Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-ca3-14-01640/USCOURTS-ca3-14-01640-0/pdf.json

Nature of Suit Code: 423
Nature of Suit: Bankruptcy Withdrawal 28 USC 157
Cause of Action: 

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NOT PRECEDENTIAL

UNITED STATES COURT OF APPEALS

FOR THE THIRD CIRCUIT

____________

No. 14-1640

____________

In re: KEITH H. RESSLER,

 Debtor

CHRISTINE C. SHUBERT, as Chapter 7 Trustee 

for the Bankruptcy Estates of Keith Ressler 

and Kenneth L. Ressler and Karen Ressler,

 Appellant

v.

JACQUES H. GEISENBERGER, JR., PC; 

JACQUES H. GEISENBERGER, JR.; 

FRANCIS C. MUSSO, CPA, MPA, PC; 

FRANCIS C. MUSSO, CPA 

____________

On Appeal from the United States District Court 

for the Eastern District of Pennsylvania

(E.D. Pa. No. 2-11-cv-07762)

District Judge: Cynthia M. Rufe

____________

Submitted Pursuant to Third Circuit LAR 34.1(a)

December 9, 2014

Before: FUENTES, FISHER and KRAUSE, Circuit Judges.

(Filed: February 13, 2015)

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____________

OPINION*

____________

FISHER, Circuit Judge.

Acting as Chapter 7 trustee for the bankruptcy estates of Keith Ressler, Karen 

Ressler, and Kenneth Ressler (collectively the “Resslers”), Christine Shubert appeals the 

order of the U.S. District Court for the Eastern District of Pennsylvania dismissing her 

complaint for professional negligence, breach of contract, breach of fiduciary duty, and 

contribution under the Maryland Securities Act against Jacques H. Geisenberger, Jr., 

P.C.; attorney Jacques H. Geisenberger, Jr.; Francis C. Musso, CPA, MPA, P.C.; and 

accountant Francis C. Musso, CPA (collectively “Appellees”). We will affirm. 

I.

A.

We write principally for the parties, who are familiar with the factual context and 

legal history of the case. Therefore, we will set forth only those facts necessary to our 

analysis.

The Resslers formerly owned and served as directors and officers for Ressler 

Hardwoods & Flooring, Inc. (“RHF”), a flooring business incorporated in Pennsylvania. 

 

* This disposition is not an opinion of the full Court and pursuant to I.O.P. 5.7 

does not constitute binding precedent.

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To alleviate cash flow problems during a time of financial distress, the Resslers sought to 

sell a 51% ownership interest in RHF to Maryland investor James Little for $1.2 million. 

During negotiations in early 2007, the Resslers failed to provide Little the 

company’s monthly financial reports and delivered Little a memorandum misrepresenting 

the extent to which RHF suffered financially. In July 2007, the Resslers requested and 

Little advanced $400,000 towards toward the purchase of RHF’s shares contingent upon 

the successful negotiation of several agreements. To consummate the purchase, the 

Resslers engaged the legal, financial, and accounting services of Appellees—an 

individual attorney and his law firm (the “Geisenberger Defendants”) and an individual 

accountant and his accounting firm (the “Musso Defendants”). 

Negotiations between the Resslers and Little subsequently broke down, and Little 

demanded that the Resslers return the $400,000 advance with interest. Instead, in alleged 

reliance upon the Appellees’ direction, the Resslers issued Little shares in RHF in 

proportion to the funds advanced. The Resslers allege that Appellees did not advise them 

of their legal or financial obligations to Little with respect to the share issuance. 

B.

In January 2008, Little filed suit against the Resslers and RHF in the U.S. District 

Court for the District of Maryland, alleging securities fraud in violation of the Maryland 

Securities Act, Md. Code Ann., Corps. & Ass’ns § 11-101 et seq. Several months later, 

RHF filed for bankruptcy in the U.S. Bankruptcy Court for the Middle District of 

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Pennsylvania (the “MDPA Bankruptcy Court”), where Little’s case was then transferred. 

