Seven Springs Mountain Resort, Inc. v. Hess
| Decision Date | 04 April 2022 |
| Docket Number | Civil Action 3:21-cv-6 |
| Parties | SEVEN SPRINGS MOUNTAIN RESORT, INC. f/k/a SEVEN SPRINGS FARM, INC., on behalf of JEFFREY J. SIKIRICA, CHAPTER 7 TRUSTEE of DYNAMIC BUILDING CORPORATION, Plaintiff, v. JOHN M. HESS, TERRI HESS, DBC REAL ESTATE MANAGEMENT, LLC, and DBC CONSTRUCTION, LLC, Defendants. |
| Court | U.S. District Court — Western District of Pennsylvania |
Plaintiff Seven Springs Mountain Resort, Inc. f/k/a Seven Springs Farm Inc., on behalf of Jeffrey J. Sikirica, Chapter 7 Trustee of Dynamic Building Corporation ("Plaintiff) brings this action to enforce a state court judgment against Defendants John M. Hess, Terri Hess, DBC Real Estate Management, LLC ("DBC Real Estate") and DBC Construction, LLC ("DBC Construction") under Pennsylvania's veil piercing doctrines. Defendants all filed Motions to Dismiss Plaintiffs Amended Complaint for Failure to State a Claim (ECF Nos. 28, 30, 32, and 34). Defendant Terri Hess has also filed a Motion for Leave to File Instanter Dispositive Judicial Admissions by the Trustee and New Legal Authority in Support of Defendant Terri Hess's Motion to Dismiss Plaintiffs Amended Complaint (ECF No. 56) and a Motion for Leave to Submit Matters Outside the Pleadings Pursuant to FRCP Rule 12(d) (ECF No. 63). For the reasons stated below, the Court DENIES Defendants' Motions to Dismiss (ECF Nos. 28, 30, 32, and 34) and Defendant Terri Hess's Motions filed at ECF Nos. 56 and 63. However, the Court's denial of Defendants' Motions to Dismiss (ECF Nos. 28, 30, 32, and 34) is without prejudice to Defendants renewing their arguments at summary judgment and/or trial, as appropriate.
The following facts pleaded in Plaintiffs Amended Complaint (ECF No. 24) are accepted as true for the purpose of Defendants' Motions to Dismiss (ECF Nos. 28, 30, 32, and 34):
Plaintiff contracted with Dynamic Building Company ("DBC") to serve as a contractor and construction manager for a $77 million dollar townhome project known as Southwind at Lake Tahoe ("Southwind") located at Seven Springs' resort in Somerset County, Pennsylvania (ECF No. 24 at ¶ 21). Plaintiff alleges Defendants John M. Hess ("Hess") and Terri Hess ("Terri Hess") are spouses who were the shareholders of DBC and exercised control over DBC. Id. at ¶¶ 2-4.
Southwind was constructed between 2005 and 2009 in three consecutive phases totaling 154 units. Id. Plaintiff alleges that throughout the construction of Southwind, Hess regularly visited the jobsite to review the work. Id. at ¶ 22. After the various phases were completed, sold and occupied, Hess learned that the finished units had serious water infiltration problems. Id. at ¶ 23. Plaintiff attempted to address the water infiltration issues with Hess, as the president of DBC, including direct correspondence with Hess and multiple in-person meetings with Hess. Id. at ¶24. Plaintiff pleads Hess was aware of the magnitude and extent of water infiltration problems, understood there were problems with the Southwind units, and represented on numerous occasions that effective repairs would be made. Id. at ¶25. Plaintiff also claims Hess represented that the problems had been corrected by a "leak crew" he employed, but the crew did nothing more than apply caulk and Kilz paint to hide the water stains and did not fix the underlying problems. Id. at ¶¶27-28.
Plaintiff pleads that Hess was confronted with the continuous water infiltration problems but denied responsibility, made excuses for the water leaks, abandoned the project, and threatened to file for bankruptcy, apparently stating to the Seven Springs' CEO that "I will just close up my company, file for bankruptcy, and just walk away, and you guys can, you know, deal with it." Id. at ¶¶29-30. When DBC failed to make the necessary repairs, the Southwind residents sued Plaintiff in two class actions and a number of individual lawsuits. Id. at ¶31. The suits were resolved by Plaintiff making the repairs to the units, and Plaintiff obtained assignment agreements from over 100 Southwind unit owners for the owners' tort-based claims against DBC, including their Unfair Trade Practice and Consumer Protection Law ("UTPCPL") claims. Id. at ¶¶31-32.
Plaintiff then filed suit against DBC to recover money damages for the cost of repairs to the Southwind units ("Southwind Litigation"). In addition to the owners' claims, Plaintiff asserts it alleged legal theories of breach of contract, including breaches of express and implied warranties, professional negligence, and common law indemnity. Id. at ¶19. The parties agreed to arbitrate their claims, and on March 1, 2019, the arbitrators entered an award of $ 13, 901, 028.20 for Plaintiff and against DBC. Plaintiffs award against DBC was then confirmed by a final order from the Court of Common Pleas of Somerset County, Pennsylvania dated April 29, 2019 (ECF No. 24-4) ("state court judgment"). Plaintiff alleges the amount, with interest, is now $15, 570, 000.00 (ECF No. 24 at ¶¶ 19-20).
