Martin Gross v. R.T. Reynolds

NOT PRECEDENTIAL

UNITED STATES COURT OF APPEALS

FOR THE THIRD CIRCUIT

_____________

No. 11-3917

_____________

MARTIN GROSS, Individually and t/d/b/a The Art I Do,

Appellant,

v.

R.T. REYNOLDS, INC.; HARRISBURG UNIVERSITY OF SCIENCE AND

TECHNOLOGY; D.E. GIMMELL, INC.; GRAYSTONE BANK; IKE SHOLLEY;

WAYNE SPAHR; RON WHISKER; TODD BUZARD; ERIC DARR;

DELLANOR YOUNG; DAVE ANGLE,

Appellees.

_______________

On Appeal from the United States District Court

for the Middle District of Pennsylvania

(D.C. No. 10-cv-2380)

District Judge: Hon. Lawrence F. Stengel

_______________

Submitted Under Third Circuit LAR 34.1(a)

June 29, 2012

Before: SLOVITER, CHAGARES, and JORDAN, Circuit Judges.

(Filed: July 6, 2012)

_______________

OPINION OF THE COURT

_______________

JORDAN, Circuit Judge.

Martin Gross appeals the order of the United States District Court for the Middle

District of Pennsylvania dismissing his civil rights claims under 42 U.S.C. §§ 1981 and

1983, as well as his state law claims alleging breach of contract and breach of the duty of

good faith and fair dealing. Although Gross‟s Amended Complaint fails to satisfy the

pleading standards set forth in Federal Rule of Civil Procedure 8, we will remand to

allow the District Court to determine in the first instance whether it should grant Gross

leave to further amend, or whether such amendment would be futile or inequitable.

I. Background

A. Facts1

Defendant Harrisburg University of Science and Technology (“the University”) is

a private institution registered with the Pennsylvania Department of Education. It

receives public funding and is subject to state and federal regulation. Defendant Eric

Darr is the President of the University. Defendant R.T. Reynolds, Inc. (“Reynolds”) is a

Pennsylvania corporation and the general contractor for a construction project at the

University. Defendants Ike Sholley, Wayne Spahr, Ron Whisker, Todd Buzard, and

Dave Angle are Reynolds‟s officers, employees, or agents. The University‟s construction

project “received extensive federal, state, and/or local funding, was subject to public

procurement requirements and standards, and reporting requirements, including …

1

In reviewing a district court‟s decision to grant a motion to dismiss under Federal

Rule of Civil Procedure 12(b)(6), we “accept as true all well-pled factual allegations in

the complaint, and view them in the light most favorable to the plaintiff.” Marcavage v.

Nat’l Park Serv., 666 F.3d 856, 858 (3d Cir. 2012).

2

[reporting pertinent to] the City of Harrisburg‟s disadvantaged business program for

minority and women owned businesses.”2 (Amend. Compl. ¶ 13.)

Gross (doing business as “The Art I Do”3) and his colleague James White, both of

whom are African-American, submitted a proposal to Reynolds to perform painting in

connection with Reynolds‟s construction work at the University. Defendants Whisker

and Spahr allegedly solicited Gross to work on the construction project, negotiated with

him on behalf of Reynolds, and were “involved in the contract management matters

throughout the performance of the contract.” (Amend. Compl. ¶ 17.)

According to Gross, Reynolds was initially apprehensive about doing business

with him and White, based on its past dealings with them. Specifically, Reynolds was

hesitant to work with Gross and White because it had worked with them on a mold-

abatement project in 2005 and, during that project, Gross and White had “refused to

become complicit in an effort to conceal the … scope of the mold problem.” (Id. ¶ 22.)

As Gross tells it, when he and White refused to conceal that problem, “Reynolds was

forced to make significant additional expenditures” on the 2005 project. (Id.)

Despite Reynolds‟s initial hesitance, however, it entered a subcontracting

agreement with Gross and White on May 7, 2007. Reynolds hired Dellanor Young, a

consultant, to oversee “the disadvantaged business provisions of … [that] contract.” (Id.

2

Under the City of Harrisburg‟s (“the City”) disadvantaged business program,

contractors who submitted bids for general construction projects in the City received

points for soliciting and using businesses owned by minorities and women.

