Opinion
Civil Action 22-771
03-07-2023
B.S. INGERSOLL, LLC v. GREAT AMERICAN INSURANCE CO.
MEMORANDUM
John R. Padova, J.
Plaintiff B.S. Ingersoll, LLC (“Ingersoll”) has filed this action seeking a declaration that Defendant Great American Insurance Company (“GAIC”) is obligated to pay Ingersoll under the terms of a Lease Bond. Ingersoll also asserts claims against GAIC for breach of contract and bad faith. GAIC has filed a Motion to Dismiss the Complaint because Plaintiff failed to file suit within the limitations period provided in the Lease Bond (the “Lease Bond Limitations Period”). For the reasons that follow, we grant the Motion and dismiss this action without prejudice.
I. BACKGROUND
The Complaint alleges the following facts. On November 12, 2018, Ingersoll entered into a lease agreement (the “Lease Agreement”) with Medici 1150 N. American Street LLC (“Medici”) for the residential real property located at 1150-1156 North American Street in Philadelphia (the “Property”). (Compl. ¶ 8; Ex. A.) On May 20, 2020, Medici and Ingersoll amended the Lease Agreement (the “Lease Amendment”). (Id. ¶ 9; Ex. B.) On July 16, 2020, pursuant to the Lease Agreement, Medici caused GAIC, the Surety, to issue the Lease Bond payable only to Ingersoll, the Obligee, in an amount up to $550,000.00 (the “Coverage Amount”) as a security deposit to insure Medici's performance of its obligations under the Lease Agreement. (Id. ¶ 11; Ex. C.) Pursuant to the Lease Agreement, the Lease Bond would be available to Ingersoll for the payment of any amount that Ingersoll had expended or become obligated to spend, or to compensate Ingersoll for any losses that it incurred in the event that Medici defaulted on its obligations under the Lease Agreement. (Id. ¶ 12; Ex. A at § 9.2.)
On January 14, 2021, Medici defaulted its obligations under the Lease Agreement by filing a voluntary petition for relief under Chapter 7 of the United States Bankruptcy Code in the United States Bankruptcy Court for the Southern District of New York. (Id. ¶ 13.) Medici's default under the Lease Agreement triggered Ingersoll's rights under the Lease Bond. (Id. ¶ 14.) As a result of Medici's default, Ingersoll suffered damages in excess of the Coverage Amount. (Id. ¶ 15.)
The Chapter 7 Trustee of Medici's bankruptcy estate rejected the Lease Agreement and determined that the bankruptcy estate had no interest in the Lease Bond. (Id. ¶ 16.) The Chapter 7 Trustee also consented to Ingersoll collecting on the Lease Bond to recover damages suffered as a consequence of Medici's default. (Id.) On February 11, 2021, Ingersoll provided timely notice to GAIC of Medici's default under the Lease Agreement and made a claim on the Lease Bond. (Id. ¶ 17; Ex. D.) GAIC has failed to meet its obligations under the Lease Bond, even though Ingersoll has made numerous demands and provided proof of loss to GAIC. (Id. ¶ 20.) All of the events necessary to trigger the Lease Bond have occurred and GAIC is obligated to perform under the Lease Bond. (Id. ¶ 21.) GAIC's failure to perform under the Lease Bond is a breach of the terms of the Lease Bond. (Id. ¶ 22.)
The Complaint asserts three claims for relief. Count I asserts a claim for a declaratory judgment pursuant to 28 U.S.C. § 2201. Ingersoll seeks a declaration that GAIC has a duty to pay Ingersoll under the Lease Bond to compensate Ingersoll for the losses it incurred pursuant to the Lease Agreement. Ingersoll also seeks payment of its costs, including attorney's fees, in connection with the filing of this action. Count II asserts a claim for breach of contract. In connection with Count II, Ingersoll seeks monetary damages in excess of $550,000.00, together with compensatory and consequential damages, attorney's fees, and costs of litigation. Count III asserts a claim of bad faith against GAIC for refusing to pay under the Lease Bond even though it had no reasonable basis for refusing to pay. In connection with Count III, Ingersoll seeks monetary damages in excess of $550,000.00, attorney's fees, and costs of litigation.
II. LEGAL STANDARD
GAIC moves to dismiss the Complaint on the ground that Ingersoll failed to file the instant lawsuit within the Lease Bond Limitations Period for filing such a suit contained in the Lease Bond. “Generally, a statute of limitations defense cannot be raised under Rule 12 because it is not one of the enumerated defenses ‘a party may assert . . . by motion' under the rule.” PG Publ'g, Inc. v. Newspaper Guild of Pittsburgh, 19 F.4th 308, 318 n.13 (3d Cir. 2021) (alteration in original) (quoting Fed.R.Civ.P. 12(b)). However, the United States Court of Appeals for the Third Circuit “permit[s] such a motion pursuant to Rule 12(b)(6) ‘if the time alleged in the statement of a claim shows that the cause of action has not been brought within the statute of limitations.'” Id. (quoting Fried v. JP Morgan Chase Co., 850 F.3d 590, 604 (3d Cir. 2017)).
