Boyer v. Clearfield Cnty. Indus. Dev. Auth.

BARI BOYER, MARC KATZEN andMARSHALL KATZEN, Plaintiffs, v. CLEARFIELD COUNTY INDUSTRIAL DEVELOPMENT AUTHORITY,FRANK A. VILLELLA, C WAREHOUSE LLC, JOSEPH A. VARACALLO,DEVELOPAC, INC., M &T BANK andWILMINGTON TRUST, N.A., Defendants.

Civil No. 3:19-152

UNITED STATES DISTRICT COURT FOR THE WESTERN DISTRICT OF PENNSYLVANIA

June 11, 2021

Judge Stephanie L. Haines

OPINION AND ORDER OF COURT

This is an action involving claims related to the issuance of industrial development bonds by Defendant Clearfield County Industrial Development Authority ("IDA") in 1986 to finance the development of 75,000 square feet of warehouse space ("Project Facility") on property owned by Defendant Frank A. Villella in Sandy Township, Clearfield County. The estimated cost of the project was $1,350,000 with $1,100,000 to be financed by the IDA. The transaction provided for the appointment of a paying agent to pay principal, interest and contingent interest on the bonds to Bari Boyer, Marc Katzen and Marshall Katzen ("Plaintiffs" or "Bondholders"). Defendant M&T Bank has succeeded Deposit Bank as the paying agent. Plaintiffs allege that Defendant Wilmington Trust, N.A., acts as M&T Bank's agent in connection with the investment of funds in trust for the direct payment of interest to the Bondholders.

Presently before the Court are four separate motions to dismiss Plaintiffs' Second Amended Complaint ("SAC") [Doc. 51] pursuant to Federal Rule of Civil Procedure 12(b)(6) filed by Defendants M&T Bank and Wilmington Trust [Doc. 53]; Defendants C Warehouse LLC, Joseph A. Varacallo and Developac, Inc. [Doc. 56]; Defendant Frank Villella [Doc. 58]; and, Defendant Clearfield County IDA [Doc. 61]. Plaintiffs have filed an omnibus response in opposition to all motions to dismiss [Doc. 68]. Defendants M&T Bank and Wilmington Trust filed a reply to Plaintiffs' omnibus response to their motion to dismiss [Doc. 71], to which Plaintiffs filed a sur-reply [Doc. 74].

I. Introduction

A. Background

The bond transaction at issue includes: a Debt Resolution [Doc. 51-1] passed by the IDA which authorized the issuance of Bonds to finance the warehouse project; the issuance of Bonds [Docs. 51-2 to 51-6] to the Bondholders, payable from revenue derived from the Project Facility, and which are structured to include the payment of additional contingent rental interest and additional contingent appreciation interest;¹ and, a Mortgage Loan Agreement [Docs. 51-7 and 51-8] entered into by the IDA, Frank Villella and Deposit Bank (predecessor to M&T Bank as paying agent), which memorializes Frank Villella's payment obligations, as well as the responsibilities of M&T Bank as paying agent to enforce those obligations for the benefit of the Bondholders.

The Bondholders allege that Frank Villella, in collaboration with Joseph Varacallo and Developac, has engaged in a scheme to deprive the Bondholders of additional contingent rental interest by fraudulently concealing and diverting rental revenue to Defendant C Warehouse as a straw party, and by failing to accurately report the revenue generated by the Project Facility.

Pursuant to the alleged scheme, Villella and C Warehouse entered a lease with option to purchase for the Project Facility in 2004 [Doc. 51-13]. The 2004 Lease was executed by Varacallo as President of C Warehouse, and identified Developac as Frank Villella's broker for purposes of negotiating the lease. The annual rent for the Project Facility under the 2004 Lease is $112,500, which is exactly equal to the threshold amount beyond which the Bondholders' right to additional contingent rental interest would be triggered, and with no provision in that lease for any rental increase at any time. Plaintiffs allege that the current rental value for warehouse space in the area is double or triple the amount of rent that C Warehouse is paying under the 2004 Lease, and that the lease was designed to enable the unlawful diversion of rent and revenue to C Warehouse.

Plaintiffs further assert that C Warehouse subsequently entered a sub-lease for the Project Facility with Domtar Paper Company ("Domtar Lease"). Under the Domtar Lease, C Warehouse receives fair market rent for the Project Facility from Domtar far in excess of $112,500, which then is diverted to Villella or for his benefit. Plaintiffs allege that Villella and Varacallo structured the 2004 Lease, using C Warehouse as a strawman, so as to obscure the actual revenue generated by the Project Facility, and to deprive the Bondholders of the additional contingent rental interest to which they are entitled under the Domtar Lease. Plaintiffs assert that Villella refuses to produce the Domtar Lease or any other information related to revenue generated by the Project Facility beyond that generated under the 2004 Lease with C Warehouse.