3

The Amended Complaint alleges that The Art I Do is a certified disadvantaged

business under the City‟s disadvantaged business program.

3

¶ 15.) Under the agreement,4 Gross and White promised to provide Reynolds with

painting services. The agreement also stated that Reynolds could reduce the scope of

Gross‟s duties under the contract and require Gross to subcontract with other vendors to

perform some of his contractual duties. It also provided that Reynolds was not

responsible for any unexpected delays in the construction project. Gross claims that the

agreement also required him to secure financing from Defendant Graystone Bank

(“Graystone”), to ensure that The Art I Do could satisfy its payroll expenses and other

costs associated with performing under the contract while Reynolds was in the process of

making payments. Gross alleges that, unlike other similarly situated non-minority

contractors who entered into financing agreements with Graystone, he was required “to

grant Graystone a mortgage on [his] personal residence … .” (Id. ¶ 37.)

Gross points to a series of events during the formation and performance of the

agreement which, according to him, demonstrate that Reynolds intended to discriminate

against him on the basis of race. First, he claims that, at the time he executed the

agreement with Reynolds, “Reynolds knew that it would not perform certain aspects of

[the] contract … but proceeded to” execute the agreement in order to enhance its position

in the bidding process for construction work at the University. (Id. ¶ 19.) Second, he

4

Although Gross did not attach a copy of the agreement to the Amended

Complaint, Reynolds attached a copy of it to its motions to dismiss. Because there is no

dispute as to the authenticity of the agreement, and the precise terms are integral to our

analysis, we may consider it in assessing the merits of Gross‟s appeal. See Pension

Benefit Guaranty Corp. v. White Consol. Indus., Inc., 998 F.2d 1192, 1196 (3d Cir. 1993)

(“We … hold that a court may consider an undisputedly authentic document that a

defendant attaches as an exhibit to a motion to dismiss if the plaintiff‟s claims are based

on the document.”).

4

claims that “[e]arly in the performance of the contract, it became apparent that work

delays would not permit [Reynolds] to be able to commence and end its work as

contemplated by the contract” (id. ¶ 24), and that Reynolds‟s employees “sabotaged” his

work schedule “by showing favoritism and granting preferences to other non-minority

contractors.” (Id. ¶ 33.) Third, he alleges that, although his duties under the agreement

included installing wood veneer in a building at the University, “Reynolds arbitrarily

decided to remove the veneer job from the scope of [Gross‟s] work … and to give it to

another contractor … .” (Id. ¶ 39.) Fourth, Gross alleges that, on January 17, 2008, Ike

Sholley, a Reynolds employee, sent him a letter demanding that he remove White from

the University construction project, and that Sholley made that demand for

“discriminatory and retaliatory reasons[] relating to Mr. White‟s race … .” (Id. ¶ 28.)

Finally, Gross claims that Reynolds demonstrated its “favoritism … to … non-minority

contractors,” by selecting D.E. Gimmell, Inc. (“Gimmell”), another subcontractor, to

perform parking lot line painting for the construction project even though he originally

bid on that work, and that Reynolds required him to compensate Gemmill when it

completed the painting. (Id. ¶ 33.)

On several occasions, White complained to Reynolds or the University about the

allegedly discriminatory behavior of Reynolds and its employees. In early 2008, White

wrote a letter to an official at the University complaining that minority contractors

received unequal treatment during the performance of their duties in connection with the

construction project at the University, and Gross made several written and oral

complaints to Reynolds about the work delays. Although those letters and complaints did

5

not fix his predicament with Reynolds and its employees, Gross alleges that his working

relationship with the company improved in March 2008, after he hired a non-minority

foreman.

Gross asserts that, although he completed all of his contractual obligations by

April 2009, Reynolds failed to pay him from $88,000 to $120,000 it owed him under the

terms of the agreement.5

B. Procedural History

Based on the conduct described above, Gross initiated this lawsuit against

Reynolds, the University, Darr, Young, Graystone, Gimmell, Sholley, Spahr, Whisker,

Buzard, and Angle (collectively, “Defendants”), asserting claims under 42 U.S.C.

§§ 1981 and 1983, as well as state law claims of breach of contract and breach of the

implied duty of good faith and fair dealing. All Defendants moved to dismiss the

Amended Complaint. On September 22, 2011, the District Court issued an opinion and

order dismissing Gross‟s federal claims against each of the Defendants.6 Having

dismissed the federal claims, the Court declined to exercise supplemental jurisdiction

over Gross‟s state law claims under 28 U.S.C. § 1367(c)(3).