On March 19, 2010, the MDPA Bankruptcy Court entered a judgment for $400,000 plus 

interest against the Resslers and RHF, jointly and severally, for material 

misrepresentations and intentional omissions in connection with the share issuance. The 

Resslers did not oppose Little’s motion to deem the judgment non-dischargeable and it 

was granted by default judgment. 

In June 2010, the Resslers individually filed for Chapter 7 bankruptcy in the U.S. 

Bankruptcy Court for the Eastern District of Pennsylvania (“EDPA Bankruptcy Court”). 

Shubert initiated an adversary proceeding against the Appellees in the EDPA Bankruptcy 

Court by reference from the U.S. District Court for the Eastern District of Pennsylvania, 

asserting claims of professional negligence, breach of contract, breach of fiduciary duty, 

and contribution under the Maryland Securities Act. Shubert alleged that the actions and 

omissions of Appellees caused the Resslers to lose the value of their interest as 

shareholders and investors in RHF and sustain a $400,000 judgment in bankruptcy, 

among other damages. In September and October 2011, the Geisenberger and Musso 

Defendants moved to dismiss. The District Court withdrew the reference consistent with 

a joint stipulation and the adversary proceeding was transferred to the District Court. 

In connection with RHF’s bankruptcy proceeding, RHF’s trustee filed parallel 

claims against the Appellees. RHF’s trustee and the Appellees ultimately settled their 

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claims, and the MDPA Bankruptcy Court approved the settlement agreements, which 

contained a mutual release of all claims, in June 2012 and July 2013.

The Geisenberger Defendants thereafter supplemented their pending motion to 

dismiss with a copy of its approved settlement agreement with RHF’s trustee. The 

District Court granted the motion, finding that the Resslers’ injuries were derivative of 

RHF’s injuries and barred by the settlement agreement and release. On March 12, 2014, 

the District Court denied reconsideration of its order and simultaneously granted the 

Musso Defendants’ motion to dismiss (as supplemented with its settlement agreement) 

for the same reasons. This timely appeal followed. 

II.

The District Court had jurisdiction under 28 U.S.C. § 157 and 28 U.S.C. § 1334. 

We exercise jurisdiction over the District Court’s final order under 28 U.S.C. § 1291.

Our review of a District Court’s dismissal under Rule 12(b)(6) of the Federal 

Rules of Civil Procedure is plenary.1 “We must accept all factual allegations in the 

complaint as true, construe the complaint in the light favorable to the plaintiff, and 

ultimately determine whether plaintiff may be entitled to relief under any reasonable 

reading of the complaint.”2

 

1 Mayer v. Belichick, 605 F.3d 223, 229 (3d Cir. 2010).

2

Id.

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III.

The derivative injury rule, relied on by the District Court, is a principle of standing 

that “holds that a shareholder . . . may not sue for personal injuries that result directly 

from injuries to the corporation.”3 The rule is premised on the separate legal existence of 

a corporation, in which shareholders shield themselves from the corporation’s liabilities 

and may not pierce the corporate veil in reverse to recover individually from the 

corporation’s losses.4 Accordingly, under established Pennsylvania law,5a shareholder 

can avoid the derivative injury rule “[i]f the injury is one to the plaintiff as a stockholder 

and to him individually, and not to the corporation . . . .”6 

Shubert alleges that the Resslers were individually injured in two ways: (A) first, 

that they were exposed to personal liability in the form of a joint-and-several judgment; 

and (B) second, that the Appellees breached individual professional, contractual, and 

fiduciary duties. We discuss each exception to the derivative injury rule in turn and 

conclude, like the District Court, that an individual injury has not been adequately pled.7 

As such, Shubert’s claims are derivative in nature and cannot be maintained directly.

 

3

In re Kaplan, 143 F.3d 807, 811-12 (3d Cir. 1998) (applying Illinois law). 

4

Id. at 812. 

5 To determine the derivative status of claims, we apply the law of the state of 

incorporation. See 12B Fletcher Cyclopedia of the Law of Corporations § 5911 (2014).

6 Fishkin v. Hi–Acres, Inc., 341 A.2d 95, 98 n.4 (Pa. 1975) (internal quotation 

marks omitted).