When deciding a motion to dismiss pursuant to Rule 12(b)(6), we “‘consider only the complaint, exhibits attached to the complaint, [and] matters of public record, as well as undisputedly authentic documents if the complainant's claims are based upon these documents.'” Alpizar-Fallas v. Favero, 908 F.3d 910, 914 (3d Cir. 2018) (quoting Mayer v. Belichick, 605 F.3d 223, 230 (3d Cir. 2010)). We take the factual allegations of the complaint as true and “construe them in the light most favorable to the plaintiff.” Shorter v. United States, 12 F.4th 366, 371 (3d Cir. 2021) (citing Warren Gen. Hosp. v. Amgen, Inc., 643 F.3d 77, 84 (3d Cir. 2011)). However, we “‘are not bound to accept as true a legal conclusion couched as a factual allegation.'” Wood v. Moss, 572 U.S. 744, 755 n.5 (2014) (quoting Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009)).
A plaintiff's pleading obligation is to set forth “‘a short and plain statement of the claim,'” which “‘give[s] the defendant ‘fair notice of what the . . . claim is and the grounds upon which it rests.'” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007) (second alteration in original) (first quoting Fed.R.Civ.P. 8(a)(2); and then quoting Conley v. Gibson, 355 U.S. 41, 47 (1957)). The complaint must allege “‘sufficient factual matter to show that the claim is facially plausible,' thus enabling ‘the court to draw the reasonable inference that the defendant is liable for [the] misconduct alleged.'” Warren Gen. Hosp., 643 F.3d at 84 (quoting Fowler v. UPMC Shadyside, 578 F.3d 203, 210 (3d Cir. 2009)). “The plausibility standard is not akin to a ‘probability requirement,' but it asks for more than a sheer possibility that a defendant has acted unlawfully.” Iqbal, 556 U.S. at 678 (citing Twombly, 550 U.S. at 556). In the end, we will grant a motion to dismiss brought pursuant to Rule 12(b)(6) if the factual allegations in the complaint are not sufficient “‘to raise a right to relief above the speculative level.'” Geness v. Admin. Off, of Pa. Cts., 974 F.3d 263, 269 (3d Cir. 2020) (quoting Twombly, 550 U.S. at 555).
III. DISCUSSION
GAIC argues that we should dismiss this action because Ingersoll filed suit after the expiration of the time for filing such a suit provided in the Lease Bond. The Lease Bond Limitations Period, which is set forth in Paragraph 3 of the Lease Bond, states that “[n]o action, suit or proceeding either at law or in equity shall be maintained against the Surety unless such action, suit or proceeding is commenced within three (3) months after the termination of this bond.” (Compl. Ex. C ¶ 3.) Paragraph 6 of the Lease Bond provides that “[t]his Bond expires on 7/16/2021.” (Id. ¶ 6.) Ingersoll filed this lawsuit against GAIC on March 2, 2022, more than seven months after the Lease Bond expired pursuant to Paragraph 6.
Ingersoll argues that we should deny the Motion for several reasons. Ingersoll first argues that the Lease Bond Limitations Period does not apply in this case because it applies only when the Lease Bond is “terminated” and the lease bond was not terminated in this case. Ingersoll also argues that the Lease Bond Limitations Period did not run prior to the date on which it filed the Complaint in this action because that Limitations Period was stayed under Pennsylvania Law. Ingersoll argues as well that the Lease Bond Limitations Period is contrary to Pennsylvania Law, which prohibits contractual shortening of a limitations period that is manifestly unreasonable.Ingersoll additionally argues that the Lease Bond Limitations Period should not be enforced in this case because it is unconscionable under Pennsylvania law. Ingersoll further argues that GAIC waived the Lease Bond Limitations Period through repeated representations that it would pay on the Lease Bond after the Expiration Date. We address these arguments in turn.
We have diversity jurisdiction over this action pursuant to 28 U.S.C. § 1332, as Ingersoll is a Pennsylvania limited liability company and GAIC is an Ohio corporation and the amount in controversy exceeds $75,000.00. (See Compl. ¶¶ 1-2, 4.) “As a federal court sitting in diversity, we apply the choice-of-law rules of the forum state, which is Pennsylvania in this case.” Pac. Emp'rs Ins. Co. v. Global Reins. Corp., 693 F.3d 417, 432 (3d Cir. 2012) (citing Klaxon Co. v. Stentor Elec. Mfg. Co., 313 U.S. 487, 496 (1941); Amica Mut. Ins. Co. v. Fogel, 656 F.3d 167, 170-71 (3d Cir. 2011)). “Pennsylvania's choice of law rules ask[] whether the parties ‘explicitly or implicitly chose which law to apply' within the agreement, and ‘Pennsylvania courts give effect to choice of law provisions of a contract.'” Baxter Healthcare Corp. v. B. Braun Med. Inc., Civ. A No. 20-5659, 2022 WL 4133292, at *3 (E.D. Pa. Sept. 12, 2022) (quoting Medlar v. Regence Grp., Civ. A. No. 04-2762, 2005 WL 1241881, at *4 (E.D. Pa. May 23, 2005)) (citing Stone St. Servs. Inc. v. Daniels, Civ. A. No. 00-1904, 2000 WL 1909373, at *4 (E.D. Pa. Dec. 29, 2000)). The Lease Agreement provides that “[t]his Lease shall be construed under the laws of the Commonwealth of Pennsylvania.” (Compl. Ex. A at 39 § 26.10.) GAIC maintains that, because the Lease Bond is an obligation to pay under the terms of the Lease Agreement, the issue of whether GAIC should be required to pay under the terms of the Lease Bond should be governed by Pennsylvania law. Ingersoll does not contest the applicability of Pennsylvania law in this case and, indeed, relies on Pennsylvania law in its response to the Motion to Dismiss. Accordingly, we apply Pennsylvania law in this case.