This timely appeal followed.

5

Although the Amended Complaint states that Reynolds failed to “Reynolds is …

obligated to pay the Art I Do … $88,000 - $120,000,” (Amend. Compl. ¶ 50), Gross‟s

appellate brief states that “Reynolds is … obligated to pay the Art I Do … $90,000,”

(Appellant‟s Br. at 12.)

6

The District Court also dismissed Eloise Gross as a Plaintiff. We affirm that

dismissal as the Amended Complaint contains no allegations indicating that Eloise Gross

was involved in any of the transactions or occurrences giving rise to this lawsuit.

6

II. Discussion7

On appeal, Gross argues that the District Court erred by dismissing the Amended

Complaint pursuant to Federal Rule of Civil Procedure 12(b)(6). Our review of that

decision is plenary. Fowler v. UPMC Shadyside, 578 F.3d 203, 206 (3d Cir. 2009). We

take as true all the factual allegations in the Amended Complaint and the reasonable

inferences that can be drawn from those facts, Sheridan v. NGK Metals Corp., 609 F.3d

239, 262 n.27 (3d Cir. 2010), but we disregard legal conclusions and “[t]hreadbare

recitals of the elements of a cause of action, supported by mere conclusory statements,”

Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009). “To survive a motion to dismiss, a

complaint must contain sufficient factual matter, accepted as true, to state a claim to relief

that is plausible on its face.” Sheridan, 609 F.3d at 262 n.27 (citation and internal

quotation marks omitted). “A claim has facial plausibility when the plaintiff pleads

factual content that allows the court to draw the reasonable inference that the defendant is

liable for the misconduct alleged.” Id. (citations and internal quotation marks omitted).

A. Gross’s § 1981 Claims Against Reynolds and Its Employees

We begin by addressing Gross‟s § 1981 claims against Reynolds and its

employees. The District Court held that the Amended Complaint failed to allege facts

sufficient to state a plausible § 1981 claim against any of those Defendants. We agree.

Section 1981 provides that:

All persons within the jurisdiction of the United States shall

have the same right in every State and Territory to make and

7

The District Court had jurisdiction pursuant to 28 U.S.C. §§ 1331 and 1367. We

have jurisdiction under 28 U.S.C. § 1291.

7

enforce contracts, to sue, be parties, give evidence, and to the

full and equal benefit of all laws and proceedings for the

security of persons and property as is enjoyed by white

citizens, and shall be subject to like punishment, pains,

penalties, taxes, licenses, and exactions of every kind, and to

no other.

42 U.S.C. § 1981(a). To state a claim under § 1981, a party must allege facts sufficient to

show: “(1) [he] is a member of a racial minority; (2) intent to discriminate on the basis of

race by the defendant; and (3) discrimination concerning one or more of the activities

enumerated in the statute[,] which includes the right to make and enforce contracts … .”

Brown v. Philip Morris, Inc., 250 F.3d 789, 797 (3d Cir. 2001) (citation and internal

quotation marks omitted).

Accepting as true the averments in the Amended Complaint, we conclude that

Gross has failed to allege a plausible claim of intentional discrimination on the basis of

race against Reynolds and its employees under § 1981. While the Amended Complaint

alleges an abundance of wrongdoing by Reynolds and its employees, it fails to allege any

facts supporting the conclusion that those acts were motivated by discrimination on the

basis of race. Instead, it alleges a series of unfortunate events and then states, in

conclusory fashion, that the reason for those events is that Reynolds harbored

discriminatory animus towards Gross or White. For example, Gross alleges that

Reynolds‟s employees “sabotaged” his work schedule “by showing favoritism and

granting preferences to other non-minority contractors,” and delayed the construction

project. (Amend. Compl. ¶ 33.) However, Gross fails to allege how Reynolds treated

non-minority contractors any differently than it treated him, or how delays in the

8

construction project were motivated by or related to Gross‟s race.8 Gross also claims that

Sholley sent him a letter demanding that he remove White from the University

construction project, and that Sholley did so for “discriminatory and retaliatory reasons[]

relating to Mr. White‟s race … .” (Id. ¶ 28.) But, once again, Gross alleges no facts

supporting that conclusion. So too with Gross‟s averments that Reynolds removed the

veneer work from the agreement and required him to retain and compensate Gemmill for

work which Gross “originally bid on but was deleted from the scope of work.” (Id. ¶ 42.)