During the Southwind Litigation, Plaintiff pleads that Hess gave no indication of DBC's inability to undertake meaningful repairs or pay a final judgment. Id. at ¶ 34. Hess offered every indication that DBC was functioning normally, testifying in the Southwind Litigation that DBC was currently active on a construction project involving fifty (50) townhome units in the Foxmoor development. Id. at ¶ 35. Plaintiff also contends that it lacked any ability to inquire into DBC's financial condition during the time period of the repairs and Southwind Litigation. Id. at ¶ 34. Following entry of the state court judgment, DBC refused to satisfy that judgment. Id. at ¶ 37. When Plaintiff attempted discovery in aid of execution on the judgment, DBC objected to the discovery, and Hess filed the Chapter 7 Bankruptcy as to DBC. Id. at ¶ 38.
In support of its requests for veil piercing, Plaintiff pleads the Hesses drained money from DBC and caused DBC to no longer have the financial resources to make the repairs to the Southwind units. Id. at ¶26. Further, Hess continues to own and operate over seventy (70+) other entities using the nomenclature "DBC Group," including Defendants DBC Real Estate and DBC Construction. Id. at ¶45. Defendant DBC Real Estate has placed over $60 million in private equity in direct investments in multi-family properties with a portfolio value in excess of $300 million. Id. at ¶46. DBC Real Estate and DBC Construction are solely owned by Hess, operate from the same headquarters as DBC and the other DBC Group entities at 51 Pennwood Place, Suite 200, Warrendale, Pennsylvania, and share equipment, employees, and a computer server with these entities. Id. at ¶ 50. Plaintiff alleges documents produced by DBC reflect that the Hesses routinely moved funds - often hundreds of thousands of dollars - between their personal accounts, DBC accounts, DBC Real Estate Management accounts and the account of DBC Construction LLC. Id. at ¶ 51. Plaintiff also pleads the Hesses also comingled their personal affairs and finances with that of DBC, paid personal expenses with corporate assets, failed to maintain corporate formalities, ran DBC in an undercapitalized state, and strategically drained DBC of all assets of value. Id. at ¶¶ 40, 52-73. Plaintiff contends these facts demonstrate the Hesses controlled the business and financial affairs of DBC and engaged in a corporate shell game with the "DBC Group" entities, which includes DBC Real Estate and DBC Construction. Id. at ¶¶ 40, 44-51.
On November 23, 2020, United States Bankruptcy Judge Taddonio entered an order to authorize Plaintiff to file the instant matter on behalf of Bankruptcy Trustee Sikirica ("Bankruptcy Trustee") (ECF No. 24-2). The order also provides that any recovery in this action would belong to the bankruptcy estate and would be apportioned among and for the benefit of all qualified creditors. Id.
As to the relevant procedural history, Plaintiffs Amended Complaint (ECF No. 24) is the operative complaint in this matter. On May 3, 2021, Defendants filed their respective Motions to Dismiss Plaintiffs Complaint for Failure to State a Claim (ECF Nos. 28, 30, 32, and 34) and briefs in support (ECF Nos. 29, 31, 33, and 35). On May 25, 2021, Plaintiff filed its Omnibus Opposition to Motions to Dismiss of John M. Hess, Terri Hess, DBC Real Estate Management, LLC, and DBC Construction, LLC (ECF No. 39). On June 11, 2021, Defendants filed their respective Reply Briefs (ECF Nos. 43, 44, 45, and 46). Plaintiff then filed its Omnibus Sur-Reply in Further Opposition to Replies in Support of Motions to Dismiss of John M. Hess, Terri Hess, DBC Real Estate Management, LLC, and DBC Construction, LLC (ECF No. 49).
On August 19, 2021, Hess filed a Notice of Authority relating to the Pennsylvania Supreme Court's ruling in the case Mortimer v. McCool, 255 A.3d 261 (Pa. 2021) (ECF No 52). DBC Real Estate and DBC Construction also filed a Notice of Supplemental Legal Authority in Support of their Motions to Dismiss (ECF No. 53) on the same basis. On August 24, 2021, Terri Hess filed a Motion for Leave to File Instanter Dispositive Judicial Admissions and New Legal Authority in Support of Terri Hess's Motion to Dismiss the Amended Complaint (ECF No. 56). Plaintiff initially filed a Motion to Strike Defendants' Notices (ECF No. 54), but following a status conference on the issue (ECF No. 58), the Court denied the Motion to Strike (ECF No. 54) and provided Plaintiff leave to respond to Defendants' notices of authority. Plaintiff then filed its Omnibus Reply to Notices of Authority of Defendants John Hess, Terri Hess, DBC Real Estate Management, LLC and DBC Construction, LLC (ECF No. 60). On September 30, 2021,...
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