable constitutional requirements. In other
words, “[b]ecause the West Virginia long-arm statute is coextensive with the full reach of due
process, see Pittsburgh Terminal Corp. v. Mid Allegheny Corp., 831 F.2d 522, 525 (4th Cir.
1987), it is unnecessary . . . to go through the normal two-step formula for determining the
existence of personal jurisdiction . . . .” Owens–Illinois, Inc. v. Rapid Am. Corp. (In re Celotex
Corp.), 124 F.3d 619, 627–28 (4th Cir. 1997) (citations omitted). “Rather, the statutory inquiry
necessarily merges with the Constitutional inquiry.” Id. Therefore, the Court’s inquiry in this
case focuses on whether exercising personal jurisdiction over Realty Concepts is consistent with
the Due Process Clause of the United States Constitution. To comport with the Due Process

5

Clause, the plaintiff must show that the non-resident defendant has “minimum contacts” with the
forum state and that requiring the defendant to defend in the state “does not offend traditional
notions of fair play and substantial justice.” See Int’l Shoe Co. v. Washington, 326 U.S. 310, 316
(1945); see also Miller v. Mariner Fin., LLC, No. 3:10-cv-33, 2010 WL 2365400, at *5 (N.D. W.
Va. June 8, 2010).
Personal jurisdiction is satisfied here if the Court can exercise either general personal
jurisdiction, specific personal jurisdiction, or pendent jurisdiction over the party in question. The
Court will first examine whether there is general personal jurisdiction, and next whether there is
specific personal jurisdiction. Lastly, the Court will examine pendent jurisdiction.
B. General Personal Jurisdiction
General personal jurisdiction arises based on a party’s contacts with the forum, where
such contacts are unrelated to the underlying lawsuit. The party’s contacts with the forum must
be “‘continuous and systematic,’ a more demanding standard than is necessary for establishing
specific jurisdiction.” ALS Scan, Inc. v. Digital Serv. Consultants, Inc., 293 F.3d 707, 712 (4th
Cir. 2002). Realty Concepts is a California corporation, its offices are located in Fresno,
California, and it claims to conduct no business activity in West Virginia. Realty Concepts’ only
alleged connection to West Virginia, based on the Third Party Complaint, is through the property
sales underlying this case, carried out by realtor Andrew Brosnac, who allegedly worked for
Realty Concepts. Third Party Plaintiffs apparently concede that general personal jurisdiction is
lacking, as they do not rebut Realty Concepts’ argument that general personal jurisdiction does
not exist. Accordingly, this Court finds that Realty Concepts’ contacts with West Virginia are
insufficient to create general personal jurisdiction.

6

C. Specific Personal Jurisdiction
Specific personal jurisdiction presents an easier threshold to satisfy, and is created based
on the nature of the contacts underlying the lawsuit at hand. In deciding whether the contacts
establish specific personal jurisdiction, the Court must assess: “(1) the extent to which the
defendant purposefully availed itself of the privilege of conducting activities in the State; (2)
whether the plaintiffs’ claims arise out of those activities directed at the State; and (3) whether
the exercise of personal jurisdiction would be constitutionally reasonable.” ALS Scan, 293 F.3d
at 712 (quotation marks omitted). In examining whether the defendant has purposefully availed
itself, factors to consider include:
[W]hether the defendant maintains offices or agents in the forum state; whether
the defendant owns property in the forum state; whether the defendant reached
into the forum state to solicit or initiate business; whether the defendant
deliberately engaged in significant or long-term business activities in the forum
state; whether the parties contractually agreed that the law of the forum state
would govern disputes; whether the defendant made in-person contact with the
resident of the forum in the forum state regarding the business relationship; the
nature, quality and extent of the parties’ communications about the business being
transacted; and whether the performance of contractual duties was to occur within
the forum.
Consulting Eng’rs Corp., 561 F.3d at 278. These factors should not detract from the focus of the
inquiry: “[t]he touchstone of the minimum contacts analysis remains that an out-of-state person
have [sic] engaged in some activity purposefully directed toward the forum state . . . .” In re
Celotex Corp., 124 F.3d at 629 (quoting Lesnick v. Hollingsworth & Vose Co., 35 F.3d 939, 945
(4th Cir. 1994)). Additionally, in assessing the constitutional reasonableness of exercising
jurisdiction, the court should consider such factors as: “(1) the burden on the defendant of
litigating in the forum; (2) the interest of the forum state in adjudicating the dispute; (3) the
plaintiff’s interest in obtaining convenient and effective relief; (4) the shared interest of the states
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in obtaining efficient resolution of disputes; and (5) the interests of the states in furthering
substantive social policies.” Consulting Eng’rs Corp., 561 F.3d at 279.
Third Party Plaintiffs allege that Mr. Brosnac was an actual or apparent agent of Realty
Concepts, and that therefore Mr. Brosnac’s actions in West Virginia establish a basis for
jurisdiction over Realty Concepts. The parties agree that the existence of an agency relationship
under West Virginia law is based on four factors: “(1) Selection and engagement of the servant;
(2) Payment of compensation; (3) Power of dismissal; and (4) Power of control. The first three
factors are not essential to the existence of the relationship; the fourth, the power of control, is
determinative.” Syl. Pt. 5, Burless v. W. Va. Univ. Hosps., Inc., 601 S.E.2d 85 (W. Va. 2004). If
Mr. Brosnac’s actions are not imputed to Realty Concepts, then there is otherwise an insufficient
basis for specific personal jurisdiction over Realty Concepts; this is because Realty Concepts’
connection to West Virginia is solely through the alleged actions of Mr. Brosnac. Therefore, the
determination of whether an agency relationship exists is crucial. Realty Concepts argues that
Mr. Brosnac was an independent contractor—not an employee—and that even if an agency
relationship existed, Mr. Brosnac acted outside the scope of that relationship, thereby destroying
any jurisdiction.
Third Party Plaintiffs have succeeded in making a prima facie showing of jurisdiction.
They have clearly and sufficiently alleged actions by Mr. Brosnac, and that Mr. Brosnac was
Realty Concepts’ employee or agent, such that jurisdiction is satisfied for purposes of this
motion to dismiss. Drawing all inferences in the light most favorable to Third Party Plaintiffs,
the jurisdictional issues in this case—involving such contested facts as agency and control—
should not be decided conclusively against Third Party Plaintiffs at this stage given the limited

