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State Capital Title & Abstract Company v. Pappas Business Services

January 13, 2009


The opinion of the court was delivered by: Wolfson, United States District Judge


Presently before the Court is a motion by Defendants Pappas Business Services, LLC ("Pappas Business"), Gary J. Pappas, and Mary E. Pappas (collectively "Defendants") to dismiss Counts Two, Four, Six, and Seven of Plaintiff State Capital Title & Abstract Company's ("Plaintiff") Amended Complaint.*fn1 Plaintiff alleges (1) breach of contract, (2) breach of the duty of loyalty, (3) breach of the covenant of good faith and fair dealing, (4) common law fraud, and (5) violation of the New Jersey Consumer Fraud Act. Plaintiff also asks this Court to pierce the corporate veil of Pappas Business Services, LLC, and hold Mary and Gary Pappas individually liable for the alleged losses suffered by Plaintiff.In addition, Plaintiff asks this Court for leave to file an Amended Complaint. For the reasons that follow, Defendants' Motion is granted and Counts Two, Four, Six, and Seven are dismissed.In addition, this Court grants Plaintiff leave to file an Amended Complaint, consistent with this Opinion.


Since Defendants moves to dismiss Plaintiff's Complaint pursuant to Fed. R. Civ. P. 12(b)(6), all facts alleged in the complaint are assumed to be true.

Plaintiff is a corporation which provides New Jersey-certified UCC and corporate searches, assists in document filing, certificates of regularity, and provides search abstracts to attorneys, lenders and title agencies. Pl.'s Compl. ¶1. Pappas Business is a consulting business currently located in North Carolina that up until recently maintained its principle place of business and limited liability status in New Jersey. Id. ¶2. In addition to consulting, Pappas Business serves as a contract negotiator and technology adviser for various corporate clients. Id. Gary Pappas is the managing member of Pappas Business and Mary Pappas serves as an employee and member of the firm as well. Id. ¶ 3.

On December 17, 2003, Plaintiff entered into an agreement with Pappas Business ("the Agreement") whereby it would provide consulting services with respect to a new service Plaintiff was developing, the judgment search data warehouse project ("JSDW"). Id. ¶5. During the negotiations, the principals of Pappas Business represented to Plaintiffs that they would exercise an undivided duty of loyalty to State Capital. JSDW is described vaguely by Plaintiff as "a program which would dramatically increase [Plaintiff's] ability to provide services to its clients, and moreover, to seek additional clients" and its development and launch came "at a great cost. . .due to its complexity." Id. ¶8. As a result, Plaintiff trusted Defendants and provided them with great latitude to perform their contractual obligations. Pursuant to the Agreement, Pappas agreed to provide weekly project management review of all meetings at all required levels internally and externally, to attend weekly status meetings on Plaintiff's behalf, and review and evaluate all technology proposals and contracts. Id. ¶5. Gary and Mary Pappas were responsible for the consulting services provided by Pappas Business under the terms of the Agreement. Id. One of Defendants' main responsibilities under the Agreement was to engage and undertake contract negotiations on Plaintiff's behalf. Plaintiff alleges that in fact, "[Gary] Pappas advised all vendors that he was the lead negotiator for State Capital." Id. ¶7.

Sometime in March 2004, Plaintiff introduced Defendants to Contemporary Software Concepts, Inc. ("CSC"), a potential vendor willing to assume the remaining portion of the JSDW project. Id. ¶9. At no time before March 2004 did Defendants have a prior business relationship with CSC. Id. Throughout the CSC negotiations, Gary Pappas represented to Plaintiff that he had negotiated in good faith with CSC and had secured a contract at the "best possible price for State Capital." Id. ¶10. According to Plaintiff, Gary Pappas remained active in CSC's work with the JSDW project. Id. ¶11. Upon completion of JSDW, Plaintiff terminated its relationship with Defendants. Id. ¶13.

It was only after JSDW was completed and the business relationship between Plaintiff and Defendants terminated that Plaintiff learned that Defendants, through Gary Pappas, had entered into an undisclosed agreement with CSC on October 28, 2004. Id. ¶14. The agreement stipulated that Defendants were to receive a 10% commission on any amounts received by CSC from Plaintiff for work performed by CSC on JSDW. Id. ¶15. Additionally, the agreement provided that CSC would remit $25,000 to Defendants upon execution of the agreement. Id. Before the agreement was executed, Plaintiffs allege that Gary Pappas informed CSC "that if they did not enter into this agreement, that [Gary Pappas] would find another vendor who would and that he would throw them off of the project." Id. ¶14. As a result of this alleged agreement, Plaintiff maintains that Defendants were performing their contractual duties under a clear conflict of interest, resulting in damages to Plaintiff. Essentially, Plaintiff characterizes the October 28th agreement as a "kickback" arrangement between Defendants and CSC, that hindered Defendants' ability to negotiate and perform their contractual duties in good faith. In December 2005, Christopher Eler, a State Capital principal, contacted Gary Pappas to discuss his concerns that Defendants may have secretly negotiated a side agreement with CSC. Id. ¶12. Plaintiff contends that Gary Pappas falsely represented to Eler that no agreement existed between Defendants and CSC. Id. As a result of this alleged misrepresentation, Plaintiff maintains it continued to do business with Defendants for an additional two years, presumably through 2007. Id.

Plaintiff filed this action in the Superior Court of New Jersey, Mercer County Vicinage, on June 6, 2008. Pursuant to 28 U.S.C. § 1446, Defendants removed this action to United States District Court for the District Court of New Jersey. In their Notice of Removal, Defendants contend removal is proper because at the time Plaintiff filed its Complaint, both Gary and Mary Pappas were domiciled in North Carolina and Pappas Business was incorporated as a North Carolina limited liability company. On July 25, 2008, Defendants filed this Motion to Dismiss Counts Two, Four, Five, and Seven of Plaintiff's Complaint. Plaintiff filed a Motion to Amend its Complaint on December 11, 2008. In its Motion to Amend, Plaintiff included a proposed amended complaint. In their opposition, Defendants asserted that Plaintiff's proposed amended complaint still failed to adequately allege a fraud in the inducement claim. Subsequently, Plaintiff filed a second proposed amended complaint on December 29, 2008. For the reasons that follow, Defendants' Motion to Dismiss Counts Two, Four, Six, and Seven of Plaintiff's Amended Complaint is granted. In addition, the Court grants Plaintiff leave to amend its Complaint.


A. Standard of Review

When reviewing a motion to dismiss on the pleadings, courts "accept all factual allegations as true, construe the complaint in the light most favorable to the plaintiff, and determine whether, under any reasonable reading of the complaint, the plaintiff may be entitled to relief." Phillips v. County of Allegheny, 515 F.3d 224, 233 (3d Cir. 2008) (citation and quotations omitted). Recently, in Bell Atlantic Corporation v. Twombly, 127 S.Ct. 1955 (2007), the Supreme Court clarified the 12(b)(6) standard. Specifically, the Court "retired" the language contained in Conley v. Gibson, 355 U.S. 41, 45-46 (1957), that "a complaint should not be dismissed for failure to state a claim unless it appears beyond doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief." Id. at 1968 (quoting Conley, 355 U.S. at 45-46).

Instead, the factual allegations set forth in a complaint "must be enough to raise a right to relief above the speculative level." Id. at 1965. As the Third Circuit has stated, "[t]he Supreme Court's Twombly formulation of the pleading standard can be summed up thus: 'stating . . . a claim requires a complaint with enough factual matter (taken as true) to suggest' the required element. This 'does not impose a probability requirement at the pleading stage,' but instead 'simply calls for enough facts to raise a reasonable ...

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