A. Termination of the Lease Bond
Ingersoll argues that the Lease Bond Limitations Period does not apply in this case because the Lease Bond was not terminated, rather, it expired according to its own terms. Ingersoll relies on Hamden v. Total Car Franchising Corp., 548 Fed.Appx. 842 (4th Cir. 2013), in which the Court, applying Virginia law, construed the terms “termination” and “expiration” to mean different things in specific agreements entered into by the parties. Id. at 849. The Hamden Court examined the agreements and found, based on the uses of the terms in those agreements, that “‘termination,' as used in the agreements . . . does not encompass expiration.” Id. The Hamden Court specifically noted that a non-competition clause in one of the agreements “suggest[ed] that termination does not encompass expiration” because the clause discussed what would happen if that agreement were “terminated before its expiration date” and the other agreement included a provision that “identifie[d] a number of actions giving rise to a termination.” Id. at 848-49. Ingersoll has not pointed out any similar language in the Lease Bond.
Ingersoll further argues that we cannot interpret the word “termination” in the Lease Bond to mean “expiration” because the word “termination” unless it is specifically defined otherwise, “is always interpreted as an affirmative, volitional action” and the word “‘[e]xpiration' is always interpreted as a passive, automatic occurrence.” (Ingersoll Mem. at 6 of 23.) However, the authority on which Ingersoll relies for this proposition does not support it. See Maloney v. Madrid Motor Corp., 122 A.2d 694, 696 (Pa. 1956) (simply stating “[t]he general rule . . . that notice for the termination of a contract must be clear and unambiguous” (citations omitted)); Hatfield Twp. v. Lexon Ins. Co., 15 A.3d 547, 553 (Pa. Commw. Ct. 2011) (quoting a defendant's citation to a bankruptcy court order which used the words “terminating” and “expiring” in a manner that indicated that termination was one way in which a bond at issue in that case could expire); Cusamano v. Anthony M. DiLucia, Inc., 421 A.2d 1120, 1123 (Pa. Super. Ct. 1980) (noting that the lease at issue in that case stated that “the Tenant may terminate at the expiration of the renewal term” without discussing the meanings of the words “terminate” or “expiration”); Eddystone Fire Co. No. 1 v. Cont'l Ins. Cos., 425 A.2d 803, 806 (Pa. Super. Ct. 1981) (noting only that the acceptance of a new bond in that case acted to cancel or terminate a prior bond). We conclude that none of this authority supports Ingersoll's argument that the Lease Bond Limitations Period in this case does not apply if the Lease Bond expires by its own terms.
Ingersoll also relies on other language in the Lease Bond to support its contention that the Lease Bond Limitations Period does not apply upon the expiration of the Lease Bond. Ingersoll points out that the word “expire” occurs only once in the Lease Bond, in Paragraph 6, which provides that “[t]his Bond expires on 7/16/2021.” (Compl. Ex. C ¶ 6.) Ingersoll notes that the word “terminate” appears twice in the Lease Bond, in Paragraph 3, which contains the limitations period, and Paragraph 4, which provides that “this bond may be canceled at anytime by the Surety upon giving thirty (30) days['] notice . . . to the Obligee in which event the liability of the Surety shall terminate at the expiration of ninety (30) [sic] days ....Express written consent by the Obligee is required to cancel the bond.” (Id. ¶ 4.) Ingersoll contends that Paragraphs 3 and 4 of the Lease Bond, when read together, should be understood to mean that “if GAIC terminates the Lease Bond its liability for pre-termination claims against the Lease Bond comes to an end in ninety (90) days (under section 4), as does its liability for any other claims arising out of the bond relationship (under section 3).” (Ingersoll Mem. at 8 of 23.) However, Ingersoll does not explain how these paragraphs establish that the term “expire” in Paragraph 6 does not also refer to the termination of the Lease Bond.
Ingersoll has tried, without success, to show that the parties intended that the words “expire” and “terminate” mean different things as they are used in the Lease Bond. However, the words “expire” and “terminate” are generally synonyms. Black's Law Dictionary defines “expiration” as “[t]he ending of a fixed period of time; esp., a formal termination on a closing date <expiration of the insurance policy>.” Expiration, Black's Law Dictionary (11th ed. 2019). Black's Law Dictionary defines “termination” as both “[t]he act of ending something” and as “[t]he end of something in time or existence; conclusion or discontinuance.” Termination, Black's Law Dictionary (11th ed. 2019). Thus, “expire” and “terminate” are defined to have essentially the same meaning. Therefore, we reject Ingersoll's argument that the words “expire” and “terminate” have different meanings as they are used in the Lease Bond so that the Lease Bond Limitations Period does not apply in this case because the Lease Bond expired by its own terms. Accordingly, we reject Ingersoll's argument that we should deny the Motion to Dismiss because the Lease Bond Limitations Period does not apply in this case because the Lease Bond expired.