8

showing that they have indeed made. The Court notes that “[w]here a plaintiff’s claim of
personal jurisdiction appears to be both attenuated and based on bare allegations in the face of
specific denials made by defendants, the Court need not permit even limited discovery confined
to issues of personal jurisdiction should it conclude that such discovery will be a fishing
expedition.” Eskridge v. Pac. Cycle, Inc., No. 2:11-cv-00615, 2012 WL 1036826, at *7 (S.D. W.
Va. Mar. 27, 2012) (quoting Rich v. KIS Cal., Inc., 121 F.R.D. 254, 259 (M.D.N.C. 1988)).
However, unlike Eskridge, here further inquiry into any agency relationship would not constitute
a “fishing expedition.” Therefore, Third Party Plaintiffs’ claims against Realty Concepts will not
be dismissed for lack of personal jurisdiction at this point.
D. Pendent Jurisdiction
Third Party Plaintiffs claim that even if specific and general personal jurisdiction are
lacking, the claims against Realty Concepts can nonetheless proceed because the pending RICO
claim creates pendent jurisdiction. See ESAB Group v. Centricut, Inc., 126 F.3d 617, 628 (4th
Cir. 1997) (citation omitted) (finding that “when a claim authorized by federal law and by Article
III of the Constitution is properly in a federal court, and that claim is so related to a state claim
not independently subject to federal jurisdiction that the two may be considered ‘one
constitutional case,’ the federal court has pendent jurisdiction to adjudicate the state claim”);
Fed. R. Civ. P. 4(k)(1)(C). Realty Concepts concedes that pendent jurisdiction would be proper if
a plausible RICO claim existed, but argues that the RICO claim fails to satisfy federal pleading
standards and must be dismissed, thereby destroying pendent jurisdiction. As discussed in
Section V, the Court finds that the RICO claim against Realty Concepts survives the motion to

9

dismiss, and this would provide an independent ground for jurisdiction at this stage, in addition
to the grounds for specific personal jurisdiction noted above.
In summary, the Court will not dismiss Third Party Plaintiffs’ claims against Realty
Concepts at this stage for lack of jurisdiction.
II. Analysis of Whether Claims are Time-Barred
A. Statutes of Limitation
In this Section, the Court will first assess what statutes of limitation apply to the various
claims, and then examine the possible application of tolling. Third Party Plaintiffs’ RICO claim
is subject to a four-year statute of limitations, as mandated by the Supreme Court. Agency
Holding Corp. v. Malley-Duff & Assocs., Inc., 483 U.S. 143, 146, 156 (1987) (noting that “RICO
does not provide an express statute of limitations for actions brought under its civil enforcement
provision,” and deciding that a four-year statute of limitations applies). Third Party Plaintiffs
conceded that their state law claims, specifically torts arising out of negligence,
misrepresentation, and professional negligence, are subject to a two-year statute of limitations.
Mem. in Opp’n to Colliers & Steffen, at 5, ECF No. 44; see W. Va. Code § 55-2-12; Trafalgar
House Constr. v. ZMM, Inc., 567 S.E.2d 294, 299 (W. Va. 2002). They argued in a subsequent
pleading, however, that contract claims are subject to a five-year statute of limitations, and that
their unjust enrichment claim is subject to no statute of limitations. Mem. in Opp’n to Realty
Concepts, at 12, ECF No. 49 (citing W. Va. Code § 55-2-6 and Dunn v. Rockwell, 689 S.E.2d
255, 273 (W. Va. 2009), respectively).2

10

The Court notes, however, that because the unjust enrichment claim is quasi-contractual,
it is in fact subject to a five-year statute of limitations. See Advantage Energy Mktg., Inc. v.
Columbia Gas Transmission Corp., No. 2:04-cv-0871, 2009 WL 773273, at *6 (S.D. W. Va.
Mar. 17, 2009) (applying five year statute of limitations for quasi-contractual claims under West
Virginia Code Section 55-2-6 to unjust enrichment claim); Stand Energy Corp. v. Columbia Gas
Transmission Corp., No. 2:04-cv-0867, 2006 WL 162988, at *1 & n.1 (S.D. W. Va. Jan. 20,
2006) (finding that unjust enrichment claim based on implied contract is subject to five-year
statute of limitations, and noting that “[t]he parties appear to agree that the claim is based on an
implied contract”).
The Court does agree that a five-year statute of limitations should apply to the claim for
breach of duty of good faith and fair dealing. See W. Va. Code § 55-2-6 (stating that claims
based on implied contracts must be brought within five years of accrual). Having resolved which
statutes of limitation apply to which claims, the Court now turns to the possible application of
tolling.
B. Tolling of Claims
There are factual disputes about the possible tolling of claims which make it imprudent to
decide whether any claims are time-barred at this stage.
Whether Third Party Plaintiffs’ claims are time-barred will depend on when they knew or
should have known about the underlying injury they allegedly suffered. See Pocahontas Supreme