Even if that conduct constituted a breach of the agreement, Gross fails to allege facts

supporting the inference that Reynolds took those actions for discriminatory reasons.9

8

It is not immediately apparent why the hiring of a white foreman by a minority

subcontractor would make a racist contractor more inclined to treat the minority

subcontractor better, but even if that were true, Rule 8 requires more than mere

speculation. A plaintiff must plead facts sufficient to “raise a right to relief above the

speculative level.” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2009). Thus, without

more, the fact that Gross‟s and Reynolds‟s relationship improved after Gross hired a non-

minority foreman does not give rise to a reasonable inference that Reynolds intended to

discriminate against Gross on the basis of race.

9

The agreement expressly gives Reynolds the authority to take those actions, and

Gross fails to allege any facts suggesting that Reynolds exercised that authority for

discriminatory reasons. (See App. at 112 (providing “[t]he Subcontractor may be ordered

in writing by the Contractor, without invalidating this Subcontract, to make changes in

the Work within the general scope of this Subcontract consisting of additions, deletions

or other revisions … .”); id. at 107 (providing that “[t]he Contractor may require the

Subcontractor to enter into agreements with Sub-subcontractors performing portions of

the Work of this Subcontract by which the Subcontractor and the Sub-subcontractor are

mutually bound, to the extent of the Work to be performed by the Sub-subcontractor …

.”).)

9

Therefore, because the Amended Complaint fails to allege facts sufficient to state

a plausible § 1981 claim against Reynolds and its employees, the District Court properly

dismissed Gross‟s § 1981 claims against those defendants.10

B. Gross’s § 1981 Claims Against the University and Darr

The District Court also dismissed the § 1981 claims against the University and

Darr because they were not parties to a contract with Gross, and the factual allegations in

the Amended Complaint did not support a reasonable inference that they interfered with a

contract between Reynolds and Gross. We agree with that considered judgment.

Section 1981 prohibits discrimination on the basis of race in the “mak[ing] and

enforc[ing][of] contracts.” 42 U.S.C. § 1981(b). The statute defines the “mak[ing] and

enforc[ing] [of] contracts” as “the making, performance, modification, and termination of

contracts, and the enjoyment of all benefits, privileges, terms, and conditions of the

contractual relationship.” Id. Consistent with that language, the Supreme Court has held

that “Section 1981 offers relief when racial discrimination blocks the creation of a

contractual relationship, as well as when racial discrimination impairs an existing

contractual relationship, so long as the plaintiff has or would have rights under the

existing or proposed contractual relationship.” Domino’s Pizza, Inc. v. McDonald, 546

U.S. 470, 476 (2006).

Here, the Amended Complaint does not allege that Gross “has or would have

rights under [an] existing or proposed contractual relationship” with the University or

10

On August 15, 2011, the District Court issued an order dismissing with

prejudice all claims against Gemmill based on Gross‟s stipulation to that effect.

10

Darr. Id. Thus, in order to state a claim against the University and Darr, Gross must

allege that they blocked him from creating a contractual relationship with Reynolds or

another third party, or impaired a contractual relationship that existed between him and a

third party. The Amended Complaint contains no such allegations. With respect to Darr,

the Amended Complaint alleges that he “approached [Gross] and made inquiries into the

nature of [Gross‟s] relationship with Reynolds,” and that Gross had the impression that,

based on Darr‟s inquiries, “[he] was trying to learn things from [Gross] surreptitiously …

.” (Amend. Compl. ¶ 26.) As to the University, the Amended Complaint alleges vaguely

that, along with all of the other Defendants, it “knowingly subjected [Gross] to disparate

treatment in the management of his subcontract because he is a minority.” (Id. ¶ 48.)