7 Because the derivative status of Shubert’s claims decides the issues on appeal,

we need not reach Appellees’ alternative grounds that their actions were not the 

proximate cause of the Resslers’ actions giving rise to Little’s lawsuit. 

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A.

“To have standing to sue individually, the shareholder must allege a direct, 

personal injury—that is independent of any injury to the corporation—and the 

shareholder must be entitled to receive the benefit of any recovery.”8 Shubert alleges that 

the $400,000 judgment entered against the Resslers jointly and severally is itself a form 

of direct injury that they are entitled to assert as shareholders. 

Shubert fails to show, however, that the Resslers’ injury is distinct from RHF’s 

injury or that the Resslers are entitled to recovery on this basis. The $400,000 judgment 

remedies the harm sustained by Little for RHF’s violations of the Maryland Securities 

Act in connection with the share issuance; the Resslers were held jointly and severally 

liable for RHF’s misconduct as corporate officers executing that transaction by function 

of Maryland law.9 This fact does not transform RHF’s loss into direct, personal loss 

sustained by the Resslers as shareholders. Just as shareholders lack standing for harms 

that arise out of corporate conduct on the basis of shared liability for corporate loans or 

tax liens, any such injury would be “dependent upon and derivative to the corporate 

injury.”10 Thus, Shubert cannot assert direct claims on this basis. 

 

8 Hill v. Ofalt, 85 A.3d 540, 548 (Pa. Super. Ct. 2014). 

9 See Md. Code Ann., Corps. & Ass'ns § 11-703(c). 

10 Ofalt, 85 A.3d at 552. 

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B.

Some courts also “permit[] a cause of action in favor of the individual 

shareholder[] where the alleged wrong violates a duty owed directly to the 

shareholder.”11 This exception to the derivative injury rule covers “dut[ies] owed to the 

individual independent of the person’s status as a shareholder . . . .”12 Here, Shubert 

alleges that the Appellees owed the Resslers certain professional, contractual, and 

fiduciary duties because Appellees had long-standing relationships with the Resslers, 

represented the Resslers individually in the Little transaction, and acted as agents on 

behalf of the Resslers personally.

Conclusory assertions of supposed duties, however, will not survive a Rule 

12(b)(6) motion.13 The record makes clear that Appellees’ professional services were 

retained by the Resslers on behalf of the corporate entity, RHF, in its attempt to issue 

stock to Little; indeed, the allegations within the complaint arise from the Geisenberger 

and Musso Defendants’ purported role in that transaction. On the other hand, nowhere 

does the complaint adequately allege that the Resslers engaged Appellees’ legal, 

accounting, or financial services for any reason independent of conducting RHF’s 

business in the Little transaction or the Resslers’ status as shareholders, officers, and 

directors of RHF. Thus, Shubert does not have standing to sue directly on this basis.

 

11 Cole v. Ford Motor Co., 566 F. Supp. 558, 569 (W.D. Pa. 1983). 

12

 12B Fletcher Cyclopedia of the Law of Corporations § 5911 (2014); see also 

Ofalt, 85 A.3d at 549 (reiterating this principle). 

13 See Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009). 

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IV.

Because Shubert failed to allege that the Resslers sustained an injury independent 

of the injury to RHF, we affirm the District Court’s dismissal of the complaint under Rule 

12(b)(6).

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KRAUSE, Circuit Judge, concurring in the judgment.

While I join in my colleagues’ decision to affirm, I respectfully cannot agree that 

the shareholder derivative injury rule, on which the majority and the District Court have 

relied, is what justifies that outcome. I concur, however, because the complaint, in any 

event, fails to adequately allege causation. 

The derivative injury rule is a doctrine specific to plaintiffs who bring suits in their 

capacity as shareholders. It derives from the well-settled tenet that “[t]he legal fiction of 

corporate existence corresponds with the view that an injury to the corporate body is 

legally distinct from an injury to another person.”1 Thus, the rule prevents shareholders

from recovering individually for an injury to the corporation as a whole,2 but does not 

apply when the shareholder alleges “a direct, personal injury—that is independent of any 

injury to the corporation.”3

Here, the complaint filed by Christine Shubert, as Trustee for the bankruptcy 

estate of Keith Ressler, Kenneth Ressler, and Karen Ressler (collectively the “Resslers”),

 

1 Official Comm. of Unsecured Creditors v. R.F. Lafferty & Co., 267 F.3d 340, 

348 (3d Cir. 2001).

