IN THE UNITED STATES DISTRICT COURT

FOR THE EASTERN DISTRICT OF PENNSYLVANIA

ROBERT S. CHEATLE, et al. : CIVIL ACTION

:

v. :

:

DAVID A. KATZ, et al. : NO. 02-4405

MEMORANDUM AND ORDER

HUTTON, J. April 1, 2003

In this case, the Plaintiffs, Robert and Nancy Cheatle, are

suing the Defendants, David and Dawn Katz and several corporate

entities controlled by Mr. and Mrs. Katz, because of a failed real

estate transaction. Two motions are presently before the Court.

First, Defendants move to dismiss Plaintiffs’ complaint (Docket No.

4) pursuant to Federal Rule of Civil Procedure 12(b)(6). Second,

Defendants move to strike (Docket No. 5) a lis pendens indexed

against their real property. For the reasons discussed below,

Defendants’ Motion to Dismiss is granted as to Plaintiff’s claim

under 18 U.S.C. § 1962(b). This motion is denied as to the

remainder of Plaintiffs’ claims. Defendants’ Motion to Strike Lis

Pendens is denied.

I. BACKGROUND

This is a lawsuit between two couples who are next-door

neighbors, Robert and Nancy Cheatle and David and Dawn Katz. On

October 30, 2000, the Cheatles entered into a contract to purchase

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approximately .81 acres of land from David Katz for $300,000. The

property they purchased is located in Ambler, Pennsylvania. It is

part of a four-lot subdivision, owned by Mr. Katz, known as

Paradise Pines. The Cheatles purchased the lot adjacent to the

Katz family home. They intended to build a home on this land.

Prior to purchasing this land, the Cheatles entered into a

contract with Paradise Contractors, Inc. (“PCI”), an entity also

owned by Mr. Katz, for the construction of a home in Paradise

Pines. According to the contract, PCI was to be paid $650,000 for

the construction of the Cheatles’ home. The contract also imposed

a series of specific obligations on PCI. According to the

Cheatles, they entered into this contract because David Katz held

himself out to be an experienced and skillful general contractor

and construction manager.

During construction of the home, the Cheatles began to be

unsatisfied with David Katz’s work. In this suit, the Cheatles

allege numerous incidents of fraud and breach of contract by David

and Dawn Katz and the corporate Defendants. For example, Mr. Katz

failed to properly manage the construction of the home and the

delivery of materials. He failed to obtain the proper permits for

the home. He substituted inferior materials for those specified in

the agreement. He set up a sham homeowner’s association and

collected fees for it, among other allegations discussed below.

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1

 Federal Rule of Civil Procedure 12(b)(6) provides that a court may dismiss

a complaint "for failure to state a claim upon which relief can be granted."

Fed. R. Civ. P. 12(b)(6). 

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II. LEGAL STANDARD

When considering a motion to dismiss a complaint for failure

to state a claim under Rule 12(b)(6), the Court must accept as true

all facts alleged in the complaint and any reasonable inferences

that can be drawn therefrom. Markowitz v. Northeast Land Co., 906

F.2d 100, 103 (3d Cir. 1990) (citing Ransom v. Marrazzo, 848 F.2d

398, 401 (3d Cir. 1988)); see also H.J. Inc. v. Northwestern Bell

Tel. Co., 492 U.S. 229, 249-50 (1989). A court may only dismiss

a complaint where plaintiff can prove no set of facts, consistent

with his allegations, which justifies relief.1 See ALA, Inc. v.

CCAIR, Inc., 29 F.3d 855, 859 (3d Cir. 1994); Crighton v.

Schuylkill County, 882 F. Supp. 411, 414 (E.D. Pa. 1995).

The court is not required to credit a plaintiff's “bald

assertions” or “legal conclusions” when deciding a motion to

dismiss. See Id. The Federal Rules merely require “a short and

plain statement of the claim showing that the pleader is entitled

to relief,” enough to “give the defendant fair notice of what the

plaintiff’s claim is and the grounds upon which it rests.” Fed. R.

Civ. P. 8(a)(2) (West 2001). In addition, when evaluating a

complaint that includes allegations of fraud, as in the instant 

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2 Federal Rule of Civil Procedure 9(b) provides, in part, that “[i]n all

averments of fraud or mistake, the circumstances constituting fraud or mistake

shall be stated with particularity.”

