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Three Keys, Ltd. v. SR Utility Holding Co.

December 8, 2006

THREE KEYS, LTD., PLAINTIFF,
v.
SR UTILITY HOLDING CO., ET AL., DEFENDANTS.



The opinion of the court was delivered by: Simandle, District Judge

OPINION

This matter comes before the Court on the motion of Defendants -- SR Utility Holding Company, the Estate of Samuel Rappaport, Wil Rappaport, Tracy Rappaport Scott, Mellon Bank, Rita Rappaport, and Carol Codek -- to dismiss this action pursuant to Fed. R. Civ. P. 12(b)(1). Defendants claim that this Court lacks subject matter jurisdiction to hear this case under the probate exception to federal jurisdiction and the Rooker-Feldman doctrine. See Rooker v. Fidelity Trust Co., 263 U.S. 413 (1923) and District of Columbia Court of Appeals v. Feldman, 460 U.S. 462 (1983). Alternatively, Defendants move to dismiss this action, presumably pursuant to Fed. R. Civ. P. 12(b)(6), on the grounds that collateral estoppel and res judicata preclude the relief Plaintiff is seeking.

I. BACKGROUND

Plaintiff characterizes this case as an action by a minority shareholder to remedy shareholder oppression, pursuant to its ownership of shares of stock in Defendant SR Utility Holding Company. Defendants aver that this action is the attempt by the former disgraced executor of Samuel Rappaport's Estate, Richard Basciano, to retain his ill-gotten gains from the Estate in a forum that he hopes will be more amenable to his claims than the Pennsylvania courts have been.

According to the Complaint, Plaintiff Three Keys is a Maryland corporation with its principal place of business in New York and owns a 24% minority interest in SR Utility. (Compl. ¶ 1.) Defendant SR Utility is a New Jersey corporation with its principal place of business in Pennsylvania. (Compl. ¶ 2.) SR Utility owns the Atlantic City Sewerage Company, a New Jersey corporation. (Id.) Defendants Wil Rappaport, Tracy Rappaport Scott, and Mellon Bank are the administrators of the Estate of Samuel Rappaport. (Compl. ¶ 3.) Wil Rappaport is a Pennsylvania resident and owns 12% of the SR Utility shares. He is also a beneficiary of the Estate. (Id.) Defendant Tracy Rappaport Scott is also a resident of Pennsylvania, owns 12% of the SR Utility shares, and is a beneficiary of the Estate. (Compl. ¶ 5.) Defendant Mellon Bank is a Pennsylvania Corporation with its principal place of business in Pennsylvania. (Compl. ¶ 6.) Defendant Rita Rappaport is a resident of Pennsylvania, a beneficiary of the Estate, and the mother of Tracy and Wil. (Compl. ¶ 7.) Defendant Carl Cordek is a resident of Pennsylvania, owns a 1% interest in SR Utility, and is Director and Chairman of the Board of SR Utility. (Compl. ¶ 8.) Cordek also serves as the controller of Estate's management company, according to the Complaint. (Id.)

Plaintiff claims that Defendants are unlawfully depriving him of more than $900,000 in dividends by placing that money in escrow. (Compl. ¶ 39.) Thus, Plaintiff claims the amount in controversy exceeds $75,000, the parties are completely diverse, and that this Court, therefore, has jurisdiction over the action pursuant to 28 U.S.C. § 1332. (Compl. ¶ 9.)

II. MOTION TO DISMISS FOR LACK OF JURISDICTION

A. 12(b)(1) Standard

When deciding a motion to dismiss for lack of subject matter jurisdiction, the Court may not assume the facts pled in the complaint are true; rather the Court must look into the matter on its own and determine whether it has jurisdiction.

Because at issue in a factual 12(b)(1) motion is the trial court's jurisdiction -- its very power to hear the case -- there is substantial authority that the trial court is free to weigh the evidence and satisfy itself as to the existence of its power to hear the case. In short, no presumptive truthfulness attaches to plaintiff's allegations, and the existence of disputed material facts will not preclude the trial court from evaluating for itself the merits of jurisdictional claims. Moreover, the plaintiff will have the burden of proof that jurisdiction does in fact exist.

Mortensen v. First Federal Sav. and Loan Ass'n, 549 F.2d 884, 891 (3d Cir. 1977). Thus, for purposes of this motion to dismiss for lack of subject matter jurisdiction, the Court must determine what facts are supported by the record. The Court has

more latitude as to modes of proof in the disposition of issues of jurisdictional fact[, see] Tanzymore v. Bethlehem Steel Corp., 457 F.2d 1320 (3d Cir. 1972); Nelson v. Keefer, 451 F.2d 289 (3d Cir. 1971)[, b]ut ... the record must clearly establish that after jurisdiction was challenged the plaintiff had an opportunity to present facts by affidavit or by deposition, or in an evidentiary hearing, in support of his jurisdictional contention[, e.] g., Groh v. Brooks, 421 F.2d 589, 594 (3d Cir. 1970); Shahmoon Industries, Inc. v. Imperato, 338 F.2d 449 (3d Cir. 1964).

American Federation of Musicians v. Bonatz, 475 F.2d 433, 437 (3d Cir. 1973).

The parties have presented the Court with extensive briefing on this issue, including Plaintiff's Opposition and Sur-Reply.

Plaintiff has also supplied the Court with the Stock Purchase Agreement, attached to the Complaint (Pl. Compl. Ex. A) and Defendants have attached ten exhibits to their Motion to Dismiss. Plaintiff has not requested a hearing but has presented the Court with additional materials in aid of its arguments for jurisdiction. (Pl. Exs. A-F.) In accord with Bonatz, the Court will rely on the record the parties have created in determining the jurisdictional issue.

B. The Probate Exception

The probate exception to federal court jurisdiction is a judicially-created doctrine that restricts the power of the federal courts to hear probate cases. This doctrine has been premised on the reasoning that

the Judiciary Act of 1789 and its successors granted the federal courts equitable powers coextensive with those held by the English Chancery Court in 1789. See Judiciary Act of 1789, ch. 20, ยง 11, 1 Stat. 78; Markham, 326 U.S. at 494, 66 S.Ct. 296; Canal-Louisiana, 215 U.S. at 43, 30 S.Ct. 10. Because probate matters in late eighteenth century England were assigned to the ecclesiastical court and not ...


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