2

Third Party Plaintiffs did not address the statutes of limitation for contracts claims and unjust
enrichment in response to Colliers’ and Mr. Steffen’s motion to dismiss, presumably because
neither breach of duty of good faith and fair dealing (the only contracts claim) nor unjust
enrichment were alleged against those two defendants.
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Coal Co. v. Bethlehem Steel Corp., 828 F.2d 211, 220 (4th Cir. 1987) (discussing the discovery
accrual rule in the context of RICO); Dunn, 689 S.E.2d at 262 (quoting Gaither v. City Hosp.,
487 S.E.2d 901, 906 (W. Va. 1997)) (explaining that tort claims are tolled under the discovery
rule “until a claimant knows or by reasonable diligence should know of his claim”). This Court is
mindful of the difficulty of deciding, at this stage in the litigation, whether tolling applies:
[A] motion to dismiss filed under Federal Rule of Procedure 12(b)(6) . . .
generally cannot reach the merits of an affirmative defense, such as the defense
that the plaintiff’s claim is time-barred. But in the relatively rare circumstances
where facts sufficient to rule on an affirmative defense are alleged in the
complaint, the defense may be reached by a motion to dismiss filed under Rule
12(b)(6). This principle only applies, however, if all facts necessary to the
affirmative defense “clearly appear[] on the face of the complaint.”
CSX Transp., Inc. v. Gilkison, 406 Fed. App’x 723, 728 (4th Cir. 2010) (quoting Goodman v.
Praxair, Inc., 494 F.3d 458, 464 (4th Cir. 2007) (citation omitted)). Furthermore, many of the
steps in assessing tolling involve questions of fact, and therefore are within the province of the
jury:
[A] five-step analysis should be applied to determine whether a cause of action is
time-barred. First, the court should identify the applicable statute of limitation for
each cause of action. Second, the court (or, if material questions of fact exist, the
jury) should identify when the requisite elements of the cause of action occurred.
Third, the discovery rule should be applied to determine when the statute of
limitation began to run by determining when the plaintiff knew, or by the exercise
of reasonable diligence should have known, of the elements of a possible cause of
action, as set forth in Syllabus Point 4 of Gaither v. City Hosp., Inc., supra.
Fourth, if the plaintiff is not entitled to the benefit of the discovery rule, then
determine whether the defendant fraudulently concealed facts that prevented the
plaintiff from discovering or pursuing the cause of action. Whenever a plaintiff is
able to show that the defendant fraudulently concealed facts which prevented the
plaintiff from discovering or pursuing the potential cause of action, the statute of
limitation is tolled. And fifth, the court or the jury should determine if the statute
of limitation period was arrested by some other tolling doctrine. Only the first step
is purely a question of law; the resolution of steps two through five will generally
involve questions of material fact that will need to be resolved by the trier of fact.

12

Dunn, 689 S.E.2d at 265.
Colliers and Mr. Steffen argue that claims against them accrued on April 28, 2006—the
date on which Third Party Plaintiffs purchased the properties—presumably because by that date
Plaintiffs were aware of the existence of appraisals which formed the basis of the purchase price.
Therefore, because Third Party Plaintiffs filed their claims in August 2012—more than six years
later—the claims against Colliers and Mr. Steffen are allegedly time-barred. Colliers and Mr.
Steffen also argue that the discovery rule, which would otherwise toll the claims, is inapplicable
because although Third Party Plaintiffs were never given a copy of the appraisals before
purchasing the properties, they did not even request to view the appraisals. Therefore, they argue,
the Reshes cannot now claim that they could not have reasonably discovered the content of the
appraisals before purchasing the properties. Arguably, had Third Party Plaintiffs reviewed the
appraisals, they would not be able to invoke the discovery rule, and their claims would be timebarred; Third Party Plaintiffs should not now benefit from waiting so long to review the
appraisals. Realty Concepts argues that the claims against it accrued no later than September
2008, when Peanut Oil filed for bankruptcy. Third Party Plaintiffs counter that they did not know
of their injury until September 2010, when a related matter was litigated in California, and
therefore their claims were tolled until that point; they filed their claims in August 2012, and
therefore all of their claims were timely filed.
Based on the authority cited above, the Court will not inquire further into tolling at this
point and will not now dismiss any claims as time-barred. This is because all the facts necessary
to decide tolling do not clearly appear on the face of the pleadings. More factual information
about the nature of the 2008 bankruptcy filing, Peanut Oil’s default, and the Reshes’ involvement
with and knowledge of such matters would be required in making the sort of factual
13

