                                                                 NOT PRECEDENTIAL

                       UNITED STATES COURT OF APPEALS
                            FOR THE THIRD CIRCUIT
                                 ____________

                                      No. 13-2481
                                     ____________

                   CHETTY HOLDINGS INC; CARL E. CHETTY,
                       T/A Millville Apartment Homes, LP,
                                                          Appellants

                                           v.

                NORTHMARQ CAPITAL, LLC; TIMOTHY C. KUHN
                             ____________

                    On Appeal from the United States District Court
                        for the Eastern District of Pennsylvania
                             (E.D. Pa. No. 2-11-cv-04640)
                       District Judge: Thomas N. O'Neill, Junior
                                     ____________

                    Submitted Pursuant to Third Circuit LAR 34.1(a)
                                   January 23, 2014

     Before: FUENTES and FISHER, Circuit Judges, and STARK,* District Judge.

                               (Filed: February 10, 2014)
                                     ____________

                                       OPINION
                                     ____________




      *
       The Honorable Leonard P. Stark, District Judge for the United States District
Court for the District of Delaware, sitting by designation.
FISHER, Circuit Judge.

       Appellants Chetty Holdings, Inc. and Carl E. Chetty (collectively, “Chetty”)

appeal the District Court’s dismissal of their third amended complaint. Chetty alleged

that Appellees NorthMarq Capital, LLC (“NorthMarq”) and its employee Timothy C.

Kuhn (collectively, “Appellees”) were negligent and made certain negligent

misrepresentations that prevented Chetty from obtaining a mortgage refinancing loan

insured by the United States Department of Housing and Urban Development (“HUD”).

Because the District Court properly concluded that Chetty failed to establish proximate

cause, we will affirm.

                                             I.

       We write principally for the parties, who are familiar with the factual context and

legal history of this case. Therefore, we will set forth only those facts necessary to our

analysis.

       Chetty financed the purchase of the Millview Apartment Homes (the “Millview

Property”) through a fifteen-year forward mortgage for approximately $27 million with

Northwestern Mutual Life Insurance Company (“Northwestern Mutual”). The mortgage

contained a provision that imposed a prepayment penalty in the event Chetty sought to

pay off the mortgage in full. In response to the financial crisis and a downturn in

occupancy, Northwestern Mutual offered to waive the prepayment penalties to allow

Chetty to refinance the loan on the Millview Property in early 2009.


                                              2
       Shortly thereafter, Kuhn (on behalf of NorthMarq) initiated discussions with

Chetty about securing a loan for the refinancing. Kuhn reviewed the financial status of

the Millview Property and Chetty Holdings and recommended that Chetty apply for a

refinancing loan through NorthMarq’s underwriting arm, AmeriSphere Mortgage

Finance, LLC (“AmeriSphere”).1 Chetty alleges that Kuhn was the “point person for

Plaintiffs throughout the [application] process,” and that Kuhn made negligent

misrepresentations about the application process and the anticipated outcome. App. at

349. Kuhn presented Chetty with a proposed engagement letter on July 7, 2009 that

purported to set forth an agreement between Chetty and AmeriSphere, in which

AmeriSphere would “provide Mortgage Insurance processing services . . . for a mortgage

loan.” App. at 231. Pursuant to the engagement letter, Chetty provided a substantial

amount of information and documentation to AmeriSphere about the Millview Property.

       Before Northwestern Mutual would issue a written modification of the terms of

the mortgage (by waiving the prepayment penalty), it requested a timeline for completion

of the refinance application process. Kuhn provided the timeline, which specified

“approximate” start and end dates for each phase, and specified that the dates were

“anticipated subsequent milestones related to the . . . refinance.” App. at 75 (emphasis

added). The timeline provided that the loan was anticipated to close by July 31, 2010.

       1
         The third amended complaint indicates that Chetty was to apply for a “223(f)
FHA/HUD loan.” App. at 348. As noted by Appellees, AmeriSphere agreed to provide
the loan, provided that Chetty secured mortgage insurance from HUD. Appellees’ Br. at
22 n.10. AmeriSphere is no longer a party to this case.