Ingersoll also argues that enforcement of the Lease Bond Limitations Period where the Lease Bond expired according to its own terms “would undermine the purposes of the Lease Bond and the intention of the parties by cutting off all claims against the Lease Bond while Medici was still liable under the Lease Agreement.” (Ingersoll Mem. at 8 of 23.) Ingersoll contends that it was the intention of the parties to the Lease Agreement, i.e., Ingersoll and Medici, that the Lease Bond would act as a security deposit for Medici's obligations under the Lease Agreement and would be available for the entire ten-year term of Medici's lease. This contention is not, however, supported by the Complaint, which fails to allege any facts that would support the existence of any such intentions. Moreover, neither the Lease Agreement nor the Lease Amendment requires a ten-year lease bond. The Lease Agreement between Ingersoll and Medici requires Medici to provide Ingersoll with a deposit of $550,000 in cash or letter of credit. (Lease Agreement, Compl. Ex. A § 9.1.) That letter of credit was to be in a “term not less than one year.” (Id. § 9.2.) The Lease Amendment permitted Medici to replace the letter of credit with a lease surety bond in the face amount of $550,000. (Compl. Ex. B. ¶ 10.) The Lease Amendment does not contain any requirements with respect to the term of the lease surety bond. (Id.) We conclude that Ingersoll has failed to show that the parties to the Lease Agreement intended the Lease Bond to be available for the entire ten-year term of the Lease Agreement.
B. The Automatic Stay
Ingersoll argues that we should deny the Motion to Dismiss because, under state law, the Automatic Stay that applies to Medici's Chapter 7 proceedings extends the Lease Bond Limitations Period such that this lawsuit was timely filed. The Automatic Stay, 11 U.S.C. § 362, provides, in pertinent part, as follows:
(a) Except as provided in subsection (b) of this section, a petition filed under section 301, 302, or 303 of this title . . . operates as a stay, applicable to all entities, of--
(1) the commencement or continuation, including the issuance or employment of process, of a judicial, administrative, or other action or proceeding against the debtor that was or could have been commenced before the commencement of the case under this title, or to recover a claim against the debtor that arose before the commencement of the case under this title; . . .
(6) any act to collect, assess, or recover a claim against the debtor that arose before the commencement of the case under this title ....11 U.S.C. § 362. The term “claim” is defined under the bankruptcy code as a “right to payment, whether or not such right is reduced to judgment, liquidated, unliquidated, fixed, contingent, matured, unmatured, disputed, undisputed, legal, equitable, secured, or unsecured.” 11 U.S.C. § 101(5)(A).
Ingersoll relies on 42 Pa. Cons. Stat. § 5535, which provides that “[w]here the commencement of a civil action or proceeding has been stayed by a court or by statutory prohibition, the duration of the stay is not a part of the time within which the action or proceeding must be commenced.” 42 Pa. Cons. Stat. § 5535(b). The United States Court of Appeals for the Third Circuit has noted “that the automatic stay is precisely the type of ‘statutory prohibition' referenced in § 5535(b).” In re Zinchiak, 406 F.3d 214, 227 (3d Cir. 2005) (citing In re Zinchiak, 280 B.R. 117, 127 (Bankr. W.D. Pa. 2002)). Ingersoll suggests that pursuant to § 5535, we should add the duration of the automatic stay in Medici's Chapter 7 proceeding to the Lease Bond Limitations Period. Ingersoll asserts that 146 days passed during that period, as Medici filed for protection under Chapter 7 of the Bankruptcy Code on January 14, 2021 and Ingersoll received relief from the automatic stay to pursue its claim against the Lease Bond on June 9, 2021. (See Compl. ¶ 13 (alleging that Medici filed its Chapter 7 Petition on January 14, 2021.)
We first note that the date on which Ingersoll received relief from the automatic stay in order to pursue its claim against the Lease Bond is not alleged in the Complaint. However, we may take judicial notice of the Order granting Ingersoll relief from the automatic stay. See Sturgeon v. Pharmerica Corp., 438 F.Supp.3d 246, 257 (E.D. Pa. 2020) (“Courts may take judicial notice of public records, including ‘publicly available records and transcripts from judicial proceedings.' In particular, publicly available records from other judicial proceedings may be judicially noticed in the context of a motion to dismiss.” (quotation and citation omitted)). On June 9, 2021, Ingersoll entered into a Stipulation with the Trustee of Medici's Chapter 7 proceeding modifying “[t]he Automatic Stay . . . pursuant to section 362(d)(1) of the Bankruptcy Code in order to permit Ingersoll to exclusively exercise any and all rights it has to collect on the Lease Bond.” In re Medici 1150 N. American Street LLC, Case No. 21-10074-JLG, Stipulation and Agreed Order Granting Relief From Automatic Stay Pursuant to 11 U.S.C. § 362(d)(1) at 4 of 8 (B.R. S.D.N.Y. June 9, 2021). Nonetheless, Ingersoll has cited not any authority for the proposition that, pursuant to 42 Pa. Cons. Stat. §5535(b), the Lease Bond Limitations Period should simply be extended by the number of days from the date of Medici's Chapter 7 filing to the date of the Order granting it relief from the Automatic Stay. Indeed, we have found no authority for Ingersoll's interpretation of § 5535(b).