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case, the court must apply Fed. R. Civ. P. 9(b), which contains a

heightened pleading standard.2

III. DISCUSSION – MOTION TO DISMISS

In their motion, Defendants ask the Court to dismiss the

following Counts in Plaintiffs’ complaint: Counts I and II (Breach

of Contract), Count IV (RICO), Count V (Conversion), Count VI

(Unjust Enrichment), Count VII (Pennsylvania Uniform Trade

Practices and Commercial Protection Law), and Count VIII (Uniform

Planned Community Act). Each count is discussed below.

A. Count IV – Racketeer Influenced and Corrupt

 Organizations Act (“RICO”) 

 1. Pattern of Racketeering Activity

The RICO statute provides a civil action for “any person

injured in his business or property by reason of a violation of [18

U.S.C. § 1962].” 18 U.S.C. § 1964(c). Section 1962 contains four

separate subsections that outline different RICO causes of action,

two of which are implicated in this case. First, Section 1962(c)

prohibits “any person employed by or associated with any enterprise

. . . to conduct or participate, directly or indirectly, in the

conduct of such enterprise’s affairs through a pattern of

racketeering activity . . . .” 18 U.S.C. § 1962(c). Second,

Section 1962(b) prohibits any person from acquiring, maintaining an

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interest in, or controlling any enterprise “through a pattern of

racketeering activity.” 18 U.S.C. § 1962(b). Accordingly, both

provisions require the injured party to demonstrate that the

defendant engaged in a “pattern of racketeering activity.” Tabas

v. Tabas, 47 F.3d 1280, 1289 (3d Cir. 1995).

Under the statute, a “pattern of racketeering activity”

requires the commission of at least two predicate offenses within

a ten year period. 18 U.S.C. § 1961(5). Section 1961(1)

enumerates the RICO predicate offenses, which include mail fraud

and wire fraud. 18 U.S.C. § 1961(1). Commission of two such acts

within a ten-years period, standing alone, is not enough to

establish a pattern. In H.J., Inc. v. Northwestern Bell Tel. Co.,

492 U.S. 229, 239, 109 S. Ct. 2893, 2900, 106 L. Ed. 2d 195 (1989),

the Court held that “to prove a pattern of racketeering activity a

plaintiff must show that the racketeering predicates are related

and that they amount to or pose a threat of continued criminal

activity.” 492 U.S. at 239.

The first requirement, relatedness, is easily defined. Id. at

239. Predicate acts meet the relatedness requirement if they have

“the same or similar purposes, results, participants, victims, or

methods of commission, or otherwise are interrelated by

distinguishing characteristics or are not isolated events.” Id. at

240.

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3 Although Defendants raise this argument in their Motion, they only

discuss the elements of mail fraud as those elements relate to the continuity

analysis. Defs.’ Mem. at 8-10. Nevertheless, this Court will briefly address

this argument.

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The second requirement, continuity, is defined by the facts of

the individual case. Id. at 241-42. Under H.J., Inc., there are

two kinds of continuity. First, “closed-ended continuity” refers

to “a closed period of repeated conduct.” Id. A party may

establish closed-ended continuity by “proving a series of related

predicates extending over a substantial period of time.” Id. at

242 (emphasis added). Second, “open-ended continuity” describes

“past conduct that by its nature projects in the future with a

threat of repetition.” Id. at 241. One way to establish openended continuity is to show that the predicates are part of the

regular way of conducting defendant’s ongoing legitimate business

operations. Id. at 243. Regardless of which method is chosen,

continuity is centrally a temporal concept, i.e., it concerns the

period of time over which the predicate acts occurred or may occur.

Id. at 242.

 a. Plaintiff’s 1962(c) Claim

In Defendants’ Motion to Dismiss, they argue that Plaintiffs

failed to adequately plead the existence of a pattern of

racketeering activity. First, Defendants argue that the alleged

predicate acts do not constitute mail or wire fraud. Defs.’ Mot.

at 2.3 Second, Defendants argue that Plaintiffs have failed to

establish the continuity and relatedness of the predicate acts, as

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required by H.J., Inc. Id.; Defs.’ Mem. at 5-10. Finally,

Defendants argue that the Section 1962(c) claims must be dismissed

because the corporate defendants are impermissibly alleged to be

both a “person” and an “enterprise” under the statute. Defs.’ Mem.

at 11. As discussed below, the Court finds that Plaintiffs have

pled facts sufficient to state a Section 1962(c) claim.

Accordingly, Defendants’ Motion is denied as to this claim.