2 See In re Kaplan, 143 F.3d 807, 811-12 (3d Cir. 1998); see also Moffatt Enters., 

Inc. v. Borden Inc., 807 F.2d 1169, 1177 (3d Cir. 1986) (applying Pennsylvania law and 

finding that shareholders who alleged they “sustained actual and consequential damages” 

along with injuries to the corporation, had standing to bring individual claims of, among 

other things, breach of fiduciary duties).

3 Hill v. Ofalt, 85 A.3d 540, 549 (Pa. Super. Ct. 2014) (quoting 12B Fletcher 

Cyclopedia of the Law of Corporations § 5911 (2013)); see also Kaplan, 143 F.3d at 811-

12 (“The derivative injury rule holds that a shareholder (even a shareholder in a closelyheld corporation) may not sue for personal injuries that result directly from injuries to the 

corporation.”) (emphasis added).

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alleges that, as a result of the malpractice of Appellees in advising the Resslers to issue 

stock to James Little, the Resslers were injured in two different ways: (1) the lost value of 

their investment in RHF; and (2) the $400,000 judgment that was entered against the 

Resslers in the Bankruptcy Court for the Middle District of Pennsylvania, pursuant to the 

Maryland Securities Act (“MSA”).

4

 I agree with the majority that the first injury gives 

rise to a classic shareholder claim that is barred by the derivative injury rule. Where we 

part company is that the second injury, in my view, does not. 

In the bankruptcy action that led to the $400,000 judgment, Little sued Ressler 

Hardwoods and Flooring (“RHF”) and the Resslers, alleging that they misrepresented

RHF’s financial condition in connection with the offer to sell Little 51% of RHF in 

exchange for $1.2 million. In addition to entering a $400,000 judgment against RHF for 

its violation of MSA § 11-703(a)(1)(ii), the bankruptcy court entered judgment against 

the Resslers under MSA § 11-703(c), which imposes joint and several liability on “every 

partner, officer, or director” of a liable company who does not affirmatively demonstrate

that he or she “did not know, and in exercise of reasonable care could not have known, of 

the existence of the facts by reason of which the liability is alleged to exist.”5 As the 

Bankruptcy Court found, the Resslers were unable to meet this burden.

The $400,000 judgment entered against the Resslers thus was entirely independent 

of the Resslers’ status as shareholders and, while joint and several with the company, was 

 

4 Md. Code Ann., Corps. & Ass’ns § 11-101 et seq. 

5 Md. Code Ann., Corps. & Ass’ns § 11-703(c)(1).

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levied against the Resslers directly for the Resslers’ own acts and omissions as officers—

irrespective of whether they owned a single share of RHF stock. The judgment, in other 

words, was not an injury flowing through the corporation and affecting all shareholders; 

it was entered against the Resslers personally for their actions as joint tortfeasors in a 

securities fraud action. The derivative injury rule, therefore, is simply inapposite. 

Even if the derivative injury rule did pertain, however, it would not bar Shubert’s 

claims because they fit squarely into the exception for duties that are owed directly to the 

shareholder.6 The majority deems that exception inapplicable on the grounds that 

“[c]onclusory assertions of supposed duties . . . will not survive a Rule 12(b)(6) motion” 

and “[t]he record makes clear that Appellees’ professional services were retained by 

RHF.”7 But there was no opportunity to develop a record on this issue because Shubert’s 

complaint was dismissed pursuant to Federal Rule 12(b)(6). For that very reason, at the 

motion to dismiss stage, a court “must accept as true all well-pleaded facts and 

allegations [from the complaint], and must draw all reasonable inferences therefrom in 

favor of the plaintiff.”