Ingersoll was granted relief from the automatic stay to exercise its rights to collect on the Lease Bond as of June 9, 2021. According to its terms, the Lease Bond Limitations Period did not begin to run until July 16, 2021, the date the Lease Bond expired. (See Compl. Ex. C.) Thus, since July 16, 2021 fell after June 9, 2021, the automatic stay did not prevent Ingersoll from filing suit to collect on the Lease Bond during the running of the Lease Bond Limitations Period. “Section 5535(b) allows the plaintiff's [limitations period for filing suit] to be extended if the claim cannot be filed as a result of an automatic stay.” Panzella v. Hills Stores Co., 171 B.R. 22, 25 (E.D. Pa. 1994) (emphasis added) (concluding that the limitations period governing plaintiff's lawsuit against the defendant should be extended pursuant to § 5535(b) because plaintiff was barred from filing suit due to the automatic stay (citing 42 Pa. Cons. Stat. Ann. §§ 5524, 5535(b)). The Complaint in this case does not allege that Ingersoll was prevented from filing suit to recover against the Lease Bond by the operation of the Automatic Stay in Medici's Chapter 7 proceeding. Nor could it, since the Stay was lifted as to such claims prior to the time in which the Lease Bond Limitations Period began to run. Accordingly, we reject Ingersoll's argument that the instant suit was timely filed because we should extend the Lease Bond Limitations Period by the number of days that elapsed from the filing of Medici's Chapter 7 proceeding until the date of the Order lifting the Automatic Stay as to Ingersoll's right to collect against the Lease Bond.
We note that the parties focused their discussion of Ingersoll's argument regarding the operation of the Automatic Stay on whether the Lease Bond was part of Medici's bankruptcy estate such that the Automatic Stay operated to prevent Ingersoll from bringing suit to enforce its claim. Because we have rejected Ingersoll's argument on another basis, we need not address this issue.
C. Reasonableness of the Lease Bond Limitations Period
Ingersoll also argues that we should deny the Motion to Dismiss because the Lease Bond Limitations Period is manifestly unreasonable. Pursuant to Pennsylvania law, parties may agree to shorten a statute of limitations by written agreement, however, the time period agreed upon must not be “manifestly unreasonable.” 42 Pa. Cons. Stat. § 5501(a) (“An action, proceeding or appeal must be commenced within the time specified in or pursuant to this chapter unless, in the case of a civil action or proceeding, a different time is provided by this title or another statute or a shorter time which is not manifestly unreasonable is prescribed by written agreement.”). “[T]he Pennsylvania Supreme Court has not spoken to the reasonableness of a ninety-day suit limitation provision. In fact, there is little case law in Pennsylvania addressing exactly how long is ‘not manifestly unreasonable.'” Stuebe v. SS Indus., LLC, Civ. A. No. 18-4035, 2019 WL 4034768, at *2 (E.D. Pa. Aug. 26, 2019) (citing PSC Info Grp. v. Lason, Inc., 681 F.Supp.2d 577, 587 (E.D. Pa. 2010)); see also PSC Info Grp., 681 F.Supp.2d at 587 (concluding that a contractual limitations period of six months is not manifestly unreasonable because, although “[t]here is little Pennsylvania case law addressing how long a limitations period in a contract must be in order to be ‘not manifestly unreasonable,'” the court was able to identify two cases in which “the Pennsylvania Supreme Court upheld a contractual six-month limitations period” (discussing Holtby v. Zane, 69 A. 674 (Pa. 1908) and Brady v. Prudential Ins. Co., 32 A. 102 (Pa. 1895))). However, in Ferguson v. Manufacturers' Casualty Ins. Co., 195 A. 661 (Pa. Super Ct. 1937), “the Pennsylvania Superior Court found a contractually-agreed-upon ninety-day suit-limitation provision to be ‘not unreasonably short,' and upheld it because the parties agreed to it.” Stuebe, 2019 WL 4034768, at *2 (citing Ferguson, 195 A. at 663-664). Moreover, the Stuebe court determined that a ninety-day limitations period in a products liability action was not manifestly unreasonable where the limitations period was contained in “a set of online terms and conditions” that was incorporated by reference into the order form signed by the plaintiff when he purchased the product that resulted in his injury. Id. at *1, 3.
Ingersoll argues that the application of the Lease Bond Limitations Period in this case would be manifestly unreasonable because it was not one of the parties to the Lease Bond and did not agree to the Limitations Period included in that document. As we discussed above, the Lease Amendment permitted Medici to replace its security deposit with a lease surety bond in a form substantially similar to the form lease surety bond attached to the Lease Amendment as Exhibit B. (See Lease Amendment ¶ 10.) Ingersoll admits that it approved the form lease surety bond found in Exhibit B to the Lease Amendment (Ingersoll Mem. at 12 of 23), but argues that the Lease Bond is so different from the form lease surety bond that it would be manifestly unreasonable to enforce the Lease Bond Limitations Period against it. Ingersoll relies on the following differences between the form lease surety bond attached to the Lease Amendment and the Lease Bond entered into by Medici and GAIC:
(1) The form lease surety bond includes blanks to be filled in with the start and end dates for the term of the bond and was “subject to continuation by an annual extension certificate.” (Ex. B to Compl. Ex. B.) In contrast, the Lease Bond provides that it was effective on July 16, 2020 and expired on July 16, 2021 and was “subject to annual renewal at the current value established in the Ramp Lease Agreement.” (Compl. Ex. C.).