determinations that ultimately bear on whether tolling should apply. See also Rawls v. Associated
Materials, LLC, No. 1:10-cv-01272, 2011 WL 3297622, at *13 (S.D. W. Va. Aug. 1, 2011)
(“Since the court is missing crucial information related to the timing of plaintiffs’ discovery of
the fraud or misrepresentations, the court finds that a determination of timeliness is best left to a
later date, once the facts of the case are better developed.”). Also, this Court notes that it has
before declined to apply the discovery rule to quasi-contractual unjust enrichment claims. Stand
Energy, 2006 WL 162988, at *2 n.3 (“[T]he discovery rule does not apply to an unjust
enrichment claim that arises from a quasi-contractual case . . . .); see also Advantage Energy,
2009 WL 773273, at *6. However, the parties do not specifically address this point of law on the
application of the discovery rule to unjust enrichment claims. With all this in mind, the Court
will not at this time rule on the timeliness of the unjust enrichment claim.
Therefore, the Court declines to dismiss any claims as time-barred at this stage.
III. Application of Rule 12(b)(6) of the Federal Rules of Civil Procedure
A. Standard of Review
Third Party Defendants have moved for dismissal of all claims pursuant to Federal Rule
of Civil Procedure 12(b)(6). In Bell Atlantic Corp. v. Twombly, 550 U.S. 544 (2007), the United
States Supreme Court disavowed the “no set of facts” language found in Conley v. Gibson, 355
U.S. 41 (1957), which was long used to evaluate complaints subject to 12(b)(6) motions. 550
U.S. at 563. In its place, courts must now look for “plausibility” in the complaint. This standard
requires a plaintiff to set forth the “grounds” for an “entitle[ment] to relief” that is more than
mere “labels and conclusions, and a formulaic recitation of the elements of a cause of action will
not do.” Id. at 555 (internal quotation marks and citations omitted). Accepting the factual

14

allegations in the complaint as true (even when doubtful), the allegations “must be enough to
raise a right to relief above the speculative level . . . .” Id. (citations omitted). If the allegations in
the complaint, assuming their truth, do “not raise a claim of entitlement to relief, this basic
deficiency should . . . be exposed at the point of minimum expenditure of time and money by the
parties and the court.” Id. at 558 (internal quotation marks and citations omitted).
In Ashcroft v. Iqbal, 556 U.S. 662 (2009), the Supreme Court explained the requirements
of Federal Rule of Civil Procedure 8 and the “plausibility standard” in more detail. In Iqbal, the
Supreme Court reiterated that Rule 8 does not demand “detailed factual allegations[.]” 556 U.S.
at 678 (internal quotation marks and citations omitted). However, a mere “unadorned, thedefendant-unlawfully-harmed-me accusation” is insufficient. Id. “To survive a motion to
dismiss, a complaint must contain sufficient factual matter, accepted as true, to ‘state a claim to
relief that is plausible on its face.’” Id. (quoting Twombly, 550 U.S. at 570). Facial plausibility
exists when a claim contains “factual content that allows the court to draw the reasonable
inference that the defendant is liable for the misconduct alleged.” Id. (citation omitted). The
Supreme Court continued by explaining that, although factual allegations in a complaint must be
accepted as true for purposes of a motion to dismiss, this tenet does not apply to legal
conclusions. Id. “Threadbare recitals of the elements of a cause of action, supported by mere
conclusory statements, do not suffice.” Id. (citation omitted). Whether a plausible claim is stated
in a complaint requires a court to conduct a context-specific analysis, drawing upon the court’s
own judicial experience and common sense. Id. at 679. If the court finds from its analysis that
“the well-pleaded facts do not permit the court to infer more than the mere possibility of
misconduct, the complaint has alleged--but it has not ‘show[n]’--‘that the pleader is entitled to

15

relief.’” Id. (quoting, in part, Fed. R. Civ. P. 8(a)(2)). The Supreme Court further articulated that
“a court considering a motion to dismiss can choose to begin by identifying pleadings that,
because they are no more than conclusions, are not entitled to the assumption of truth. While
legal conclusions can provide the framework of a complaint, they must be supported by factual
allegations.” Id.
B. Application
While all claims must satisfy Rule 12(b)(6) in order to proceed, claims sounding in fraud
must additionally satisfy the higher pleading hurdle presented by Rule 9(b). Only the claims that
do not sound in fraud will be discussed in this section, specifically: Count III- breach of duty of
good faith and fair dealing; Count IV- negligent misrepresentation; Count V- negligence; and
Count VI- unjust enrichment. The claims that sound in fraud will be discussed in Sections IV and
V because, even assuming those fraud claims satisfy Rule 12(b)(6), they must additionally
satisfy Rule 9(b) in order to proceed.
1. Count III-Breach of Duty of Good Faith and Fair Dealing
Count III alleges breach of duty of good faith and fair dealing against Realty Concepts,
but not against Colliers and Mr. Steffen. Realty Concepts argues that this claim should be
dismissed because West Virginia does not recognize an independent claim for breach of the duty
of good faith and fair dealing. Stand Energy Corp. v. Columbia Gas Transmission Corp., 373 F.
Supp. 2d 631, 644 (S.D. W. Va. 2005); see also Powell v. Bank of Am., N.A., 842 F. Supp. 2d
966, 982 (S.D. W. Va. 2012) (stating that “West Virginia recognizes no such claim [for failure to
exercise contractual discretion in good faith], and claims for breach of the implied covenant must
be predicated on a breach of contract.”). Realty Concepts argues that Count III should be