 (1) Predicate Acts

Plaintiffs allege that the individual defendants committed

mail fraud in violation of 18 U.S.C. § 1341 and wire fraud in

violation of 18 U.S.C. § 1343. These statutes share the same

essential elements, except that the wire fraud statute applies only

to interstate or foreign transmissions. 18 U.S.C. § 1341, 1343;

Carpenter v. United States, 484 U.S. 19, 25 n.6, 108 S. Ct. 316, 98

L.Ed. 2d 275 (1987) (applying same analysis to both sets of

elements); United States v. Frey, 42 F.3d 795, 797 n.2 (3d Cir.

1994) (finding mail fraud cases applicable to wire fraud statute);

Lubart v. Riley and Fanelli, No. Civ.A. 97-6392, 1998 WL 398253, at

*2 (E.D. Pa. June 22, 1998) (collecting cases). Those essential

elements are: (1) a scheme to defraud; and (2) use of the mails or

wires for the purpose of executing the scheme. Kehr Packages, 926

F.2d at 1413. The actual violation is the use of the mails or

wires. Id. Accordingly, true statements sent by mail or wire

transmission are prohibited when made in furtherance of a scheme to

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defraud. Schmuck v. United States, 489 U.S. 705, 715, 109 S. Ct.

1443, 1450, 103 L. Ed. 2d 734 (1989). Moreover, the mailing or

wire transmission need not be sent to the victim of the scheme, so

long as it is sent in furtherance of the scheme. Albert Einstein

Med. Ctr. v. Physicians Clinical Serv., Ltd., No. Civ.A. 90-3387,

1991 WL 193391, at *4 (E.D. Pa. Sept. 19, 1991).

In this case, Plaintiffs have alleged mail and wire fraud with

the particularity required under Fed. R. Civ. P. 9(b). First,

taking the Plaintiffs allegations as true, the Plaintiffs have

established a scheme to defraud. According to the complaint,

Defendants intentionally mislead Plaintiffs as to their experience

as builders and real estate developers. Moreover, Plaintiffs also

misled Defendants as to the existence of the Paradise Pines

Homeowners Association. When the construction contract called for

safeguards to ensure compliance, such as obtaining Township

permits, the Plaintiffs allege that Defendants falsely reported

that they obtained such permits. Accordingly, under the lenient

standard applied at this stage of the proceedings, Plaintiffs have

established facts supporting the existence of a scheme to defraud.

Second, Plaintiffs have also pled facts supporting their

claims of mail and wire fraud. Plaintiffs allege that Defendants

used the mails to send contracts and other writings related to

their scheme to Horsham Township and to the Cheatles. Plaintiffs

assert that these mailings were intended to defraud them by falsely

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asserting that Defendants had received the necessary permits from

the Township to construct the home. Pls.’ Compl. at 34. Second,

Plaintiffs assert that Defendants used the mails to send fraudulent

documents to Plaintiffs’ lender. Id. Accordingly, the Court finds

that Plaintiffs have set forth a set of facts which could establish

mail and wire fraud.

 (2) Relatedness of the Predicate Acts

The Court finds that the predicate acts are related. The

Third Circuit has noted that “the relatedness test will nearly

always be satisfied in cases of mail fraud stemming from the same

fraudulent transaction – by definition the acts are related to the

same ‘scheme or artifice to defraud.’” Kehr Packages, 926 F.2d at

1414. In that case, the Plaintiffs alleged numerous acts of mail

fraud relating to the same loan transaction, thereby satisfying the

relatedness prong. Id. at 1417. Similarly, in this case,

Plaintiffs allege at least two incidents of mail fraud relating to

the construction contract and its implementation. Pls.’ Compl. at

34. Accordingly, the Plaintiffs have pled sufficient facts to meet

the relatedness prong.

 (3) Continuity

As noted above, predicate acts must be continuous in order to

form a “pattern of racketeering activity.” H.J., Inc., 492 U.S. at

242. To meet this requirement, a Plaintiff must show either

closed-ended or open-ended continuity. Id. In this case,

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Defendants’ argue that Plaintiff has not met either continuity

test. As this Court determines that Plaintiffs pleaded facts

sufficient to establish closed-ended continuity, it is unnecessary

to discuss open-ended continuity at this time.

As noted above, even innocent mailings related to a fraudulent

scheme are considered mail fraud. In civil RICO cases based on the

predicate acts of mail or wire fraud, however, the continuity test

requires the court “to look beyond the mailings and examine the

underlying scheme or artifice.” Kehr Packages, 926 F.2d at 1414.