(2) The form lease surety bond provides that “[a]ll suits, actions against this bond must be brought within 30 days of the termination of the Lease or bond whichever shall occur first.” (Ex. B to Compl. Ex. B.) The Lease Bond, however, provides that “[n]o action[,] suit or proceeding either at law or in equity shall be maintained against the Surety unless such action, suit or proceeding is commenced within three (3) months after the termination of this bond.” (Compl. Ex. C.).
Ingersoll suggests that, because the form lease surety bond provided for an annual extension certificate, it was “self-effectuating” and would not terminate until the Lease Agreement was terminated. However, the Complaint does not allege any facts that support this suggestion or that GAIC (or another surety) would have issued an extension certificate for a lease surety bond after Medici entered into Chapter 7 bankruptcy proceedings and the bankruptcy trustee rejected the Lease Agreement with Medici. Accordingly, we have no basis on which to conclude that the terms of the Lease Bond, including the Lease Bond Limitations Period, are so materially different from the form lease surety bond that it would be manifestly unreasonable to enforce the Lease Bond Limitations Period against Ingersoll. Thus, we reject Ingersoll's argument that we should deny the Motion to Dismiss because it would be manifestly unjust to enforce the Lease Bond Limitations Period in this case.
The Bankruptcy Trustee rejected the Lease Agreement on June 9, 2021. See In re Medici 1150 N. American Street LLC, Case No. 21-10074-JLG, Stipulation and Agreed Order Granting Relief From Automatic Stay Pursuant to 11 U.S.C. § 362(d)(1) at 4 of 8 (Bankr. S.D.N.Y. June 9, 2021).
D. Unconscionability of the Lease Bond Limitations Period
Ingersoll argues that we should deny the Motion to Dismiss because the Lease Bond, specifically the Lease Bond Limitations Period, is unconscionable under Pennsylvania law. “Unconscionability is a ‘defensive contractual remedy which serves to relieve a party from an unfair contract or from an unfair portion of a contract.'” Harris v. Green Tree Fin. Corp., 183 F.3d 173, 181 (3d Cir. 1999) (quoting Germantown Mfg. Co. v. Rawlinson, 491 A.2d 138, 145 (Pa. Super. Ct. 1985)). “The party challenging a contract provision as unconscionable generally bears the burden of proving unconscionability.” Id. (citing Bishop v. Washington, 480 A.2d 1088, 1094 (Pa. Super. Ct. 1984); Argo Welded Prods., Inc. v. J.T. Ryerson Steel & Sons, 528 F.Supp. 583, 592-93 (E.D. Pa. 1981)). “To prove unconscionability under Pennsylvania law, a party must show that the contract was both substantively and procedurally unconscionable.” Quilloin v. Tenet HealthSystem Philadelphia, Inc., 673 F.3d 221, 230 (3d Cir. 2012) (citing Salley v. Option One Mortg. Corp., 925 A.2d 115, 119 (Pa. 2007)).
“Procedural unconscionability refers specifically to ‘the process by which an agreement is reached and the form of an agreement, including the use therein of fine print and convoluted or unclear language.'” Zimmer v. CooperNeff Advisors, Inc., 523 F.3d 224, 228 (3d Cir. 2008) (quoting Harris, 183 F.3d at 181). “A contract is procedurally unconscionable where ‘there was a lack of meaningful choice in the acceptance of the challenged provision[.]'” Quilloin, 673 F.3d at 235 (alteration in original) (quoting Salley, 925 A.2d at 119). “A contract will be deemed procedurally unconscionable when formed through ‘oppression and unfair surprise.'” Id. (quoting Witmer v. Exxon Corp., 434 A.2d 1222, 1228 n.16 (Pa. 1981)). “Factors we must consider in determining whether the contract rises to the level of procedural unconscionability include: ‘the take-it-or-leave-it nature of the standardized form of the document[,]' ‘the parties' relative bargaining positions,' and ‘the degree of economic compulsion motivating the “adhering” party[.]'” Id. at 235-36 (quoting Salley, 925 A.2d at 125). “Under Pennsylvania law, a contract is generally considered to be procedurally unconscionable if it is a contract of adhesion.” Id. at 235 (citations omitted).
Ingersoll argues that the Lease Bond is procedurally unconscionable because it is a form contract that was prepared by GAIC on a take-it-or-leave-it basis. However, the Complaint contains no factual allegations with respect to the formation of the Lease Bond and which party to that agreement drafted its terms. Ingersoll also maintains that the Lease Bond is procedurally unconscionable as to it because it had no bargaining power in connection with the Lease Bond since it was not a party to that agreement. Under these circumstances, where the party challenging the contract as unconscionable is a third-party beneficiary of that contract, “a procedural unconscionability analysis focused on a non-party's notice of the provision and ability to negotiate its terms does not fit.” Tutor-Saliba Corp. v. Starr Excess Liab. Ins. Co., Ltd., Civ. A. No. 15- 1253, 2015 WL 13285089, at *10 (C.D. Cal. Apr. 23, 2015). The issue before us with respect to Ingersoll's procedural unconscionability argument is whether the third-party beneficiary of a contract can seek to enforce those portions of the contract that inure to its benefit while simultaneously arguing that an aspect of the contract which does not favor it is unconscionable. The answer, at least in this Circuit, is no.