16

dismissed because this claim was not brought as a claim for breach of contract, and because there
is no underlying contract between Realty Concepts and Third Party Plaintiffs.
Third Party Plaintiffs concede that there is no independent cause of action for breach of
the duty of good faith and fair dealing, but nonetheless argue that this Count survives because the
claim “should be interpreted as stating an independent basis of recovery on the contract.” ECF No.
49, at 13. Third Party Plaintiffs point to Highmark W. Va., Inc. v. Jamie, 655 S.E.2d 509 (W. Va.
2007), which acknowledged that although “an implied covenant of good faith and fair dealing
does not provide a cause of action apart from a breach of contract claim,” the cause of action at
issue in that particular case would nonetheless be interpreted as a breach of contract claim. Id. at
514 (“[T]he allegations of Count 3 [breach of the covenant of good faith and fair dealing]
construed in the light favorable to the appellant demonstrate that, while inartfully drafted as a
claim upon an implied covenant, Count 3 is, in reality, a breach of contract claim covering
matters not identical to those specified in Counts 1 [breach of contract] and 2 [retroactive denial
of payments in violation of statutory law].”). Because Third Party Plaintiffs have sufficiently
alleged a contractual relationship with Realty Concepts, through the alleged actions of Mr.
Brosnac, which could form the underlying basis of this claim, the Court will allow Count III to
proceed.
2. Count IV- Negligent Misrepresentation
Count IV alleges that Colliers, Mr. Steffen, and Realty Concepts engaged in negligent
misrepresentation. In West Virginia, a claim for negligent misrepresentation must allege that the
defendant: 1) owed a duty to provide the plaintiff with information; 2) made an erroneous
statement when in fact the defendant had no knowledge about the subject, and 3) thereby misled

17

the plaintiff, causing the plaintiff’s injury. Folio v. City of Clarksburg, 655 S.E.2d 143, 151 (W.
Va. 2007) (quoting Syl. Pt. 1, James v. Piggott, 74 S.E. 667 (W. Va. 1910)). Liability can attach
when the defendant makes an erroneous statement “(1) with actual knowledge of its falsity; (2)
without knowledge either of its truth or falsity; or (3) under circumstances in which the person
making it ought to have known if he did not know of its falsity.” Id. at 151 (quoting Horton v.
Tyree, 139 S.E. 737, 738 (W. Va. 1927)).
As explained above, it is plausible that Realty Concepts may have owed Third Party
Plaintiffs a duty, based on the alleged relationship between Realty Concepts, Mr. Brosnac, and
Third Party Plaintiffs, thus meeting the first prong. Third Party Plaintiffs allege that Mr. Brosnac
“assisted and facilitated” Mr. Pearson’s misrepresentations about Peanut Oil’s plans and
ownership of the properties, which satisfies the second prong. Third Party Compl. ¶ 74. The
Third Party Complaint also sufficiently alleges that Third Party Plaintiffs were misled and relied
on those misrepresentations, thereby meeting prong three. Therefore, Count IV will not be
dismissed at to Realty Concepts.
Now the Court turns to the negligent misrepresentation claim again Colliers and Mr.
Steffen. Third Party Plaintiffs claim that “PGP Valuation, Inc. and Philip Steffen held a duty to
fairly and accurately value the properties at issue, and to fully investigate the facts on which their
appraisals were based.” Third Party Compl. ¶ 163. Third Party Plaintiffs state that the basis for
this duty comes from First Nat’l Bank v. Crawford, 386 S.E.2d 310 (W. Va. 1989), where
plaintiff bank sued defendant accountant for professional negligence regarding the accountant’s
preparation of a financial statement for a construction company, a statement on which the bank
relied in making a loan. The Supreme Court of Appeals held that lack of privity between a bank

18

and an accountant was not an absolute defense to the suit. This Court notes, however, that the
Supreme Court of Appeals was responding to the “narrow issue” of accounting malpractice.
Also, the bank in Crawford had explicitly told the accountant that, before closing on the loan, the
bank needed to view the financial statement. The Crawford court adopted the rule stated in
Restatement (Second) of Torts (1977) Section 552, titled “Information Negligently Supplied for
the Guidance of Others,” noting that “it imposes a standard of care only to known users who will
actually be relying on the information provided by the accountant.” Crawford, 386 S.E.2d at 313.
That court explicitly decided not to follow an alternative approach where a duty exists toward
reasonably foreseeable users of the information. Id. at 312.
The Supreme Court of Appeals has subsequently declined to hold that appraisers have a
duty to individuals other than those with whom the appraiser contracts. See Eblin v. Coldwell
Banker Residential Affiliates, Inc., 455 S.E.2d 774, 779 (W. Va. 1995) (declining to find that
appraiser had duty to homebuyer when structural problems were discovered after purchase,
where the appraiser was employed by the mortgage lender, gave the appraisal report to the
lender, and the report did not cover structural integrity). In the instant case, Colliers and Mr.
Steffen were employed by BLX Capital (the original note holder) only, and the appraisals are
exclusively for use by that client. See, e.g., Huntington Appraisal, at 2 (“Reliance on this report
by anyone other than the client for a purpose not set forth above is prohibited. The author’s
responsibility is limited to the client.”). Third Party Plaintiffs fail to point to any Fourth Circuit
cases specifically finding that appraisers owe a duty to individuals known to be relying on
appraisal reports, and this Court has not found any. Therefore, this Court finds that Colliers and

