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Baxter Bailey & Associates, Inc. v. Hovnanian Enterprises, Inc.

United States District Court, D. Maryland

October 27, 2016

BAXTER BAILEY & ASSOCIATES, INC., Plaintiff
v.
HOVNANIAN ENTERPRISES, INC., Defendant

          MEMORANDUM AND ORDER

          James K. Bredar, United States District Judge

         Pending before the Court is Defendant Hovnanian Enterprises, Inc.'s motion to dismiss for lack of subject matter jurisdiction. (ECF No. 12.) That motion has been fully briefed. (ECF Nos. 14, 15.) Also pending is Plaintiff Baxter Bailey & Associates, Inc.'s related motion for leave to file a surreply (ECF No. 16), which Defendant opposes (ECF No. 17). No hearing is necessary on either motion. See Local Rule 105.6 (D. Md. 2016.) For the reasons stated below, Plaintiff's motion for leave to file a surreply will be granted, Plaintiff's proposed surreply (ECF No. 16-1) will be docketed as a surreply, and Defendant's motion to dismiss will be denied.

         I. Standard for Dismissal for Lack of Standing

         A plaintiff's standing to sue in federal court is “an essential and unchanging part of the case or controversy requirement of Article III.” Lujan v. Defenders of Wildlife, 504 U.S. 555, 560 (1992). To have Article III standing, “[t]he plaintiff must have suffered or be imminently threatened with a concrete and particularized ‘injury in fact' that is fairly traceable to the challenged action of the defendant and likely to be redressed by a favorable judicial decision.” Lexmark Int'l, Inc. v. Static Control Components, Inc., 134 S.Ct. 1377, 1386 (2014) (citing Lujan, 504 U.S. at 560). The burden of establishing standing lies with the party invoking federal jurisdiction. Lujan, 504 U.S. at 561.

         A challenge to standing, like other issues of federal subject-matter jurisdiction, may be either facial (i.e., the complaint fails to allege facts upon which subject-matter jurisdiction can be based), or factual (i.e., the complaint's jurisdictional allegations are not true). See Kerns v. United States, 585 F.3d 187, 192 (4th Cir. 2009) (citing Adams v. Bain, 697 F.2d 1213, 1219 (4th Cir. 1982)). In the case of a factual challenge, it is permissible for a district court to “consider evidence outside the pleadings without converting the proceeding to one for summary judgment.” Richmond, Fredericksburg & Potomac R.R. Co. v. United States, 945 F.2d 765, 768 (4th Cir. 1991) (citing Adams, 697 F.2d at 1219).

         II. Factual Allegations[1]

         The present action arises from an alleged agreement between Defendant and Eco Tarp Systems International, LLC (“Eco Tarp”) in which Defendant, a real estate development company, allegedly contracted to rent two hundred tarps over a period from July 31, 2015, to December 31, 2016, which Eco Tarp would deliver, install, and maintain in exchange for a set fee schedule. (Compl. ¶¶ 5-8, ECF No. 1.) In a subsequent arrangement, Eco Tarp further agreed to perform mold remediation at one of Defendant's project sites. (Id. at ¶ 12.) According to the complaint, Eco Tarp began performance on the tarp rental contract, provided the requested mold remediation, and submitted several invoices to Defendant. (Id. at ¶ 9-13.) However, Defendant soon stopped making payments and, on October 28, 2015, announced its intention to terminate the tarp rental contract with Eco Tarp. (Id. at ¶¶ 11, 14-15.) Defendant's termination allegedly triggered an acceleration clause, giving Eco Tarp a right to collect on the entirety of Defendant's obligations under the full term of the contract. (Id. at ¶ 18.)

         According to Plaintiff, it subsequently executed an agreement with Eco Tarp whereby Eco Tarp assigned Plaintiff all its rights to collect on Defendant's obligations. (Id. at ¶ 19.) Subsequent to its initial agreement with Eco Tarp (Assignment Agreement, ECF No. 12-2), Plaintiff filed a financing statement with the Virginia State Corporation Commission (Financing Statement, ECF. No. 12-3) and, later still, executed a supplement to the assignment agreement (Assignment Supplement, ECF No. 14-1). To date, Defendant has refused to acknowledge any obligation to render payment to Plaintiff. (Compl. ¶ 20.)

         III. Analysis

         Defendant argues that Eco Tarp's assignment to Plaintiff was invalid, and that as a result, Plaintiff lacks standing to pursue the present litigation. (Mot. to Dismiss 2.) Defendant first argues that, on its face, the assignment agreement fails to convey to Plaintiff legal title and ownership of Eco Tarp's claim against Defendant, a necessary requirement for it to have standing. (Id. at 10-11.) Alternatively, Defendant claims that even if facially valid, any purported assignment by Eco Tarp to Plaintiff violates Mississippi's prohibition on champerty and is therefore void, thus destroying Plaintiff's standing. (Def.'s Reply 5.) The Court rejects both arguments.

         A. Plaintiff's Petition to File a Surreply

         Although surreplies are disfavored in this District, the Court may grant leave to file a surreply under appropriate circumstances. See Local Rule 105.2(a) (D. Md. 2016). One such circumstance is where the “moving party would be unable to contest matters presented to the court for the first time in the opposing party's reply.” Khoury v. Meserve, 268 F.Supp.2d 600, 605 (D. Md. 2003), aff'd, 85 F. App'x 960 (4th Cir. 2004) (per curiam).

         It was not until its reply brief that Defendant introduced its argument that Plaintiff's lawsuit should be barred by Mississippi's anti-champerty statute. (Def.'s Reply 5.) The Court does not view Defendant's champerty theory as an obviously foreseeable response to Plaintiff's observation that its contract with Eco Tarp is governed by Mississippi law. Because Plaintiff would otherwise be unable to respond to Defendant's argument, the Court will grant Plaintiff's motion for leave to file its proposed surreply.

         B. Facial Validity of the ...


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