As a result, continuity in mail fraud cases is based on the

duration of the underlying scheme, rather than the length of time

during which the mailings were actually sent. Tabas, 47 F.3d at

1294.

In Tabas, the Third Circuit discussed the requirements for

proving a series of related predicate events over a substantial

period of time. Id. at 1292. In reviewing five of its precedents

on this issue, the Court found that “each time conduct . . .

last[ed] no more than twelve months [it] did not meet the standard

for closed-ended continuity.” Id. at 1293. In Tabas itself, the

Court found that a scheme lasting three and one half years met the

“substantial period of time” test. Id. at 1294. The Tabas court

also noted two cases, United States v. Pelullo, 964 F.2d 193, 209-

10 (3d Cir. 1992) and Swistock v. Jones, 884 F.2d 755, 759 (3d Cir.

1989), indicating that periods of 19 months and 14 months,

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4 This Court notes, however, that Swistock also contained evidence of a

continuing series of predicate acts, indicating that the conduct was also

open-ended. Pelullo, 964 F.2d at 210.

5 For RICO purposes, “person” includes “any individual or entity capable

of holding a legal or beneficial interest in property.” 18 U.S.C. § 1961(3).

6 “Enterprise” includes “any individual, partnership, corporation,

association, or other legal entity, and any union or group of individuals

associated in fact though not a legal entity.” 18 U.S.C. § 1961(4).

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respectively, may be sufficient to constitute closed-ended

continuity.4 Id. at 1294.

 Defendants argue that, although the alleged scheme lasted in

excess of one year, this Court must consider the number of

predicate acts and the number of victims in evaluating continuity.

Defs.’ Mem. at 8-10. While Defendants are correct that “the number

of [predicate acts] remains a factor,” Pelullo, 964 F.2d at 210, at

this stage in the proceedings, the Court finds that Plaintiffs’

pleaded sufficient facts to establish closed-ended continuity. In

this case, Plaintiffs assert that Defendants engaged in a scheme to

defraud, which lasted over two years, beginning in August 2000 and

continuing through August 2002. Pls.’ Mem. at 9. As this exceeds

the length of the scheme in Pelullo, closed-ended continuity has

been sufficiently established.

 (4) Enterprise Requirement

In this circuit, a plaintiff must allege a 1962(c) violation

by a “person”5 operating or managing a distinct and separate

“enterprise.”6 Jaguar Cars, Inc. v. Royal Oaks Motor Car Co.,

Inc., 46 F.3d 258, 262-64 (3d Cir. 1995) (tracing distinctiveness

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requirement in Third Circuit). Defendants argue that Plaintiffs’

RICO claims are legally insufficient because the corporate

defendants in the action are alleged to be both “persons” and an

“enterprise” for purposes of the act. Defs.’ Mem. at 11.

Defendants correctly point out that if such a dual role is pled,

then Plaintiffs’ complaint cannot be allowed to proceed.

In response, Plaintiffs argue the enterprise requirement is

met because they pleaded that each corporate defendant is part of

a larger enterprise, an association in fact that the Plaintiffs

have termed the “Paradise Enterprise.” Pls.’ Mem. at 13. In

support of this argument, Plaintiffs point to Brokerage Concepts,

Inc. v. U.S. Healthcare, Inc., No. Civ.A. 95-1698, 1995 WL 455969

(E.D. Pa. July 27, 1995) and PTI Services, Inc. v. Quotron Sys.,

Inc., No. Civ.A. 94-2068, 1995 WL 241411, at *12 (E.D. Pa. April

19, 1995), for the proposition that a RICO enterprise may include

a group of corporations and individuals acting as an association in

fact. Pls.’ Mem. at 13-14.

In Brokerage Concepts, the plaintiff asserted a Section

1962(c) claim against two corporations and several employees of

those corporations. 1995 WL 455969 at *6. Defendants moved to

dismiss the complaint, in part, on the grounds that a corporation

cannot be both a RICO person and a RICO enterprise. Id. The

Court, agreeing with this statement of the law, found that none of

the corporate defendants were alleged to be both persons and

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enterprises, because the plaintiff alleged that the corporations

were part of a broader enterprise that included the individual

defendants. Id. Similarly, in this case, Plaintiffs pleaded that

the corporate defendants and the individual defendants are part of

a larger association in fact. Accordingly, Plaintiffs have

adequately established the existence of a separate enterprise.

 b. Plaintiffs’ 1962(b) Claim

In Count IV of the their complaint, Plaintiffs also assert

that Defendants violation Section 1962(b). This section provides,

in pertinent part, that “[i]t shall be unlawful for any person

through a pattern of racketeering activity . . . to acquire or

maintain, directly or indirectly, any interest or control in of an

interest in a RICO enterprise.” 18 U.S.C. § 1962(b). Thus, under

this section of the Act, a plaintiff must allege an injury from the

defendant’s acquisition or control of the enterprise, in addition

to an injury from the predicate acts. Lightning Lube, Inc. v.