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Mr. Steffen did not owe the Reshes a duty. Because there was no duty, prong one is not satisfied,
and therefore the Court dismisses Count IV as to Colliers and Mr. Steffen.3
In summary, Count IV survives against Realty Concepts, but is dismissed against Colliers
and Mr. Steffen.
3. Count V- Negligence
To state a claim for negligence, the plaintiff must allege the existence of a duty, the
defendant’s breach of that duty, causation, and damages. Third Party Defendants argue that Third
Party Plaintiffs have not sufficiently alleged all four elements of the negligence claim, and
therefore that cause of action must be dismissed. Because, as noted in the previous section,
Colliers and Mr. Steffen did not owe a duty to Third Party Plaintiffs, the Court dismisses the
negligence claim against Colliers and Mr. Steffen.
Next, the Court will assess the negligence claim against Realty Concepts. Realty
Concepts was the alleged employer of Andrew Brosnac, Third Party Plaintiffs’ realtor. Realty
Concepts claims it had no duty to Third Party Plaintiffs, it did not breach any duty that existed,
and it did not proximately cause any damage that Third Party Plaintiffs experienced. Third Party
Plaintiffs state that “Andrew Brosnac and Realty Concepts, Ltd. held a duty to fairly represent
and protect the interests of their client, Defendants, and to ensure that any deal they arranged on
3

This claim must be dismissed for failure to satisfy prong one, even though prongs two and three
have been satisfied. Third Party Plaintiffs have sufficiently pled prong two by casting doubt on:
the truthfulness and thoroughness of the appraisals; the methodology by which the properties
were valued; the reasonableness of assuming the 15 year leases would be completed; and the
allegedly weak inquiry into the prices of the first leg of the double-escrow transaction. It would
be too early for the Court to decide that the appraisals definitively did not constitute erroneous
statements. Additionally, Third Party Plaintiffs have sufficiently pled reliance, the third prong.
Third Party Plaintiffs completed the purchases based on the appraisal results, regardless of
whether or not they actually read the appraisals.
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behalf of Defendants was objectively fair and reasonable and to warn Defendants of any risks or
questionable practices occurring in relation to Defendants’ acquisition of the properties,” and
also that “Realty Concepts held the further duty of monitoring the activities of its employee,
Andrew Brosnac.” Third Party Compl. ¶¶ 164-65. It is unclear at this stage whether Mr. Brosnac
was indeed an employee of Realty Concepts, and therefore whether Realty Concepts had any
duty to monitor him, or what the scope of any such duty was. It also is unclear if the Reshes were
actually Realty Concepts’ clients. However, as previously explained, the Court will not now
decide if a duty was owed, so that further factual development on this issue can occur.
Third Party Plaintiffs sufficiently alleged breach of the duty. The Third Party Complaint
states that “Realty Concepts and Andrew Brosnac breached their duty by failing to alert
Defendants to the faulty bases for the appraisals, and the fact that there existed a gross disparity
in the purchase prices of the two legs of the double-escrow transactions.” Id. ¶ 169. They also
allege that Realty Concepts breached its duty to monitor Brosnac. Id. ¶ 170. Third Party
Plaintiffs plead that Mr. Brosnac was part of Mr. Pearson’s scheme to defraud the Reshes, in that
he “assisted and facilitated” Mr. Pearson’s misrepresentations about Peanut Oil. Id. ¶ 74. The
Third Party Complaint also sufficiently alleges causation and damages. Therefore, the negligence
claim against Realty Concepts satisfies Rule 12(b)(6). However, the negligence claim against
Colliers and Mr. Steffen is dismissed.
3. Count VI- Unjust Enrichment
Count VI alleges that Realty Concepts received unjust enrichment. The elements of an
unjust enrichment claim are: “(1) a benefit conferred upon the [defendant], (2) an appreciation or
knowledge by the defendant of such benefit, and (3) the acceptance or retention by the defendant

