Smith v. Ostrander

1

JEFFREY M. SMITH and SARAH A. SMITH, Plaintiffs, v. BRIAN OSTRANDER and NORMAN JONES, Defendants.

No. 3:21-cv-0010

United States District Court, D. Virgin Islands, Division of St. Thomas and St. John

March 28, 2023

David J. Shlansky, Esq., SHLANSKY LAW GROUP, LLP For Plaintiffs Jeffrey and Sarah Smith

Christopher Allen Kroblin, Esq., KELLERHALS FERGUSON KROBLIN PLLC, ST. THOMAS, U.S. VIRGIN ISLANDS For Plaintiffs Jeffrey and Sarah Smith

David J. Cattie, Esq., THE CATTIE LAW FIRM, P.C. For Defendant Brian Ostrander

Charlotte K. Perrell, Esq., DUDLEY NEWMAN FEUERZEIG LLP For Defendant Norman Jones

MEMORANDUM OPINION

ROBERT A. MOLLOY, Chief Judge.

BEFORE THE COURT is Defendant Norman Jones' (“Jones”) Motion to Dismiss Plaintiffs' Complaint or, in the Alternative, for a Stay of the Matter. (ECF No. 24.) For the reasons stated below, the Court will deny Jones' motion to dismiss.

I. FACTUAL BACKGROUND AND PROCEDURAL HISTORY

The Plaintiffs Jeffrey M. Smith and Sarah A. Smith (the “Smiths”) are the owners of a vacation villa in Botany Bay, St. Thomas, Virgin Islands.^[1] (ECF No. 1 at 3.) Defendant Norman Jones is an attorney. Id. Jones' codefendant, Brian Ostrander (“Ostrander”), is the President of Ostrander Insurance, LLC as well as the owner and managing member of Bayside Construction, LLC (“Bayside”). See id. Jones and Ostrander also jointly owned the company Cat 5 Solutions, LLC (“Cat 5 Solutions”), an entity that provided insurance services prior to its dissolution. Id.^[2]

During the month of September 2017, Hurricanes Irma and Maria passed through St. Thomas causing significant damage to the Smiths' vacation property. Id. Following the hurricanes, the Smiths retained Jones as their attorney to assist them in filing an insurance claim on the property. (ECF No. 1 at 3.) Jones then introduced the Smiths to Cat 5 Solutions and Ostrander to help the Smiths with the insurance claim process. Ostrander and Jones, operating as Cat 5 Solutions, subsequently prepared and submitted an insurance claim on the Smiths' behalf. Id. at 4. The Smiths' insurer agreed to pay $738,516.83 to cover the losses resulting from the hurricane damage. Id. The Smiths paid $43,978 of the proceeds to Cat 5 Solutions for procuring the settlement with the insurance company. See id.

According to the Smiths, following the settlement, Jones “highly recommended” that Bayside Construction-Ostrander's company-make the repairs to the vacation property. The Smiths allege that Jones erroneously claimed Bayside was licensed in the Virgin Islands and had completed “high-end construction work.” (ECF No. 1 at 5.) Moreover, the Smiths claim not only did Jones make misleading representations about Bayside's credentials, but Jones also dissuaded the Smiths from contracting with Mrs. Smith's brother to complete the repairs because, unlike Bayside, Mrs. Smith's brother lacked a local license as well as the knowledge and expertise to complete a high-end construction project in the Virgin Islands.

The Smiths allege that based on these representations, they ultimately contracted with Bayside to make the repairs and improvements on the property.^[3] Id. at 6.

A few months after Bayside started the project, a dispute arose because the Smiths were dissatisfied with the quality of Bayside's work and ultimately refused to pay for the work that Bayside had already completed. (ECF No. 1 at 12-14.) The dispute eventually resulted in Bayside filing a lawsuit against the Smiths. See Bayside Construction, LLC v. Smith, 3:19-cv-00029, (ECF No. 1.) The Complaint asserted that: (1) Bayside had the right to foreclose on a valid construction lien in the amount of $ 382,097.53; (2) the Smiths were in breach of contract by refusing to pay for the work Bayside completed; (3) and the Smiths were unjustly enriched by receiving the benefits of Bayside's labor without compensating the company for the services rendered. See id. The Smiths filed a counterclaim against Bayside asserting a breach of contract due to, what they said was, overpayment for the work performed. See id. at ECF No. 7. The Smiths and Bayside proceeded to arbitration to resolve their respective claims. See Bayside Construction, LLC v. Smith, 3:20-cv-00117, (ECF No. 1.)

