In re Eryn R. Megna, Robert V. Megna, & Backstreet Bistro, LLC

• Decision Date: 21 February 2018
• Docket Number: Civil Action No. 17-cv-00308-RM-KMT
• Parties: ERYN R. MEGNA, ROBERT V. MEGNA, and BACKSTREET BISTRO, LLC, Plaintiffs, v. LITTLE SWITZERLAND OF AMERICA CANDY FACTORY, INC., KRISTINE M. ULLEMEYER, and HAYES ULLEMEYER, Defendants.
• Court: U.S. District Court — District of Colorado

ERYN R. MEGNA, ROBERT V. MEGNA,and BACKSTREET BISTRO, LLC, Plaintiffs, v. LITTLE SWITZERLAND OF AMERICA CANDY FACTORY, INC.,KRISTINE M. ULLEMEYER, and HAYES ULLEMEYER, Defendants.

Civil Action No. 17-cv-00308-RM-KMT

UNITED STATES DISTRICT COURT FOR THE DISTRICT OF COLORADO

February 21, 2018

RECOMMENDATION OF UNITED STATES MAGISTRATE JUDGE

Magistrate Judge Kathleen M. Tafoya

This case comes before the court on Defendants' "Motion to Dismiss Pursuant to Fed .R. Civ. P. 12(b)(1) and (6)." (Doc. No. 26). Defendants incorporate by reference arguments made in an earlier motion. (Doc. No. 15 [Mot.]).¹ Plaintiffs filed their response on June 26, 2017 (Doc. No. 28 [Resp.]), and Defendants filed their reply on July 11, 2017 (Doc. No. 29 [Reply]).

INTRODUCTION

Plaintiffs assert claims pursuant to 42 U.S.C.§§ 1982 and 1985(3). (See First Amend. Compl. ¶1.) The case arises from the use of a property vis-à-vis restrictive covenants. Plaintiffs allege that "because of Defendants' coordinated conduct, Plaintiffs have been discriminatorily prevented from using their property on an equal basis with other current and former owners/tenants of the Complex." Id. at 13. Plaintiff seeks monetary, declaratory, and injunctive relief. (Id. at 88-161.)

STANDARD OF REVIEW

A. Lack of Subject Matter Jurisdiction

Federal Rule of Civil Procedure Rule 12(b)(1) empowers a court to dismiss a complaint for lack of subject matter jurisdiction. Fed. R. Civ. P. 12(b)(1). Dismissal under Rule 12(b)(1) is not a judgment on the merits of a plaintiff's case; rather, it calls for a determination that the court lacks authority to adjudicate the matter—attacking the existence of jurisdiction not the allegations of the complaint. See Castaneda v. INS, 23 F.3d 1576, 1580 (10th Cir. 1994) (recognizing federal courts are courts of limited jurisdiction and may only exercise jurisdiction when specifically authorized to do so). The burden of establishing subject matter jurisdiction is on the party asserting jurisdiction. Basso v. Utah Power & Light Co., 495 F.2d 906, 909 (10th Cir. 1974). A court lacking jurisdiction "must dismiss the cause at any stage of the proceedings in which it becomes apparent that jurisdiction is lacking." See Basso, 495 F.2d at 909. The dismissal is without prejudice. Brereton v. Bountiful City Corp., 434 F.3d 1213, 1218 (10th Cir. 2006); see also Frederiksen v. City of Lockport, 384 F.3d 437, 438 (7th Cir. 2004).

A Rule 12(b)(1) motion to dismiss "must be determined from the allegations of fact in the complaint, without regard to mere conclusionary allegations of jurisdiction." Groundhog v. Keeler, 442 F.2d 674, 677 (10th Cir. 1971). When considering a Rule 12(b)(1) motion, however, the Court may consider matters outside the pleadings without transforming the motion into one for summary judgment. Holt v. United States, 46 F.3d 1000, 1003 (10th Cir. 1995). Where a party challenges the facts upon which subject matter jurisdiction depends, a district court may not presume the truthfulness of the complaint's "factual allegations . . . [and] has wide discretion to allow affidavits, other documents, and [may even hold] a limited evidentiary hearing to resolve disputed jurisdictional facts under Rule 12(b)(1)." Id.

B. Failure to State a Claim Upon Which Relief Can Be Granted

Federal Rule of Civil Procedure 12(b)(6) provides that a defendant may move to dismiss a claim for "failure to state a claim upon which relief can be granted." Fed. R. Civ. P. 12(b)(6) (2007). "A court reviewing the sufficiency of a complaint presumes all of plaintiff's factual allegations are true and construes them in the light most favorable to the plaintiff." Hall v. Bellmon, 935 F.2d 1106, 1198 (10th Cir. 1991). "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.'" Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (citing Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 570 (2007)). Plausibility, in the context of a motion to dismiss, means that the plaintiff pleaded facts which allow "the court to draw the reasonable inference that the defendant is liable for the misconduct alleged." Id. A complaint warrants dismissal if it fails "in toto to render [plaintiff's] entitlement to relief plausible." Twombly, 550 U.S. at 569 n.14.