Witco Corp., 4 F.3d 1153, 1190 (3d Cir. 1993); Dianese, Inc. v.

Pennsylvania, No. Civ.A. 01-2520, 2002 WL 1340316, at *9 (E.D. Pa.

June 29, 2002). In Lightning Lube, the court stated, as an

example, that such an injury occurs when “the owner of an

enterprise infiltrated by the defendant as a result of racketeering

activities is injured by the defendant’s acquisition or control of

[the] enterprise.” 4 F.3d at 1190. A Section 1962(b) claim is

insufficient if it merely restates the same injury that a 1962(c)

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claim is meant to remedy. Id. at 1191. Moreover, the plaintiff in

a Section 1962(c) action must show a “nexus between the interest

[in the enterprise] and the alleged racketeering activities.” Id.

at 1190. It is insufficient to merely show that a person engaged

in racketeering activity has an otherwise legitimate interest in

the enterprise. Id.

Plaintiffs’ complaint fails to make any allegations that,

apart from the racketeering activities, they were injured as a

result from defendant’s acquisition or control of the Paradise

Enterprise. Instead, Plaintiffs merely state that David and Dawn

Katz “engaged in a pattern of racketeering activity to . . . foster

directly or indirectly, their interests in and economic gain in the

Paradise Enterprise . . . .” Pls.’ Compl. at 35. Under Lightning

Lube, Plaintiffs cannot maintain a Section 1962(b) action by merely

restating their Section 1962(c) claim in this manner. Accordingly,

Defendants’ motion is granted as to Plaintiffs’ 1962(b) claim.

B. Counts I and II – Breach of Contract

Defendants seek dismissal of Plaintiffs’ breach of contract

claims (Counts I and II) on the grounds that the individual

defendants, as shareholders of the corporate defendants, cannot be

held personally liable for the acts of the corporate defendants.

In Pennsylvania, shareholders, officers and directors of a

corporation are not liable for a corporation’s breach of contract,

absent establishment of either participation theory or the

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equitable doctrine of piercing the corporate veil. First Reast

Vest, Inc. v. Avery Builders, Inc., 600 A.2d 601, 603 (Pa. Super.

1991). Under participation theory, liability falls on the

individual, rather than the corporation, when the record

establishes the individual’s participation in tortious activity.

Wicks v. Milzoco Builders, Inc., 470 A.2d 86, 90 (Pa. 1983). In

contrast, a court pierces the corporate veil upon a finding that

the corporation is not a bona fide independent entity. Id. at 89-

90. Under Pennsylvania law, courts are reluctant to pierce the

corporate veil, doing so “only when the entity is used to defeat

public convenience, justify wrong, protect fraud or defend crime.”

Sams v. Redevelopment Auth., 244 A.2d 779, 781 (Pa. 1968).

The Court finds that Plaintiffs have pleaded sufficient facts

to implicate the equitable doctrine of piercing the corporate veil.

In the complaint, Plaintiffs allege that the various corporate

Defendants are merely alter egos for David and Dawn Katz. To

support this allegation Plaintiffs point to David Katz’s

participation in the negotiations process and his role in building

the Plaintiffs’ home. Taking Plaintiffs’ allegations as true, the

Court finds that they have set forth facts sufficient to make out

a claim for application of the doctrine of piercing the corporate

veil.

C. Count V – Conversion

Under Pennsylvania law, “[c]onversion is the deprivation of

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another’s right of property in, or use or possession of, a chattel,

without the owner’s consent and without lawful justification.”

Shonberger v. Oswell, 530 A.2d 112, 114 (Pa. Super. 1984).

Pennsylvania courts do not require the actor to have specific

intent, rather, any intent to assert control over the chattel in a

way that is detrimental to the owner’s property rights is

sufficient. Id. Money may be the subject of conversion. Id. A

claim for conversion is not made out, however, when the plaintiff

is merely restating a claim for breach of contract. Montgomery v.