                                            3
Northwestern Mutual thereafter issued a written loan modification agreement that waived

the prepayment penalty until July 31, 2010. Kuhn allegedly represented to Chetty that

Northwestern Mutual would be lenient with imposing the prepayment penalty, even after

the July 31, 2010 date.

       Kuhn “strenuously objected” to Chetty’s attempts to list the Millview Property for

sale, and Chetty turned down one offer to purchase the property. App. at 353. Chetty

therefore alleges that Appellees negligently failed to recommend that Chetty pursue the

sale of the Millview Property while applying for the refinance loan to ensure that either

the loan would close or the property would sell before the waiver period ended.

       In April 2010, AmeriSphere completed Chetty’s application. AmeriSphere’s

internal loan processing committee assessed and approved the application, concluding

that it met all essential criteria for HUD’s firm commitment to insure the loan. Chetty

wired a $95,040 application fee to AmeriSphere, which was sent, along with the

application, to HUD. HUD denied Chetty’s application on July 30, 2010 due to Chetty’s

failure to make timely payments on its existing mortgage and the Millview Property’s

inconsistent occupancy. Chetty alleges it then “had no choice but to pursue a sale of the

Millview Property” after the July 31, 2010 deadline. App. at 358. As a result of that

sale, Chetty incurred $2.6 million in prepayment penalties, in addition to the $95,040

application fee, a $5,000 processing fee paid to NorthMarq, and $22,000 in consultant

fees, also paid to NorthMarq.


                                             4
       Chetty filed suit in the District Court and filed a third amended complaint on May

25, 2012, asserting claims for negligence and negligent misrepresentation. By

Memorandum Opinion and Order dated April 22, 2013, the District Court dismissed the

third amended complaint on the ground that Chetty failed to adequately plead the

necessary element of proximate cause. This appeal timely followed.

                                             II.

       The District Court had subject matter jurisdiction pursuant to 28 U.S.C. § 1332,

and we have jurisdiction pursuant to 28 U.S.C. § 1291. We exercise de novo review over

the grant of a motion to dismiss pursuant to Federal Rule of Civil Procedure 12(b)(6).

McTernan v. City of York, Pa., 577 F.3d 521, 526 (3d Cir. 2009) (citing AT&T v. JMC

Telecom, LLC, 470 F.3d 525, 530 (3d Cir. 2006)). When analyzing a motion to dismiss

we, like the district court, “must accept all of the complaint’s well-pleaded facts as

true . . . [and] must then determine whether the facts alleged in the complaint are

sufficient to show that the plaintiff has a ‘plausible claim for relief.’” Fowler v. UPMC

Shadyside, 578 F.3d 203, 210-11 (3d Cir. 2009) (quoting Ashcroft v. Iqbal, 556 U.S. 662,

678-79 (2009)). Conclusory allegations without factual support are insufficient to

survive the plausibility standard. Id. at 210.

                                             III.

       The parties dispute the extent to which proximate cause may be determined by the

court. Chetty maintains that proximate cause is an inherently fact-based question that


                                                 5
should generally be resolved by a jury. See Ford v. Jeffries, 379 A.2d 111, 114 (Pa.

1977) (explaining that the issue of proximate cause “should not be taken from the jury if

the jury may reasonably differ as to whether the conduct of the defendant was a

substantial cause or an insignificant cause” (emphasis added)). Appellees counter that

proximate cause is a question of law properly decided by the court. See Vattimo v. Lower

Bucks Hosp., Inc., 465 A.2d 1231, 1233 (Pa. 1983) (recognizing that proximate cause is

an issue of legal policy); Eckroth v. Pa. Elec., Inc., 12 A.3d 422, 427-28 (Pa. Super. Ct.

2010) (stating that proximate cause is an issue of law for the court to determine). As

Ford makes clear, however, nothing precludes a court from determining proximate cause

as a matter of law if a jury could not reasonably differ on the issue. 379 A.2d at 114.