Plaintiffs also allege that Villella is suppressing the amount of additional contingent appreciation interest due to the Bondholders by refusing to provide information by which M&T Bank's appraiser can make an accurate appraisal of the Project Facility. Villella's selected appraiser has prepared an appraisal identifying the fair market value of the facility at $1,050,000, which is below the threshold that would trigger the Bondholders' right to additional contingent appreciation interest. Plaintiffs allege that Villella's appraisal contains errors and was prepared pursuant to restrictions placed by Villella and Varacallo on what the appraiser could consider, in order to suppress the fair market value of the Project Facility, which Plaintiffs believe far exceeds the threshold for additional contingent appreciation interest, at the expense of the Bondholders.

B. Procedural History

Plaintiffs filed their initial complaint on September 24, 2019 [Doc. 1], and a First Amended Complaint on November 13, 2019 [Doc. 28]. The currently operative SAC was filed on January 10, 2020 [Doc. 51]. The SAC advances the following claims:

¦ Breach of Contract (Bondholders v. Villella) [Count I]

¦ Tortious Interference with Contract (Bondholders v. Villella, C Warehouse, Developac and Varacallo) [Count II]

¦ Unjust Enrichment (Bondholders v. Villella, C Warehouse, Developac and Varacallo) [Count III]

¦ Conspiracy (Bondholders v. Villella and Varacallo) [Count IV]

¦ Breach of Contract (Bondholders v. IDA) [Count V]

¦ Breach of Contract (Bondholders v. IDA and M&T Bank) [Count VI]

¦ Breach of Fiduciary Duty (Bondholders v. M&T Bank) [Count VII]

The SAC also contains a section entitled "Injunctive Relief Allegations" [Doc. 51 ¶¶ 125-133], as well as a Prayer for Relief [Doc. 51 pp. 23-24].

On June 10, 2020, Plaintiffs filed a related complaint in a separate action naming Joyce Villella as the sole defendant [Doc. 1 at Civil Docket Case No. 3:20cv111].² An answer to that complaint was filed by Joyce Villella on July 8, 2020 [Doc. 5 at No. 3:20cv111]. On July 20, 2020, the Court granted the parties' joint motion to consolidate the two cases [Doc. 77 at No. 3:19cv152; Doc. 7 at No. 3:20cv111].³

The related complaint alleges that Joyce Villella, who was Frank Villella's wife and a member of C Warehouse, engaged in a conspiracy to deprive the Bondholders of additional contingent rental interest and additional contingent appreciation interest to which they are entitled under the Bonds issued by the IDA in 1986. The complaint against Joyce Villella advances claims for Tortious Interference with Contract [Count I]; Unjust Enrichment [Count II]; and, Conspiracy [Count III], along with equitable relief allegations and a prayer for relief [Doc. 1 at Civil Docket Case No. 3:20cv111].

II. Standard

To survive a motion to dismiss, a pleading must set forth "only enough facts to state a claim to relief that is plausible on its face." Bell Atl. v. Twombly, 550 U.S. 544, 570 (2007). "A claim has facial plausibility when the plaintiff pleads factual content that allows 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).

Under the pleading regime established by Twombly and Iqbal, a court reviewing the sufficiency of a complaint must take three steps. First, it must "tak[e] note of the elements [the] plaintiff must plead to state a claim." Iqbal, 556 U.S. at 675. Second, it should identify allegations that, "because they are no more than conclusions, are not entitled to the assumption of truth." Id. at 679. In this regard, legal conclusions must be supported by factual allegations. Id.; see also Burtch v. Milberg Factors, Inc., 662 F.3d 212, 224 (3d Cir. 2011) ("Mere restatements of the elements of a claim are not entitled to the assumption of truth"). Finally, "[w]hen there are well-pleaded factual allegations, [the] court should assume their veracity and then determine whether they plausibly give rise to an entitlement to relief." Iqbal, 556 U.S. at 679.

At the final step, the court is to assume all well-pled factual allegations to be true, construe those allegations in the light most favorable to the pleading party, and draw all reasonable inferences from them in favor of the pleading party. Connelly v. Lane Constr. Corp., 809 F.3d 780, 791 (3d Cir. 2016).

III. Analysis

A. Frank Villella [Doc. 58]

The SAC advances four claims against Frank Villella: breach of contract (Count I); tortious interference with contract (Count II); unjust enrichment (Count III); and, conspiracy (Count IV). Villella has moved to dismiss Counts II, III and IV, as well as the prayer for punitive damages relief and the injunctive relief allegations set forth in the SAC.

1. Count II: Tortious Interference with Contract

Count II of the SAC alleges that Villella and Varacallo, as an agent of C Warehouse and Developac, intentionally interfered with the contractual obligations of the IDA and M&T Bank under the Debt Resolution and the Bonds to pay to the Bondholders all amounts to which they are entitled, including additional contingent rental interest and additional contingent...