Fed. Ins. Co., 836 F. Supp. 292, 302 (E.D. Pa. 1993).

In Montgomery, the plaintiff brought two claims for conversion

that were very similar to his breach of contract claims. Id. at

300. Specifically, the plaintiff claimed that the defendant

insurance company converted his premium payments when it failed to

pay on his claim. Id. In his conversion claim, the plaintiff

sought punitive damages. Id. The court found that, because there

was no evidence of fraud or bad faith in the case, the plaintiff

could not make out a claim for punitive damages. Id. Accordingly,

the conversion claim and breach of contract claim were identical.

Id. As a result the court granted summary judgment against the

plaintiff on its conversion claim. Id. at 302. In contrast, as

discussed in Part III.E. supra, the Cheatles pleaded sufficient

facts to support a claim for fraud. Accordingly, Plaintiffs’

conversion claim survives Defendants’ motion to dismiss.

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D. Count VI – Unjust Enrichment/Constructive Trust

In Count VI of the complaint, Plaintiffs assert a claim of

unjust enrichment against Defendants and ask this Court to impose

a constructive trust on the money paid by the Cheatles to

Defendants. Pls.’ Compl. at 37. Defendants seek dismissal of this

Count on the grounds that Plaintiffs’ are seeking the payment of

debt, which cannot be the subject of a constructive trust under

Pennsylvania law. Defs.’ Mem. at 14.

To make out a claim for unjust enrichment, a plaintiff must

show: “(1) a benefit conferred upon one party by another; (2)

appreciation of such benefit by the recipient; and (3) retention of

that benefit under circumstances that would be unjust.” Styer v.

Hugo, 619 A.2d 347, 350 (Pa. Super. 1993). Taking Plaintiffs’

allegations as true, they claim that they paid large sums of money

to Defendants as a result of a fraudulent scheme. Defendants kept

these payments. Accordingly, this court finds that Plaintiffs have

pled facts sufficient to state an unjust enrichment claim.

A constructive trust is a remedy created by equity to prevent

unjust enrichment. Huber v. Wagner, 425 A.2d 456, 458 (Pa. Super.

1981). The need for such a remedy usually arises out circumstances

involving fraud, accident, mistake, duress, or undue influence.

Id. (citing Yohe v. Yohe, 353 A.2d 417 (Pa. 1976). Despite

Defendants’ assertion to the contrary, Plaintiffs have pled

substantial allegations of fraud in their complaint. Accordingly,

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this Count cannot be dismissed on the grounds that the remedy

sought is improper. Defendants’ motion is denied as to this count.

E. Count VII – Pennsylvania Unfair Trade Practices

 and Commercial Protection Law 

In Count VII of the complaint, Plaintiffs assert a claim under

the Pennsylvania Unfair Trade Practices and Consumer Protection

Law, Pa. Stat. Ann. tit. 73, §§ 201-1-201-9.2 (West 1993 & Supp.

2000) (“UTPCPL”). Section 3 of the Act prohibits twenty-one types

of “unfair or deceptive practices,” including ”[e]ngaging in any

other fraudulent or deceptive conduct which creates a likelihood of

confusion or of misunderstanding.” Pa. Stat. Ann. tit. 73 § 201-

3(xxi). Section 9.2 of the Act provides a private action for “any

person who purchases or leases goods or services primarily for

personal, family, or household purposes and thereby suffers any

ascertainable loss of money or property as a result of a the use of

employment of any practice declared unlawful by [Section 3 of the

Act].” Pa. Stat. Ann. tit. 73 § 201-9.2.

Defendants seek dismissal of this Count on the grounds that

Plaintiffs did not adequately plead facts demonstrating fraud by

the Defendants. Defs.’ Mem. at 15. As Defendants correctly point

out, to state a cause of action under the UTPCPL’s “catch-all”

provision, Plaintiffs must plead all the elements of fraud.

Skurnowicz v. Lucci, 798 A.2d 788, 794 (Pa. Super. 2002) (citing

Sewak v. Lockhart, 699 A.2d 755, 761 (Pa. Super. 1997)). In

Pennsylvania, the elements of fraud are: (1) a representation; (2)

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which is material to the transaction in question; (3) made falsely,

with knowledge of the falsity or reckless disregard for the truth;

(4) with the intent of misleading another into relying on it; (5)

justifiable reliance on the misrepresentation; and (6) injury

proximately caused by the reliance. Id. at 793 (citing Bortz v.