Because a jury could not reasonably conclude that Appellees’ alleged actions proximately

caused Chetty’s injury, the District Court did not err in dismissing the case.

       A party suing for negligence must prove, inter alia, causation between the alleged

wrongful act and the plaintiff’s alleged injuries.2 Reott v. Asia Trend, Inc., 55 A.3d 1088,

1103 (Pa. 2012) (Todd, J., dissenting). Proximate or legal causation is “that point at

which legal responsibility should attach to the defendant as a matter of fairness because

the plaintiff has demonstrated . . . that the defendant’s act was a ‘substantial factor’ or a

‘substantial cause,’ as opposed to an ‘insignificant cause’ or a ‘negligible cause,’ in

       2
        Causation is a necessary element in both negligence and negligent
misrepresentation claims. See Bouriez v. Carnegie Mellon Univ., 585 F.3d 765, 771 (3d
Cir. 2009) (negligent misrepresentation under Pennsylvania law); Toogood v. Owen J.
Rogal, D.D.S., P.C., 824 A.2d 1140, 1145 (Pa. 2003) (negligence).

                                               6
bringing about the plaintiff’s harm.” Id. (quoting Ford, 379 A.2d at 114). Pennsylvania

courts have adopted the “substantial factor” theory of proximate cause from Restatement

(Second) of Torts § 431 (1965). Ford, 379 A.2d at 114. Under § 431, an “actor’s

negligent conduct is a legal cause of harm to another if [] his conduct is a substantial

factor in bringing about the harm . . . .” Restatement (Second) of Torts § 431.

          Pennsylvania has also adopted the Restatement’s definition of “substantial factor.”

See Restatement (Second) of Torts § 433 (1965); Betz v. Pneumo Abex, LLC, 44 A.3d 27,

56 n.36 (Pa. 2012) (acknowledging that the Pennsylvania Supreme Court “has cited

Section 433 as consistent with Pennsylvania law” (citing Vattimo, 465 A.2d at 1233-34)).

Section 433 provides:

          The following considerations are in themselves or in combination with one
          another important in determining whether the actor’s conduct is a
          substantial factor in bringing about harm to another:
          (a) the number of other factors which contribute in producing the harm and
          the extent of the effect which they have in producing it;
          (b) whether the actor’s conduct has created a force or series of forces which
          are in continuous and active operation up to the time of the harm, or has
          created a situation harmless unless acted upon by other forces for which the
          actor is not responsible;
          (c) lapse of time.

Restatement (Second) of Torts § 433. The District Court properly took these

considerations into account in finding that no jury could reasonably conclude that

Appellees’ negligence—if proved—was a substantial factor in causing Chetty’s alleged

injury.




                                               7
       The District Court identified a number of “other factors” that contributed

substantially to Chetty’s injury. Chief among them were Chetty’s agreement to a

mortgage that included substantial prepayment penalties and Chetty’s decision to sell the

Millview Property. Appellees had no involvement in those decisions, and it was Chetty’s

decision to sell the Millview Property—not any negligence on Appellees’ part—that

ultimately led Chetty to incur the $2.6 million in penalties due to Northwestern Mutual.

       Appellees likewise had no control over HUD’s decision to reject the application

for mortgage insurance. Instead, the rejection was the result of several additional factors

identified by the District Court, including: (1) the drop in occupancy at the Millview

Property; (2) Chetty’s failure to make timely payments on the mortgage; and (3) HUD’s

conclusion that Chetty did not qualify for a loan and its refusal to provide insurance.

Although Chetty maintains that Appellees’ negligence caused HUD’s rejection (and the

resulting fees), that argument misses the mark. The complaint indicates that it was

AmeriSphere, not NorthMarq or Kuhn, whose “internal loan processing committee had

approved Plaintiffs’ application and determined that Plaintiffs’ application met all of the

essential criteria for the issuance of a HUD Firm Commitment.” App. at 355. Taken

together, these external factors were the substantial factor that brought about Chetty’s

alleged harm.