8

 

Here, Shubert’s complaint expressly alleges that the Resslers themselves “engaged 

the legal services of Geisenberger and Geisenberger PC” and “engaged the financial 

services of Musso and Musso PC,” and that “[s]uch engagement resulted in a legally 

 

6 See Cole v. Ford Motor Co., 566 F. Supp. 558, 569 (W.D. Pa. 1983).

7 Majority Op. 8.

8 Bell v. Cheswick Generating Station, 734 F.3d 188, 193 n.5 (3d Cir. 2013).

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binding and enforceable contract” between the Resslers and Appellees.9 That is 

sufficient at the pleading stage to allege a direct duty owed to the Resslers, separate from 

and independent of any duties Appellees may have owed to RHF in connection with a 

separate or even joint representation of the corporate entity.10 There is no requirement, as 

the majority would have it, that the complaint allege that the subject matter of the 

representation be “independent of RHF’s business or the Resslers’ status as shareholders, 

officers, and directors of RHF.”

11

 Rather, if there was an attorney-client relationship or 

accountant-client relationship between Appellees and the Resslers, as alleged in the 

complaint, Appellees’ fiduciary and contractual duties would flow directly to the Resslers 

as clients, and the Resslers would have standing to bring suit for breach of those duties, 

regardless of the subject matter of the representation.12 

 

9 App. 17, ¶¶ 20, 23; App. 31, ¶ 117; App. 33 ¶ 130. 

10 Joint representation of an organization and an individual is permissible in 

Pennsylvania, where the Rules of Professional Conduct provide that “a lawyer for an

organization may also represent a principal officer or major shareholder.” Pa. R.P.C. 

1.13 n.9.

11 Majority Op. 8.

 

12 See Kroblin Refrigerated Xpress, Inc. v. Pitterich, 805 F.2d 96, 104 (3d Cir. 

1986) (recognizing that both the course of dealing and the conduct of parties “can 

evidence a contractual relationship between parties and thus can confer standing on an 

individual as a direct party to the agreement”); Ofalt, 85 A.3d at 549 (observing that 

when the issue is a “right belonging severally to the shareholder, or on a fraud affecting 

the shareholder directly, or where there is a duty owed to the individual independent of 

the person’s status as a shareholder, it is an individual action”) (quoting 12B Fletcher 

Cyclopedia of the Law of Corporations § 5911 (2013)); Bancroft Life & Cas., ICC, Ltd. 

v. Lo, 978 F. Supp. 2d 500, 508 (W.D. Pa. 2013) (recognizing that “Courts around the 

country have held that a shareholder may bring an individual suit if the defendant has 

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5

Despite my disagreement with the majority’s rationale, however, I agree with its 

conclusion because the complaint fails to adequately plead causation. The MSA 

judgment relates to specific misrepresentations and omissions made by RHF and Keith 

Ressler between March 2007 and July 2007 that induced Little to invest $400,000 in July 

2007.13 Shubert’s complaint, however, claims that Appellees committed malpractice by 

improperly “devis[ing] a plan” and advising the Resslers to issue RHF shares to Little in 

October 2007 in proportion to the $400,000 that he had by that point invested.14 In other 

words, the misdeeds that gave rise to the $400,000 judgment were distinct from and 

significantly predated the stock issuance scheme that forms the basis for Shubert’s 

malpractice action. The complaint, by its own terms, therefore fails to adequately plead 

that Appellees’ alleged malpractice, i.e., their advice concerning that stock issuance 

scheme, was the cause of the alleged injury, i.e., the $400,000 judgment entered against 

the Resslers.15

For these reasons, I join my colleagues in affirming the judgment of the District 

Court.

 

violated an independent duty to the shareholder, whether or not the corporation may also 

bring an action”). 

13 App. 202-07; See S. Cross Overseas Agencies, Inc. v. Wah Kwong Shipping 

Grp. Ltd., 181 F.3d 410, 426 (3d Cir. 1999) (“[I]n addition to the allegations in the 

complaint,” a court considering a motion to dismiss may properly examine “public 

records, including judicial proceedings” such as “another court’s opinion.”).

14 App. 25, ¶ 76.

15 See App. 18-19.

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