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KCE Properties, Inc. v. Holy Mackerel, Inc.

United States District Court, E.D. Virginia, Newport News Division

October 31, 2016




         This matter is before the Court on a 12(b)(6) Motion to Dismiss[1] filed by Holy Mackerel, Inc. ("Holy Mackerel') and Daniel Carpenter (collectively, "Defendants"). Such motion asserts that KCE Properties, Inc. ("KCE" or "Plaintiff") failed to state a claim on which relief can be granted in Count Two of the Complaint. Finding that oral argument is unnecessary, and for the reasons set forth below, Defendants' motion to dismiss is DENIED.


         The instant civil action was filed pursuant to this Court's diversity jurisdiction and it implicates the laws of the Commonwealth of Virginia. Compl. ¶¶ 7-8, 38, ECF No. 1. Plaintiff, as successor in interest to a company that entered into a lease agreement with Holy Mackerel, is Holy Mackerel's lessor. Id. ¶¶ 14-16. Daniel Carpenter is the "owner and corporate officer of Holy Mackerel." Id. ¶ 13.

         The terms of the lease specify that, during the pendency of the lease, Holy Mackerel has the right to remove from the premises "all fixtures not-affixed to the building." Id. ¶ 17. The lease further states that "all built in alterations and improvements become the property of the Lessor upon termination of the lease . . . ." Id. The only specified exceptions are the hostess counter and certain lessee-purchased kitchen equipment. Id. The lease provision governing fixtures concludes by stating that “[a]ny items not removed" during the lease term, or during an optional 3 0-day extension period, "shall become property of [KCE]. "[2] Id.

         Holy Mackerel gave KCE notice of termination on October 9, 2015 and vacated the premises sometime in December of that same year. Id. ¶¶ 18-19. At some point in late 2015, Daniel Carpenter allegedly removed numerous fixtures from the leased premises and caused damage to the premises. Id. ¶¶ 20-21. Mr. Carpenter then later allegedly used or sold these fixtures for his own benefit or for the benefit of Holy Mackerel. Id. ¶ 37. The Complaint further alleges that Holy Mackerel failed to pay its full rent for the final three months that it occupied the rental space. Id. ¶¶ 5, 22.

         As set forth in the Complaint, Plaintiff alleges that Holy Mackerel breached the lease agreement in various ways (Count One) and that both Defendants unlawfully converted Plaintiff's property (Count Two). Defendants jointly filed the instant motion seeking dismissal of the conversion claim set forth in Count Two. Defendants further argue that, if Count Two is dismissed: (1) the request for punitive damages must be dismissed; and (2) Daniel Carpenter must be dismissed as a party to the suit. Plaintiff timely filed a memorandum in opposition to the dismissal motion, and Defendants have not filed a reply brief. The motion is now ripe for adjudication.


         Neither party's briefing calls into question the well-established 12(b)(6) standard of review, which permits dismissal when a plaintiff "fail[s] to state a claim upon which relief can be granted." Fed.R.Civ.P. 12(b)(6). To survive a 12(b)(6) motion, a complaint must include enough facts for a claim to be "plausible on its face" and thereby "raise a right to relief above the speculative level.” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555, 570 (2007) . In determining the plausibility of a claim, district courts are required to assume that all well-pled factual allegations are true "even if doubtful in fact, " id. at 555, and must also "draw all reasonable inferences in favor of the plaintiff, " Kensington Volunteer Fire Dep't v. Montgomery County, 684 F.3d 462, 467 (4th Cir. 2012) (citation omitted). Although the Court must accept all well-pled factual allegations, a plaintiff's legal conclusions are not similarly accepted. Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (citing Twombly, 550 U.S. at 555).


         Defendants seek dismissal of the conversion count based on Virginia's "source of duty rule." The source of duty rule bars tort claims that implicate a duty owed solely through contract. Richmond Metro. Auth. v. McDevitt St. Bovis, Inc., 256 Va. 553, 558, 507 S.E.2d 344, 347 (1998); see Filak v. George, 267 Va. 612, 618, 594 S.E.2d 610, 613 (2004) (" [L]osses suffered as a result of the breach of a duty assumed only by agreement, rather than a duty imposed by law, remain the sole province of the law of contracts."). However, where a tort claim is based upon an independent, common-law duty, Virginia law permits a tort claim to survive alongside a claim based in contract. Richmond Metro., 256 Va. at 558, 507 S.E.2d at 347 (citing Foreign Mission Bd. v. Wade, 242 Va. 234, 241, 409 S.E.2d 144, 148 (1991)). Accordingly, pursuant to Virginia law, "a single act or occurrence can, in certain circumstances, support causes of action both for breach of contract and for breach of a duty-arising in tort, thus permitting a plaintiff to recover both for the loss suffered as a result of the breach and traditional tort damages, including, where appropriate, punitive damages." Dunn Const. Co. v. Cloney, 278 Va. 260, 266-67, 682 S.E.2d 943, 946 (2009) (emphasis added)(citation omitted).

         Regarding conversion claims, the Supreme Court of Virginia has stated that “[a] cause of action for conversion lies independent of an action in contract and may provide a separate basis, distinct from the contract upon which one [party] may sue another." PGI, Inc. v. Rathe Prods., Inc., 265 Va. 334, 344, 576 S.E.2d 438, 443 (2003) (emphasis added). Notwithstanding such broad legal statement, Virginia courts have recognized that the Virginia source of duty rule can act to bar a conversion claim when a party merely "withholds money that he is supposed to pay on a contract, " Taveira v. Vieira, No. CL14-5437, 2015 Va. Cir. LEXIS 90, at *17 (Va. Cir. Ct. May 29, 2015) (City of Virginia Beach), or seizes tangible assets pledged as collateral as was "within the contemplation of the parties when entering into the [written] agreement, " Wachovia Bank, N.A. v. Ranson Tyler Chevrolet, L.L.C., 73 Va. Cir. 143, 154 (Va. Cir. Ct. 2007) (City of Roanoke); see also Worldcom, Inc. v. Boyne, 68 F.App'x 447, 453-54 (4th Cir. 2003) (applying Virginia law, and finding that an employer's actions in blocking an employee's attempt at exercising vested stock options implicated a duty that existed "solely by nature of [the employer's] obligations under the [Stock Option Agreement], and thus, could not support a conversion claim). While it thus appears that the source of duty rule can act to bar a conversion claim in certain circumstances, the Supreme Court of Virginia has recognized that an alleged seizure of property occurring after a contract has been terminated sounds in tort rather than in contract. See Condo. Servs. v. First Owners' Ass'n of Forty Six Hundred Condo., Inc., 281 Va. 561, 574, 709 S.E.2d 163, 171 (2011) (holding that because the parties' contract had terminated before the defendant exercised dominion over the funds at issue, the "alleged acts did constitute the "independent, willful tort' of conversion").


         As argued by Plaintiff in opposition to dismissal of the conversion claim against Daniel Carpenter, Daniel Carpenter was not a party to the lease at issue in this case. Because of such fact, and because the Complaint alleges, in the alternative, that Daniel Carpenter improperly seized KCE's property for hisown personal benefit, Compl. ¶¶ 4, 37, the duty allegedly-violated is not based in contract, but rather, can only implicate the tort duty not to "wrongfully exert[]" dominion over the property of another. PGI, Inc., 265 Va. at 344, 576 S.E.2d at 443 (citation omitted); cf. 1-18 Virginia Remedies § 18.03 ("The source of duty rule affirms the separateness of tort and contract and the liability of those in privity.") (emphasis added). As Defendants have failed to file a reply brief undercutting Plaintiff's legal position on this issue, and have not ...

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