       Other pleaded facts demonstrate how Appellees’ conduct merely “created a

situation harmless unless acted upon by other forces for which [they are] not


                                             8
responsible.” Restatement (Second) of Torts § 433(b). Assuming Appellees were

negligent (as we must) does not change the substantial impact of: (1) the economic

hardships on the Millview Property; (2) HUD’s decision to reject the loan insurance

application; and (3) Northwestern Mutual’s decision not to extend the penalty waiver.

These facts independently operated to derail Chetty’s application and led to imposition of

the resulting prepayment penalty. Appellees’ encouragement of the refinance was

“harmless” absent these external factors.

       Chetty focuses on the timeline3 as evidencing Appellees’ control over when the

prepayment penalties began to accrue. This argument fails, however, because the

timeline makes clear that it merely sets forth “anticipated subsequent milestones” for the

refinancing, and includes only “approximate” start and end dates for each stage. App. at

75 (emphasis added). It was ultimately Northwestern Mutual that made the decision

about when it would no longer suspend the prepayment penalties. Moreover, this

argument misses the larger point that it was the sale after the deadline—not the deadline

itself—that caused Chetty to incur the prepayment penalties.

       Finally, the engagement letter informed Chetty of the risks by noting that “FHA

may issue an FHA Firm Commitment. If the FHA Firm Commitment is issued . . .” App.

       3
         Both the timeline and the engagement letter (discussed infra) are referenced in
the complaint and are part of the record on appeal. They may, therefore, be considered at
the motion to dismiss stage. See Pension Benefit Guar. Corp. v. White Consol. Indus.,
Inc., 998 F.2d 1192, 1196 (3d Cir. 1993) (acknowledging that a court may consider the
allegations in the complaint and documents referenced therein when deciding a motion to
dismiss).

                                            9
at 232 (emphasis added). The letter further provided that “[t]his Engagement is not and

shall not be construed as a commitment of or by Lender to make the Loan or any other

loan to you,” and “[t]he Borrower understands, acknowledges and agrees that: (i) Lender

has not made any representations or warranties regarding the results of the FHA

Mortgage Insurance processing . . . . While Lender will seek to obtain an FHA Firm

Commitment and provide a Loan at an interest rate satisfactory to you, we cannot

promise or otherwise assure you that we will be successful.” App. at 234. The complaint

acknowledges that Kuhn gave this notice to Chetty. Even assuming Appellees

negligently advised Chetty during the application process, Chetty was very much aware

that the HUD insurance was not a foregone conclusion. This bolsters the District Court’s

conclusion that any negligence merely created a situation that was harmless absent the

myriad causative factors discussed above.4

       Appellees could not guarantee that Chetty would receive the financing and Chetty

acknowledged that fact. The costs incurred were likewise the result of Chetty’s own

decisions and of matters outside Appellees’ control. The District Court looked to these

facts and properly concluded that they satisfied two elements of the Restatement’s


       4
         Chetty argues that none of the factors considered by the District Court were “the
type of ‘superseding cause’ necessary to absolve [Appellees] of their liability.”
Appellants’ Br. at 23-27. This argument likewise fails because the District Court did not
rely upon a “superseding cause” analysis; instead, it properly followed the Restatement
by considering the “other factors which contribute[d] in producing the harm” and
concluding that Appellees’ negligence was not a substantial factor in causing Chetty’s
harm. Restatement (Second) of Torts § 433(a).

                                             10
definition of substantial factor. See Restatement (Second) of Torts § 433 (“The following

considerations are in themselves or in combination with one another important in

determining whether the actor’s conduct is a substantial factor . . .” (emphasis added)).

In light of these facts, no jury could reasonably conclude that Appellees’ alleged

negligence proximately caused Chetty’s injury.

                                            IV.

       For the above stated reasons, we will affirm the District Court’s dismissal of

Chetty’s third amended complaint.




                                            11