Noon, 729 A.2d 555, 560 (Pa. 1999)). A misrepresentation is

material if the transaction would not have been consummated but for

the misrepresentation. Id. (citing Sewak, 699 A.2d at 760). In

all actions brought under the UTPCPL, the plaintiff must

demonstrate “an ascertainable loss as a result of the defendant’s

prohibited action.” Weinberg v. Sun Co., Inc., 777 A.2d 442, 446

(Pa. 2001) (emphasis in original). 

Taking Plaintiffs’ allegations as true for purposes of this

motion, the Court finds that the elements of fraud have been pled

with sufficient particularity. See Fed. R. Civ. P. 9(b).

Plaintiffs assert that Defendants made numerous misrepresentations,

including statements about Mr. Katz’s experience as a builder, the

materials used in the home, and code compliance. Pls.’ Compl. at

25-27. Second, Plaintiffs have pled that these representations

were material because, absent these statements, they would not have

engaged in the transaction. Third, Plaintiffs aver that Defendants

knew these representations were false. Fourth, Plaintiffs assert

that the intent of these misrepresentations was to persuade the

Cheatles to enter the transaction. Fifth, the Chealtes claim that

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there was no evidence to indicate that David and Dawn Katz were not

successful real estate developers. Finally, Plaintiffs extensively

pleaded facts showing damages. Accordingly, Defendants’ motion is

denied as to this Count. 

F. Count VIII – Pennsylvania Uniform Planned Community Act

In Count VIII of the complaint, Plaintiffs assert a claim

under the Pennsylvania Uniform Planned Community Act (UPCA), 68 Pa.

Cons. Stat. Ann. §§ 5101-5414 (West 1994 & Supp. 2000). In their

complaint, Plaintiffs state that “[d]efendant Paradise Pines

[Homeowners’ Association] is unwilling and unable to take action to

assert demands against David and Dawn Katz, and only by the

Cheatles’ claims and interposition of this Court can the rights of

the Cheatles, and the HOA Corporation be properly managed and the

individual Defendants’ acts and omissions remedied.” Pls.’ Compl.

at 38. In their response to Defendants’ motion to dismiss,

Plaintiffs characterize this Count as a derivative claim “on behalf

of the Defendant Paradise Pines Homeowners’ Association against

Defendants.” Pls.’ Mem. at 21.

The UPCA provides that officers and members of a homeowners’

association executive board stand in a fiduciary relationship to

the association and must perform their duties with care and good

faith. 68 Pa. Cons. Stat. Ann. § 5303(a) (West 1994 & Supp. 2000).

Under Pennsylvania law, the duty of care requires that directors

serve the best interests of the corporation and act with the level

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of care, including reasonable inquiry, skill, and diligence, of an

ordinarily prudent person under similar circumstances. 15 Pa.

Cons. Stat. Ann. § 5712(a) (West 2002). Taking Plaintiffs’ version

of the facts as true, they pleaded facts sufficient to make a claim

for a violation of fiduciary duty. Specifically, Plaintiffs allege

that the Paradise Pines Homeowners’ Association was a sham,

existing solely for the enrichment of David and Dawn Katz. Pls.’

Compl. at 26. Accordingly, this Court finds that this Count

survives Defendants’ Motion to Dismiss.

IV. DISCUSSION – MOTION TO STRIKE LIS PENDENS

The doctrine of lis pendens pertains to actions in equity

affecting title to real property. See Pen-Del Mortgage Associates

v. FDIC, CIV.A. No. 94-0067, 1994 WL 318445, *2 (E.D. Pa. June 30,

1994)(Hutton, J.). Lis Pendens, or suit pending, is the power,

jurisdiction or control which a court acquires over property

involved in the pending action until final judgment is entered.

See Pen-Del Mortgage Associates, 1994 WL 318445, *2. The filing of

lis pendens does not establish a lien against the property. See 

Dice v. Bender, 383 Pa. 94 (1955). Rather, it merely serves as

notice to third parties that they risk being bound by an adverse

judgment. See McCahill v. Roberts, 421 Pa. 233, 219 A. 2d 306

(1966). Indeed, the indexing of lis pendens functions as

constructive notice to prospective buyers. See Ricci v, Saia, 13

Pa. D. & C.3d 361 (1980) (citing Tourison’s Estate, 321 Pa. 299,

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184 Atl. 95 (1936)). “[A] potential purchaser can readily

ascertain whether there is a claim affecting the property.” See

Chrysler Corp. v. Fedders Corp., 670 F. 2d 1316, 1329 (3d Cir.