This issue appears to arise most often, though not exclusively, where the third-party beneficiary of a contract seeks to avoid an arbitration clause contained in that contract. In that circumstance, the United States Court of Appeals for the Third Circuit has recognized that equitable estoppel may bind the third-party beneficiary of a contract to a contract clause it opposes. E.I. DuPont de Nemours & Co. v. Rhone Poulenc Fiber & Resin Intermediates, S.A.S., 269 F.3d 187, 199 (3d Cir. 2001). The Third Circuit explained that, under equitable estoppel, “courts prevent a non-signatory from embracing a contract, and then turning its back on the portions of the contract, such as an arbitration clause, that it finds distasteful.” Id. at 200 (citing Am. Bureau of Shipping v. Tencara Shipyard S.P.A., 170 F.3d 349, 353 (2d Cir. 1999)) (additional citation omitted). Thus, “‘[i]n the arbitration context, the doctrine recognizes that a party may be estopped from asserting that the lack of his signature on a written contract precludes enforcement of the contract's arbitration clause when he has consistently maintained that other provisions of the same contract should be enforced to benefit him.'” Id. (quoting Int'l Paper Co. v. Schwabedissen Maschinen & Anlagen GMBH, 206 F.3d 411, 418 (4th Cir. 2000)). “‘To allow [a plaintiff] to claim the benefit of the contract and simultaneously avoid its burdens would both disregard equity and contravene the purposes underlying enactment of the Arbitration Act.'” Id. (alteration in original) (quoting Int'l Paper, 206 F.3d at 418). We followed this reasoning in Philadelphia Flyers, Inc. v. Trustmark Ins. Co., Civ. A. No. 04-2322, 2004 WL 1529167, at *3 (E.D. Pa. July 6, 2004).
The plaintiff in that case had sought to recover from the defendant the salary it paid to a team member who was unable to play due to injury under an insurance contract entered into between the defendant and the National Hockey League Trust. Id. at *1. The Philadelphia Flyers complaint alleged that the team was a third-party beneficiary of the insurance contract, but argued that enforcement of the arbitration clause in that contract “would be unconscionable because it did not enter into an agreement to arbitrate.” Id. at *3. We rejected that argument because “‘[c]ourts have held non-signatories to an arbitration clause when the non-signatory knowingly exploits the agreement containing the arbitration clause despite having never signed the agreement.'” Id. at *4 (quoting E.I. duPont de Nemours & Co., 269 F.3d at 199).
Similarly, the court in Daly v. Norfolk Southern Railroad Co., Civ. A. No. 09-4609, 2011 WL 2559533 (D.N.J. June 27, 2011), rejected the defendant's argument that the arbitration provision of an insurance policy was procedurally unconscionable where the defendant sought benefits under that policy as a third-party beneficiary. The defendant in Daly had been sued in a wrongful death and survival action arising from a workplace accident. Id. at *1. The defendant brought a third-party complaint against the insurance company for the decedent's employer, seeking insurance coverage with respect to the accident as an additional insured under the employer's insurance policy. Id. at *1. The insurance company moved to dismiss the third-party claim because the insurance policy contained an arbitration clause requiring the suit to be submitted to arbitration pursuant to the Federal Arbitration Act. Id. The defendant argued that it would be unconscionable to enforce the arbitration clause because it “‘did not agree to, bargain for, or accept' the [insurance] Policy, or the arbitration clause specifically” and did not obtain the Policy until after the workplace accident. Id. at *3. The Daly court rejected that argument because the defendant was “simply a third-party beneficiary attempting to reap the benefits of the Policy as an additional insured. [The defendant] is bound by the terms and conditions of the Policy it is attempting to seek coverage under, regardless of whether [it] agreed to the arbitration provisions or not.” Id. at *4. The Daly court determined that the defendant could not “pick and choose which portions of the [insurance] Policy apply” and concluded “that the contract is not unconscionable, and that the arbitration agreement is enforceable against [the defendant].” Id.
The court in Harbison v. Louisiana-Pacific Corp., Civ. A. No. 13-0814, 2014 WL 469936, (W.D. Pa. Feb. 6, 2014), aff'd, 602 Fed.Appx. 884 (3d Cir. 2015), similarly found that a plaintiff could not pick and choose which provisions of an express warranty should apply to him and a putative class he sought to represent. Id. at *9. The plaintiff in Harbison sought to enforce an express warranty for TrimBoard purchased by his builder. Id. at *2. The express warranty provided that the defendant would “compensate the owner for the repair and replacement of the affected trim for more than twice the original purchase price of the affected trim if failure occurs within ten years.” Id. (quotation omitted). The complaint in Harbison sought “a ruling that . . . any limitation of consumer rights in the Defendant's warranty is void as unconscionable” because the defendant allegedly knew that any damages sustained by users of TrimBoard would be more than twice the price of the affected trim. Id. at *9 (quotation omitted). The Harbison court found the plaintiff's “request for declaratory relief . . . impossible to reconcile with the breach of express warranty claim. On the one hand, Plaintiff wants to avail himself of the express warranty, but then have this Court declare the relief accorded to him in that same warranty unconscionable so that he may seek unlimited damages.” Id. The Harbison court therefore declined to declare the limitation of damages portion of the express warranty unconscionable and dismissed that portion of the plaintiff's claim. Id.