21

of the benefit under such circumstances as to make it inequitable for the defendant to retain the
benefit without payment of its value.” Veolia Es Special Servs., Inc. v. Techsol Chem. Co., No.
3:07-cv-0153, 2007 WL 4255280, at * 9 (S.D. W. Va. Nov. 30, 2007) (citing 26 WILLISTON ON
CONTRACTS § 68:5 (4th ed.)). West Virginia specifically requires that the benefits were “received
and retained under such circumstance that it would be inequitable and unconscionable to permit
the party receiving them to avoid payment therefor.” Realmark Devs., Inc. v. Ranson, 542 S.E.2d
880, 884-85 (W. Va. 2000) (citing Copley v. Mingo County Bd. of Educ., 466 S.E.2d 139 (W.
Va. 1995)). Third Party Plaintiffs allege that Realty Concepts, as their real estate broker firm,
received fees for the real estate transactions which were based on fraud and misrepresentations to
Realty Concepts’ client, the Reshes. Therefore, Third Party Plaintiffs have sufficiently alleged all
three prongs of the unjust enrichment claim, and that claim will not be dismissed.
IV. Analysis of Fraudulent Misrepresentation and Fraudulent Concealment Claims
Under Rule 9(b)
A. Standard of Review
Federal Rule of Civil Procedure 9(b) states that “[i]n alleging fraud or mistake, a party
must state with particularity the circumstances constituting fraud or mistake.” This Court will
analyze Count I (fraudulent misrepresentation) and Count II (fraudulent concealment) under this
heightened pleading standard. Under the heightened pleading standard of Rule 9(b), a plaintiff is
required to “at a minimum, describe the time, place, and contents of the false representations, as
well as the identity of the person making the misrepresentation and what he obtained thereby.”
U.S. ex rel. Wilson v. Kellogg, Brown & Root, Inc., 525 F.3d 370, 379 (4th Cir. 2008) (quoting
Harrison v. Westinghouse Savannah River Co., 176 F.3d 776, 784 (4th Cir. 1999)) (internal
quotation marks omitted). In other words, the plaintiffs must describe the “‘who, what, when,
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where, and how’ of the alleged fraud.” Id. (quoting U.S. ex rel. Willard v. Humana Health Plan
of Texas Inc., 336 F.3d 375, 384 (5th Cir. 2003)).
Furthermore, “in the ordinary case when the claimant has adequate access to the necessary

facts, the claimant may not plead fraud on information and belief nor in a vague manner.” Id.
When several defendants are party to the fraud claims, the plaintiff “usually may not group all
wrongdoers together in a single set of allegations. Rather, the claimant is required to make
specific and separate allegations against each defendant.” Id. Despite all these considerations, “[a]
court should hesitate to dismiss a complaint under Rule 9(b) if the court is satisfied (1) that the
defendant has been made aware of the particular circumstances for which she will have to
prepare a defense at trial, and (2) that plaintiff has substantial prediscovery evidence of those
facts.” United States v. Gwinn, No. 5:06-cv-00267, 2008 WL 867927, at *10 (S.D. W. Va. Mar.
31, 2008).
B. Application
1. Count I- Fraudulent Misrepresentation
Count I alleges fraudulent misrepresentation by Realty Concepts, Colliers, and Mr.
Steffen. To succeed on a claim for fraud, the plaintiff must prove the following elements: “(1)
that the act claimed to be fraudulent was the act of the defendant or induced by him; (2) that it
was material and false; that plaintiff relied upon it and was justified under the circumstances in
relying upon it; and (3) that he was damaged because he relied upon it.” Syl. Pt. 1, Lengyel v.
Lint, 280 S.E.2d 66, 67 (W. Va. 1981) (quoting Horton v. Tyree, 139 S.E. 737 (W. Va. 1927)).
In regard to the fraudulent misrepresentation allegations against Colliers and Mr. Steffen,
Third Party Plaintiffs contend that the appraisals themselves were the fraudulent

23

misrepresentations, regardless of the fact that the appraisals clearly state the assumptions
underlying the valuations. Third Party Plaintiffs do claim that the appraisals were false, were
material, and that they relied on the values in the appraisals, even if they never saw the actual
appraisal reports. This suffices under Rule 9(b), and therefore Count I survives as to Colliers and
Mr. Steffen.
Moving on to Realty Concepts, the Third Party Complaint alleges that Realty Concepts
was “aware of, acknowledged, and ratified [its] employees’ actions, or, alternatively, failed to
sufficiently monitor the activities of [its] employees.” ¶ 118. The strength of this argument
ultimately depends on 1) whether Andrew Brosnac is liable for fraudulent misrepresentation, and
if so, 2) whether Realty Concepts is liable for Mr. Brosnac’s misconduct. In essence, Realty
Concepts is not accused of directly engaging in fraudulent misrepresentation. Third Party
Plaintiffs allege that Mr. Brosnac “assisted and facilitated” Mr. Pearson’s misrepresentation
about Peanut Oil, id. ¶¶ 73-74, and that they relied on those misrepresentations to their detriment.
The “who, what, when, where, and how” of the fraudulent misrepresentations has been
sufficiently alleged, and therefore Count I survives as against Realty Concepts.
2. Count II- Fraudulent Concealment
Count II alleges fraudulent concealment by Realty Concepts, Colliers, and Mr. Steffen. A
claim of fraudulent concealment requires “concealment of facts by one with knowledge, or the
means of knowledge, and a duty to disclose, coupled with an intention to mislead or defraud.”
Roney v. Gencorp, 431 F. Supp. 2d 622, 637 (S.D. W. Va. 2006) (quoting Livingston v. K–Mart
Corp., 32 F. Supp. 2d 369, 374 (S.D. W. Va. 1998)). As noted above, Colliers and Mr. Steffen

24

had no duty toward Third Party Plaintiffs, and this failure alone mandates dismissal of this claim
against Colliers and Mr. Steffen.
Third Party Plaintiffs’ pleading of fraudulent concealment against Realty Concepts
satisfies Rule 9(b). As mentioned earlier, the Court at this point declines to decide whether or not
Mr. Brosnac was an agent of Realty Concepts, and therefore whether Realty Concepts owed a
duty to Third Party Defendants; duty has been sufficiently alleged at this stage. The Third Party
Complaint points out that “the Third Party Defendants knew or should have known that the
prices Defendants were paying for these properties were far in excess of their actual values” and
“the Third Party Defendants knew or should have known that the appraisals upon which the
prices for all three transactions were largely premised were based on faulty methodologies,
insufficient and unreliable data, and the prospective tenants and other aspects of the appraisals
were not properly investigated.” ¶¶ 129-30. The Third Party Complaint also alleges intent. ¶ 135
(“BLX Capital and the Third Party Defendants failed to disclose these facts to Defendants
intentionally”). Realty Concepts has sufficiently been put on notice of the nature of the alleged
concealments, who concealed them, and when. In summary, Count II is dismissed against
Colliers and Mr. Steffen, and survives against Realty Concepts.
V.