Notwithstanding this, the court need not accept conclusory allegations without supporting factual averments. Southern Disposal, Inc., v. Texas Waste, 161 F.3d 1259, 1262 (10th Cir. 1998). "[T]he tenet that a court must accept as true all of the allegations contained in a complaint is inapplicable to legal conclusions. Threadbare recitals of the elements of a cause of action, supported by mere conclusory statements, do not suffice." Iqbal, 556 U.S at 678. Moreover, "[a] pleading that offers 'labels and conclusions' or 'a formulaic recitation of the elements of a cause of action will not do.' Nor does the complaint suffice if it tenders 'naked assertion[s]' devoid of 'further factual enhancement.'" Id. (citation omitted). "Where a complaint pleads facts that are 'merely consistent with' a defendant's liability, it 'stops short of the line between possibility and plausibility of 'entitlement to relief.' " Id. (citation omitted).

ANALYSIS

As an initial matter, and because Defendants pursue dismissal under Rule 12(b)(1) and Rule 12(b)(6), the Court must first determine the appropriate vehicle for disposition. Defendants argue that Rule 12(b)(1) is appropriate. The Court disagrees. See Wheeler v. Hurdman, 825 F.2d 257, 259 (10th Cir. 1987) (If "the jurisdictional question is intertwined with the merits of the case, the issue should be resolved under 12(b)(6).")

Here, Defendants' arguments under Rule 12(b)(1) and Rule 12(b)(6) are "virtually identical"—highlighting the entanglement between the jurisdictional question with the merits of the case. Resp. at 5. Because of such entanglement, and in light of the Hurdman and Fowler decisions, Rule 12(b)(6) provides the proper vehicle for disposition. See Fowler v. United States, 647 F.3d 1232, 1237 (10th Cir. 2011) (explaining that "a great deal turns on [whether thejurisdictional question is intertwined with the merits of the case] because Rule 12(b)(6) or Rule 56 would provide more procedural safeguards to the plaintiff than does Rule 12(b)(1)").

In holding that Rule 12(b)(6) is controlling, the Court is presented with a further threshold issue—i.e., how to treat the multiple documents (no less than 11) filed by Defendants in support of their Rule 12(b)(6) Motion to Dismiss. (Doc. No. 13, Exhibits A-J.)

At the onset, the Court is minded to disregard the exhibits given the procedural safeguards that underscore Rule 12(b)(6) disposition. The Federal Court Rules of Civil Procedure provide that if "matters outside the pleading are presented to and not excluded by the court, the motion shall be treated as one for summary judgment and disposed of as provided in Rule 56, and all parties shall be given reasonable opportunity to present all material made pertinent to such a motion by Rule 56." Fed. R. Civ. P. 12(d); Alvarado v. KOB-TV, L.L.C, 493 F.3d 1210, 1215 (10th Cir. 2007). Notwithstanding the usual rule, "[a] district court may consider documents referred to in the complaint [yet separate to the complaint] if the documents are central to the plaintiff's claim and the parties do not dispute the documents' authenticity." Jacobsen v. Deseret Book Co., 287 F.3d 936, 941 (10th Cir.2002) (emphasis added); Alvarado, 493 F.3d at 1215.

These principles make two things clear: (1) consideration of documents outside the pleadings is discretionary, and (2) to consider such documents is the exception to Rule 12(b)(6). In fact, a too liberal application of the exception to allow extrinsic materials could swallow the rule mandated by Fed. R. Civ. P. 12(d). In the abstract, this makes sense since disposition at the summary judgment stage allows further factual development through discovery—therefore, providing a plaintiff with ample opportunity to rely on such discovery before the plaintiff'sSeventh Amendment right to trial by jury is trounced through early dismissal. See U.S. Const. amend. VII.

Here, the extrinsic documents proffered by Defendants are more apt to Rule 56(a) disposition—not a motion to dismiss under Rule 12(b)(6). Putting aside the length (and number) of the extrinsic documents, the Court is minded that Defendants' proffered materials may require interpretation beyond the four corners of each document (some of which are contracts). See Lake Durango Water Co., Inc. v. Pub. Utils. Comm'n, 67 P.3d 12, 20 (Colo. 2003) (addressing whether contracts can be considered as questions of law and when extrinsic evidence is required when ambiguity arises); see also Dorman v. Petrol Aspen, Inc., 914 P.2d 909, 912 (Colo. 1996).

For example, what do the terms "unsightly object or nuisance" mean? Likewise, what constitutes "peaceful enjoyment?" (Doc. No. 14-3, Exhibit C, Declaration Of Grants, Covenants, Conditions And Restrictions Establishing A Plan For Condominium Ownership of B & B Condominium Complex.) The parties haven't briefed these terms. Facially, they present interpretive ambiguities requiring further extrinsic evidence beyond what is before the Court. It is this concern, coupled with the "powerful presumption" against rejecting pleadings for failure to state a claim that counsels against reliance on the extrinsic documents at this juncture. Maez v. Mountain States Tel. & Tel., 54 F.3d 1488, 1496 (10th Cir. 2005).

Still, even if Defendants' extrinsic documents were apt for consideration, it is not entirely clear how the Court's review of the extrinsic documents, at this stage, furthers Defendants' position. While the Court can see that the extrinsic documents are relevant to the claims, the claims are not just grounded in pure contract or property theories; rather, the claims here transcend into constitutional...