Based on the above discussed authority, we conclude that Ingersoll cannot pick and choose which provisions of the Lease Bond it seeks to enforce through this lawsuit. Ingersoll asks for a declaration that GAIC is obligated to pay it under the Lease Bond while it simultaneously asks us to find that the Lease Bond Limitations Period is procedurally unconscionable. Allowing Ingersoll “to claim the benefit of the [Lease Bond] and simultaneously avoid its burdens would . . . disregard equity” in this case. E.I. DuPont de Nemours & Co., 269 F.3d at 200 (quotation omitted). We further conclude, therefore, that Ingersoll cannot show that the Lease Bond is procedurally unconscionable and thus cannot prevail on its argument that the Motion to Dismiss should be denied because the Lease Bond is unconscionable. See Quilloin, 673 F.3d at 230 (“To prove unconscionability under Pennsylvania law, a party must show that the contract was both substantively and procedurally unconscionable.” (citation omitted)).
E. Waiver
Ingersoll argues that the Motion to Dismiss should be denied because GAIC waived the Lease Bond Limitations Period. See Bonnert v. Pennsylvania Ins. Co., 18 A. 552 (Pa. 1889) (“A limitation or condition in a policy of insurance, intended for the benefit of the corporation, may be waived by it; and the fact of waiver is a question for the jury.” (citation omitted)). Ingersoll maintains that GAIC waived the Lease Bond Limitations Period by continuing to ask Ingersoll for more information about its claim, by waiting to deny Ingersoll's claim until February 2022, months after the Lease Bond Limitations Period had run, and by denying Ingersoll's claim for reasons unrelated to the Lease Bond Limitations Period. See McMeekin v. Prudential Ins. Co. of Am., 36 A.2d 430, 432 (Pa. 1944) (“If in the course of the negotiations the company gave the plaintiff reasonable grounds for believing that the time limit would be extended or that such provision would not be strictly enforced, it could not subsequently insist on its [strict] enforcement without giving him a reasonable time thereafter to bring his action. (citing Sudnick v. Home Friendly Ins. Co., 27 A.2d 468, 472 (Pa. Super. Ct. 1942)).
Ingersoll acknowledges, however, that the Complaint does not allege any facts on which this Court could infer that GAIC waived the Lease Bond Limitations Period. (See Ingersoll Sur-Reply at 7.) Consequently, Ingersoll demands that we consider evidence outside of the Complaint that it has attached to its Opposition to the Motion to Dismiss and treat this aspect of its Opposition to the Motion to Dismiss as a motion for summary judgment pursuant to Rules 12(d) and 56.
Federal Rule of Civil Procedure 12(d) provides that, “[i]f, on a motion under Rule 12(b)(6) or 12(c), matters outside the pleadings are presented to and not excluded by the court, the motion must be treated as one for summary judgment under Rule 56.” Fed.R.Civ.P. 12(d). “All parties must be given a reasonable opportunity to present all the material that is pertinent to the motion.” Id. Rule 12(d) thus requires the Court to permit the parties reasonable discovery if we convert a Rule 12(b)(6) motion to a Rule 56 motion. See Revzip, LLC v. McDonnell, Civ. A. No. 19-191, 2020 WL 1929523, at *7 (W.D. Pa. April 21, 2020) (“Federal Rule of Civil Procedure 12(d) requires that the Court convert any Rule 12(b)(6) Motion into a motion for summary judgment under Federal Rule of Civil Procedure 56 and permit reasonable discovery ”). “[D]eciding whether to consider outside materials is a ‘matter of discretion for the court.'” Sosa v. Cnty. of Hudson, Civ. A. No. 20-0777, 2020 WL 5798761, at *4 (D.N.J. Sept. 28, 2020) (quoting Brennan v. Nat'l Tel. Directory Corp., 850 F.Supp. 331, 335 (E.D. Pa. Apr. 28, 1994)). “‘[C]ourts have held that exercise of the court's discretion is not warranted where there has been little or no discovery conducted by the parties.'” Wiggs v. Foley, Civ. A. No. 20-2267, 2021 WL 462782, at *2 (E.D. Pa. Feb. 9, 2021) (quoting Brennan, 850 F.Supp. at 335). “In such cases, the parties ‘may not be able to present enough material to support or oppose a motion for summary judgment since no factual record has yet been developed.'” Id. (quoting Brennan, 850 F.Supp. at 335).
No discovery has yet been conducted in this case and we conclude that it would therefore be premature to consider the Motion to Dismiss as a motion for summary judgment. See id. at *5 (declining to convert a motion to dismiss to a motion for summary judgment pursuant to Rule 12(d) where the parties had not yet engaged in discovery). We therefore decline to convert the Motion to Dismiss to a motion for summary judgment so that we may consider the exhibits Ingersoll has submitted in connection with its argument that GAIC waived the Lease Bond Limitations Period.
IV. CONCLUSION
We have rejected four of the five arguments posited by Ingersoll as grounds to deny the Motion to Dismiss and we decline to convert the Motion into a motion for summary judgment so that we may consider Ingersoll's fifth argument. We conclude that GAIC's statute of limitations defense is “apparent on the face of the complaint and documents relied on in the complaint.” Lupian, 905 F.3d at 130 (quotation omitted). Nonetheless, we recognize that Ingersoll has some evidence that might support its argument that GAIC waived the Lease Bond Limitations Period. Consequently, although we have rejected Ingersoll's other arguments in opposition to the Motion to Dismiss, we deny the Motion without prejudice. Ingersoll may file an amended complaint that includes any facts that it believes should be considered with respect to its position that GAIC waived the Lease Bond Limitations Period. An appropriate order follows.