Analysis of RICO Claims

Count VII alleges that Realty Concepts and Colliers, among other Third Party Defendants
but excluding Mr. Steffen,4 engaged in violations of the Racketeer Influenced and Corrupt
Organizations Act (“RICO”). 18 U.S.C. § 1961, et. seq. RICO makes it “unlawful for any person

4

Although it is unclear if the omission of Mr. Steffen from this claim was an oversight, even if
Mr. Steffen were accused of RICO violations, that would not substantially change the Court’s
analysis.
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employed by or associated with any enterprise engaged in, or the activities of which affect,
interstate or foreign commerce, to conduct or participate, directly or indirectly, in the conduct of
such enterprise’s affairs through a pattern of racketeering activity,” § 1962(c). The Supreme
Court has clarified that “[i]n order to ‘participate, directly or indirectly, in the conduct of such
enterprise’s affairs,’ one must have some part in directing those affairs” Reves v. Ernst & Young,
507 U.S. 170, 179 (1993). Specifically, that individual “must participate in the operation or
management of the enterprise itself.” Id. at 185. A pattern of racketeering activity is defined as
“at least two acts of racketeering activity,” § 1961(5), and racketeering activity includes mail
fraud and wire fraud, § 1961(1), which Third Party Plaintiffs allege occurred here. The elements
of mail fraud and wire fraud are: “(1) the existence of a scheme to defraud and (2) the use of the
mails or wire communication in furtherance of the scheme.” United States v. Curry, 461 F.3d
452, 457 (4th Cir. 2006). Also, Third Party Plaintiffs concede that because they are alleging
fraud, the RICO allegations must satisfy Rule 9(b).
Colliers claims that PGP Valuation lacked the requisite amount of control over the
alleged enterprise, and that for this reason the RICO claim against Colliers must be dismissed.
See First Cent. Sav. Bank v. Meridian Residential Capital, No. 09-cv-3444, 2011 WL 838910
(E.D.N.Y. Mar. 3, 2011) (dismissing RICO claim against appraisal company alleged to have
over-appraised the value of properties, where there were no facts showing that the appraisal
company had control over the alleged enterprise); Decatur Ventures, LLC v. Stapleton Ventures,
Inc., 373 F. Supp. 2d 829 (S.D. Ind. 2005) (dismissing RICO claims against appraisers because
their participation in alleged overvaluing of properties did not satisfy the Reves operation and
management test); see also Reves, 507 U.S. at 186. Third Party Plaintiffs cite no cases supporting

26

their contention that Colliers held the requisite level of control in this alleged enterprise. In fact,
Third Party Plaintiffs themselves concede that “[t]he core of the enterprise consisted of Brosnac,
Pearson, and Sullivan, who enlisted and obtained Appraisers’ support.” ECF No. 44 at 18. While
this statement is not fatal to the RICO claim on its own, it does nothing to bolster the claim that
Colliers exerted the requisite amount of control, rather than merely providing support to any
enterprise. Therefore, the RICO claim is dismissed as to Colliers. This lack of control is
sufficient grounds for dismissing the RICO claims against Colliers, and therefore the Court need
not reach the issue of particularity under Rule 9(b). In light of the above, Count VII is dismissed
against Colliers.
Turning attention now to Realty Concepts, Third Party Plaintiffs have in no way shown
that Realty Concepts had any control over the alleged enterprise, or managed and directed the
operations of that enterprise. Realty Concepts’ only connection to the enterprise appears to be
through the actions of Mr. Brosnac, who is alleged to be a “core” enterprise member, having
cooperated with Pearson to misrepresent Peanut Oil’s activities to the Reshes in order to induce
them to buy the properties. Just as with the fraud claims above, Realty Concepts’ liability would
only exist, it seems at this point, if Mr. Brosnac is liable for RICO violations, and Realty
Concepts was indirectly found liable as Mr. Brosnac’s employer. The Third Party Complaint
sufficiently alleges Mr. Brosnac’s actions in using the mails and interstate wires as part of a
scheme where Peanut Oil purchased properties shortly before selling them to the Reshes,
concealing the overinflated value of the properties in the process. ¶¶ 192, 196. Therefore, the
RICO claim against Realty Concepts may proceed.

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Conclusion
For the reasons stated above, the motion to dismiss by Colliers and Mr. Steffen is
GRANTED in part (ECF No. 37); specifically, the Court DISMISSES Count II (fraudulent
concealment), Count IV (negligent misrepresentation), Count V (negligence), and Count VII
(RICO) as against Colliers and Mr. Steffen. Additionally, Realty Concepts’ motion to dismiss
(ECF No. 45) is DENIED.
The Court DIRECTS the Clerk to send a copy of this written Opinion and Order to
counsel of record and any unrepresented parties.

ENTER:

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January 25, 2013