None of those allegations supports a reasonable inference that, for reasons related

to race, the University or Darr impaired the creation or performance of a contract to

which Gross was a party. First, the vague allegation that Darr was “trying to learn things

surreptitiously” provides no indication that his inquiries were racially motivated or

designed to interfere with Gross‟s contract with Reynolds. Moreover, Gross‟s assertion

that the University “knowingly subjected him to disparate treatment … because he is a

minority” is nothing more than a legal conclusion couched as a factual allegation, which,

under Rule 8, is insufficient to defeat a motion to dismiss. See Baraka v. McGreevey,

481 F.3d 187, 195 (3d Cir. 2007) (noting that on motion to dismiss court is “not

compelled to accept unsupported conclusions and unwarranted inferences, or a legal

conclusion couched as a factual allegation” (citations and internal quotation marks

omitted)). Therefore, we agree with the District Court‟s decision to dismiss Plaintiff‟s

11

§ 1981 claims against the University and Darr.

C. Gross’s § 1981 Claims against Young and Graystone Bank

We also agree with the District Court‟s determination that Gross failed to allege

facts sufficient to state a plausible § 1981 claim against Young and Graystone. With

respect to Young, the Amended Complaint alleges in conclusory fashion that, although

Young was “charged with the responsibility of monitoring the disadvantaged business

provisions of the bid documents and the contract” (Amend. Compl. ¶ 15), she

“knowingly worked with Reynolds to conceal the” fact that “Reynolds was failing to

meet its commitments to [Gross] and perhaps other minority contractors,” and did not

“work toward contractual or extra-contractual remedies for [those] failures,” (id. ¶ 31.)

However, as the District Court correctly noted, the Amended Complaint fails to allege

anything Young did to conceal those problems or how she monitored the project in a

manner that gives rise to the reasonable inference that she intended to discriminate

against Gross on the basis of race.11

The Amended Complaint also fails to state a § 1981 lending discrimination claim

against Graystone. To make a prima facie lending discrimination claim, Gross must

show

(1) that he belongs to a protected class, (2) that he applied and

was qualified for credit that was available from the defendant,

(3) that his application was denied or that its approval was

made subject to unreasonable or overly burdensome

11

Indeed, even assuming that Young was negligent by failing to adequately

monitor the construction project, and concealed the fact that Reynolds failed to meet its

contractual obligations, Gross does not allege facts supporting the inference that Young

acted for reasons related to race.

12

conditions, and (4) that some additional evidence exists that

establishes a causal nexus between the harm suffered and the

plaintiff‟s membership in a protected class, from which a

reasonable juror could infer, in light of common experience,

that the defendant acted with discriminatory intent.

Anderson v. Wachovia Mortg. Corp., 621 F.3d 261, 275 (3d Cir. 2010). The Amended

Complaint does not allege that Gross was qualified for an unsecured line of credit, or that

the requirement of a mortgage on his property was unreasonable or overly burdensome.

Moreover, Gross‟s naked assertion that Graystone did not require other similarly situated

non-minority customers to secure their loans with a home mortgage does not suffice to

satisfy Rule 8‟s pleading standard. See Iqbal, 556 U.S. at 678 (“Nor does a complaint

suffice if it tenders „naked assertion[s]‟ devoid of „further factual enhancement.‟”

(quoting Twombly, 550 U.S. at 557)). Accordingly, we agree with the District Court‟s

conclusion that the Amended Complaint fails to state a § 1981 lending discrimination

claim against Graystone.

D. Gross’s § 1983 Claims Against All Defendants

Finally, the District Court dismissed Gross‟s § 1983 claims based on its

determination that the Amended Complaint failed to allege that any of the Defendants

acted under the color of state law. We find no error in that determination. Section 1983

provides that:

Every person who, under color of any statute, ordinance,

regulation, custom, or usage, of any State or Territory or the

District of Columbia, subjects, or causes to be subjected, any

citizen of the United States or other person within the

jurisdiction thereof to the deprivation of any rights,

privileges, or immunities secured by the Constitution and

13

laws, shall be liable to the party injured in an action at law,

suit in equity, or other proper proceeding for redress … .

42 U.S.C. § 1983. It is well-settled that, “to state a claim of liability under § 1983, [the

plaintiff] must allege that [he] was deprived of a federal constitutional or statutory right

by a state actor.” Leshko v. Servis, 423 F.3d 337, 339 (3d Cir. 2005).