On October 1, 2020, the arbitrator entered a final arbitration award. See id. The arbitrator found the Smiths had “breached the agreement by not allowing Bayside to continue its work after December 3, 2018[,] and later by declaring Bayside in default on March 5, 2019, without allowing [Bayside] time to cure the alleged default.” Id. at ECF No. 11 at 5. As a result, the arbitrator determined Bayside was entitled to $273,714.28.^[4] Id. However, the arbitrator noted that some of Bayside's work was “shoddy” and would need to be redone. Id. at 6. Consequently, he reduced the final arbitration award to $242,253.46. Id. On August 18, 2021, the Court entered a judgment confirming the arbitration award. See Id. at ECF No. 20.^[5]

In addition to the Smith-Bayside case, the Smiths also filed the instant suit against Jones and Ostrander in their individual capacities on January 22, 2021. (ECF No. 1.) According to the Smiths, Ostrander and Jones both breached their fiduciary duty to the plaintiffs by using information obtained for the purpose of filing the insurance claim to fraudulently induce the couple into engaging Bayside, a company the Smiths claim was not qualified to perform the work on their property and overcharged them for substandard repairs and improvements. Id. at 15-17. In light of these allegations, the Smiths currently assert three claims in the above captioned case. As to both Ostrander and Jones, they allege fraudulent inducement and breach of fiduciary duty. Id. As to Ostrander, the Smiths also allege “illegal conduct.” Id.

On July 12, 2021, Jones filed the instant motion to dismiss the Smiths' claims against him. (ECF No. 24.) Jones argues that the claims are precluded under either the theory of claim or issue preclusion. See id. at 2. Alternatively, Jones contends that the Complaint fails to state a claim because the Smiths do not assert any actual damages. Id.

The Smiths responded to Jones' motion to dismiss on July 26, 2021. (ECF No. 25.) The Smiths aver that Jones may not assert a claim preclusion defense because, inter alia, he was not a party or privy to the earlier proceedings between the Smiths and Bayside. See id. The Smiths also oppose dismissal under Jones' collateral estoppel theory because the issues in this case are not identical to the issues in the Smith-Bayside proceedings, and therefore, the issues in this case have not actually been litigated. See id. at 8. Lastly, the Smiths address Jones' claim that no actual damages exist by arguing that even if the arbitration award made them whole as to the contract, the plaintiffs still suffered additional damages beyond the contract such as attorney fees and additional costs to redo work on the vacation property. See id. at 4. Accordingly, the Smiths claim they have not been made whole, and therefore, may still assert a claim against Jones. See id.

II. LEGAL STANDARD

A complaint may be dismissed for “failure to state a claim upon which relief can be granted.” Fed.R.Civ.P. 12(b)(6). When reviewing a motion to dismiss brought pursuant to Federal Rule of Civil Procedure 12(b)(6), the Court construes the complaint “in the light most favorable to the plaintiff.” In re Ins. Brokerage Antitrust Litig., 618 F.3d 300, 314 (3d Cir. 2010). The Court must “accept as true all the factual allegations contained in the complaint” and draw all reasonable inferences in favor of the non-moving party. Foglia v. Renal Ventures Mgmt., LLC, 754 F.3d 153, 154 n. 1 (3d Cir. 2014). “In deciding a Rule 12(b)(6) motion, a court must consider only the complaint, exhibits attached to the complaint, matters of public record, as well as undisputedly authentic documents if the complainant's claims are based upon th[ose] documents.” Mayer v. Belichick, 605 F.3d 223, 230 (3d Cir. 2010).

Jones argues that the Smiths' claims are barred under a preclusion defense. Claim preclusion and issue preclusion are “affirmative defenses that may properly be raised in a Rule 12(b)(6) motion when their applicability is apparent on the face of the complaint.” Titan Med. Grp., LLC v. Virgin Islands Gov't Hosps. & Health Facilities Corp., No. CV 2018-0056, 2021 WL 6072580, at *2 (D.V.I. Dec. 23, 2021) (citing Rycoline Prods., Inc. v. C & W Unlimited, 109 F.3d 883, 886 (3d Cir. 1997)). If a preclusion defense is not “apparent on the face of the complaint,” a motion to dismiss must either be denied or must be converted into a motion for summary judgment to provide the parties “an opportunity to present relevant material.” Hoffman v. Nordic Nats., Inc., 837 F.3d 272, 280 (3d Cir. 2016) (claim preclusion); see also Kauffman v. Moss, 420 F.2d 1270, 1274 (3d Cir. 1970) (issue preclusion). Moreover, given that claim and issue preclusion both pose a risk of erroneously denying parties a chance for their claims to be heard on the merits, reasonable doubts about the application of these preclusion doctrines should be resolved against their use. See DVI Receivables XIV, LLC v. Nat'l Med. Imaging, LLC, 529 B.R. 607, 617 (E.D. Pa. 2015); see also Taylor v. Sturgell, 553 U.S. 880, 893 (2008) (“The application of claim and issue preclusion to nonparties runs up against the “deep-rooted historic tradition that everyone should have his own day in court.”) (citation omitted).

When reviewing the preclusive effects of a prior federal court action, federal courts apply federal common law principles.^[6] Therefore, because the prior federal court action relied on diversity jurisdiction, the territorial preclusion standards, as opposed to the federal...