1981).

Lis pendens is properly filed against a property only when the

litigation involves a determination of rights involved with that

property. See Short v. Weinrebe, CIV.A. No. 87-5057, 1988 WL 12511

(E.D. Pa. Feb. 17, 1988). Either title to the property or the

premise itself must be implicated in the suit. See First National

Bank of Mercer County v. Allstate Distributors Inc., 25 Pa. D. &

C.3d 329, 333 (1982).

The doctrine of lis pendens is rooted in common law and

equitable principles. Id. at 331. As such, this doctrine remains

subject to equitable principles. See Id. at 331; see also Dice,

283 Pa. 94. “In deciding whether to strike a lis pendens, the

court must balance the equities to determine whether the

application of the doctrine is harsh or arbitrary and whether

cancellation of the lis pendens would result in prejudice to the

nonpetitioning party.” See Pen-Del Mortgage Associates, 1994 WL

318445, *2.

In the instant case, Plaintiffs assert that Defendants

promised to construct Plaintiffs’ home exactly as specified in the

contract. Defendants, however, failed to obtain the necessary

variances. Consequently, Defendants made unauthorized

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modifications to the house, which affected property boundaries.

See Plnt. Response to Deft. Mot. to Strike p. 4. As a result,

Plaintiffs allege that some of their electrical controls, including

Plaintiffs’ sprinkler system, have been installed on what is being

held out as Defendants’ property. Plaintiffs contend that if full

relief is granted to them, Defendants will have to cede the land in

question to the Plaintiffs, thereby putting the land in issue.

This may also cloud Defendants’ title. In addition, Defendants

have recently put their home up for sale. See Plnt. Ext. “5.” An

indexed lis pendens would put any prospective purchasers on notice

of the potential boundary shifting. 

Balancing the equities of the instant case, the Court finds

that Defendants’ motion must be denied. First, Plaintiffs put

forth evidence showing that this action directly impacts

Defendants’ title to the land. In response, Defendants present no

evidence disputing Plaintiffs’ assertions implicating potential

boundary disputes or refuting the notion that some of the land

would have to be ceded as a remedy. Moreover, the purpose of the

lis pendens, to provide constructive notice to potential

purchasers, is implicated in this case. Accordingly, Defendant’s

Motion is denied.

V. CONCLUSION

Pursuant to Federal Rule of Civil Procedure 12(b)(6), a court

may only dismiss a complaint where plaintiff can prove no set of

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facts, consistent with his allegations, which justifies relief. In

this case, Plaintiffs have pled sufficient facts to state a claim

for each of their Counts, except one. Plaintiffs’ Section 1962(b)

claim must be dismissed. Defendants’ motion is denied as to all

other claims.

Under Pennsylvania law, the indexing of lis pendens functions

as constructive notice to prospective buyers. Lis pendens is

properly filed against a property only when the litigation involves

a determination of rights involved with that property. In this

case, Plaintiffs aver that, if they are granted the full extent of

the relief sought, Defendants will be forced to cede land to the

Plaintiffs. Thus, the title to Defendants’ property is implicated

by the instant suit. Accordingly, Defendants’ Motion to Strike Lis

Pendens is denied.

An appropriate Order follows.

Case 2:02-cv-04405-HH Document 11 Filed 04/03/2003 Page 24 of 25
IN THE UNITED STATES DISTRICT COURT

FOR THE EASTERN DISTRICT OF PENNSYLVANIA

ROBERT S. CHEATLE, et al. : CIVIL ACTION

:

v. :

:

DAVID A. KATZ, et al. : NO. 02-4405

O R D E R

AND NOW, this 1st day of April, 2003, upon consideration of

Defendants’ Motion to Dismiss (Docket No. 4) and Defendants’ Motion

to Strike Lis Pendens (Docket No. 5), IT IS HEREBY ORDERED that:

(1) Defendants’ Motion to Dismiss (Docket No.4) is GRANTED IN

PART AND DENIED IN PART, as follows:

(A) Defendants’ Motion is GRANTED as to Plaintiffs’ claim

under 18 U.S.C. § 1962(b) and this claim is DISMISSED;

(B) Defendants’ Motion is DENIED as to the remainder of

Plaintiffs’ claims; and

(2) Defendants’ Motion to Strike Lis Pendens (Docket No. 5) is

DENIED.

BY THE COURT:

________________________

HERBERT J. HUTTON, J.

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