That requirement is fatal to Plaintiff‟s § 1983 claim. The Amended Complaint

contains no facts supporting a reasonable inference that Graystone, Reynolds, Reynolds‟

employees, Gemmill, or Young are state actors. With respect to the University, the

Amended Complaint suggests that because the University “was funded in large part by

public monies” and is subject to “state … laws governing public procurement,” it is a

state actor under § 1983. (Amend. Compl. at 2.) However, a private entity does not

become a state actor for the purpose of § 1983 simply because it is subject to state

regulations or receives funding from the state. See Rendell-Baker v. Kohn, 457 U.S. 830,

840 (1982) (holding that nonprofit, private “school‟s receipt of public funds does not

make [its] discharge decisions acts of the State”); Blum v. Yaretsky, 457 U.S. 991, 1011

(1982) (rejecting claim that nursing home was state actor even though state subsidized

the operating and capital costs of the nursing home facilities, paid the medical expenses

of more than 90% of the patients in the home, and licensed the nursing home‟s facilities).

Instead, in determining whether conduct is attributable to the state or a private entity, we

ask “whether there is such a close nexus between the State and the challenged action that

seemingly private behavior may be fairly treated as that of the State itself.” Leshko, 423

F.3d at 339 (citations and internal quotation marks omitted). Here, aside from the

14

allegations that the University receives “public monies” and is subject to state regulation,

the Amended Complaint is devoid of any factual allegations supporting a reasonable

inference that the University is a state actor. And because the University is not

adequately alleged to be a state actor, it is not subject to liability under § 1983. Finally,

because the University is not a state actor, and the Amended Complaint provides no

indication that Darr is a state actor, he is not subject to liability under § 1983.

In sum, because the Amended Complaint fails to allege that any of the Defendants

are state actors, the District Court appropriately dismissed Plaintiff‟s § 1983 claims.12

D. Leave to Amend

Gross also argues that the District Court erred by dismissing the Amended

Complaint without granting him leave to amend. That may be true, but it is difficult to

discern what happened in the District Court in this regard. We cannot tell from the

parties‟ submissions what, if anything, was communicated to Gross to show either that he

had leave to file a second amended complaint or to say that amendment would be futile.

The District Court dismissed the Amended Complaint without commenting on whether

the dismissal was with prejudice. Nevertheless, the parties have treated the dismissal at

issue here as being with prejudice, and, since the case appears to have been closed on the

District Court‟s docket, we will treat it that way too.

12

Because Plaintiff does not argue that the District Court abused its discretion by

dismissing their pendent state law claims, we do not consider that issue on appeal. See

Nagle v. Alspach, 8 F.3d 141, 143 (3d Cir. 1993) (noting that “[w]hen an issue is either

not set forth in the statement of issues presented or not pursued in the argument section of

the brief, the appellant has abandoned and waived that issue on appeal”).

15

Under our precedent, “if a complaint is subject to a Rule 12(b)(6) dismissal, a

district court must permit a curative amendment unless such an amendment would be

inequitable or futile.” Phillips v. Cnty. of Allegheny, 515 F.3d 224, 245 (3d Cir. 2008).

Here, it appears that amendment may be futile with respect to at least some of the claims

against some of the Defendants. For example, Graystone asserts in its brief that Gross‟s

claims against it are barred by the statute of limitations. If true, that would render

amendment futile with respect to the claims against it. Also, the Amended Complaint

acknowledges that the University is a “private educational institution” (Amend. Compl.

at 2), and it is not at all clear that Gross can say anything to show that the University had

the kind of relationship with the state that would give rise to an inference that the

University should be considered a state actor under § 1983. It thus may be that

amendment of that claim as to the University and its President would be futile.

The futility or inequitableness of amendment may affect more than those two

examples, but we will not endeavor to determine that now. Those are questions for the

District Court to address in the first instance. As we said in Phillips, “even when [a]

plaintiff does not seek leave to amend his complaint after a defendant moves to dismiss it,

unless the district court finds that amendment would be inequitable or futile, the court

must inform the plaintiff that he or she has leave to amend the complaint within a set

period of time.” 515 F.3d at 245. The District Court does not appear to have done that

here. Thus, we remand for the District Court to determine and explain in the first

instance whether leave to amend should be granted or whether further amendment would

be futile or inequitable.

16

III. Conclusion

For the foregoing reasons, we will vacate and remand.

17