RNC SYSTEMS, INC. v. MTG HOLDINGS, LLC et al
OPINION. Signed by Chief Judge Jerome B. Simandle on 3/27/2017. (TH, )
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF NEW JERSEY
RNC SYSTEMS, INC.,
HONORABLE JEROME B. SIMANDLE
No. 15-5239 (JBS/KMW)
MTG HOLDINGS, LLC, SUMMARY
HOLDINGS, LLC, and IRIC COHEN.
Dean E. Weisgold, Esq.
1835 Market Street
Philadelphia, PA 19103
Attorney for Plaintiff
Trevor S. Williams, Esq.
73 Ellis Street
Haddonfield, NJ 08033
Attorney for Defendants
SIMANDLE, Chief Judge:
In 2014, Plaintiff RNC Systems, Inc. (“RNC”) won a judgment
against Modern Technologies Group, Inc. (“MTG”), in a suit
before this Court arising from a failed business relationship
between the two companies. To date, RNC has been unable to
collect any part of that judgment. RNC instituted this suit the
following year against MTG Holdings, LLC (“MTG LLC”), Summary
Holdings, LLC (“Summary”), and Iric Cohen, asserting that MTG,
MTG LLC, and Summary were alter egos of one another and of Mr.
Cohen, and that Defendants in this case should be liable for
RNC’s judgment against MTG from the prior lawsuit. This case now
comes before the Court on Defendants’ motion for summary
judgment and motion to strike Plaintiff’s opposition to this
motion, and Plaintiff’s motion to amend the complaint to add
Modern Technologies Group, Inc. as a defendant. [Docket Items
72, 84 & 95.] For the reasons that follow, the Court will deny
the motion to strike, grant the motion to amend, and deny the
motion for summary judgment.
A. Factual Background1
RNC is a Nevada corporation with its principal place of
business in California. (Findings of Fact and Conclusions of Law
(“FFCL”) dated December 31, 2014, RNC Systems, Inc. v. Modern
Technologies Group, Inc., Case No. 08-1036 (JBS/KMW), at 9.) RNC
developed a particular product, the Limo Touch, for use in
limousines. (Id. at 8-9.)
The Court distills this undisputed version of events from the
parties’ statements of material facts, affidavits, and exhibits,
and recounts them in the manner most favorable to Plaintiff RNC,
as the party opposing summary judgment.
MTG was a New Jersey limited liability company with its
principal place of business in Medford, New Jersey. (Id. at 89.) MTG was also in the limousine business. It ceased business
operations in March 2014 and avers that it holds only “shelving,
old inventory (unsellable)” as remaining assets and that its
principals have no interest in any other businesses. (MTG
Responses to Information Subpoena Served on February 22, 2015
(Ex. 3 to Declaration of Dean E. Weisgold (“Weisgold Decl.”)
[Docket Item 79-1]) at ¶¶ 6, 7, 15.) According to New Jersey
Business Entity Information records, MTG’s status as a New
Jersey Profit Corporation was revoked and reinstated numerous
times for failing to file an annual report for two consecutive
years. (Ex. 21 to Weisgold Decl.) Eric Alpert, Iric Cohen’s
brother in law, was the President of MTG until September 8,
2012, and Sharon Ronchetti was an executive vice president of
MTG in charge of financials until June of 2013. (Deposition of
Eric Alpert (Ex. B to Def. SMF) at 4:15-20, Ronchetti Dep. at
4:10-5:2.) Mr. Cohen was the CEO of the company. (Deposition of
Iric Cohen (Ex. A to Defendants’ Statement of Material Facts) at
9:20-22.) No tax returns have been produced after 2011 in this
MTG LLC is a New Jersey limited liability company with its
principal place of business in Medford, New Jersey. (Complaint
[Docket Item 1] at ¶ 2.) MTG LLC’s status as a New Jersey LLC
was revoked on April 16, 2015 for failing to file an annual
report for two consecutive years. (New Jersey Business Entity
Information Dated August 5, 2016 (Ex. 20 to Weisgold Decl.).) No
tax returns for MTG LLC have been produced for any time period
in this action.
Summary was a short-lived New Jersey limited liability
company with its principal place of business in Medford, New
Jersey. (Compl. at ¶ 3.) The company was created in order to
continue the business of MTG when the former company experienced
financial difficulties. (Certification of Iric Cohen (Ex. F to
Def. SMF) at ¶¶ 14-158.) It was terminated or dissolved in 2014.
(New Jersey Business Entity Information Dated June 29, 2015 (Ex.
13 to Weisgold Decl.); Cohen Dep. at 17:7-12.) No tax returns
for Summary have been produced for any time period in this
action. According to Defendants’ accountant, all three companies
have filed separate state and federal tax returns and have
maintained separate funds. (Certification of Albert Van Sciver,
CPA (Ex. 27 to Weisgold Decl.) at ¶¶ 4-5.)
Mr. Cohen is the sole owner, officer, and director of MTG.
(Ex. 3 to Weisgold Decl.) He is also a principal of Summary (Ex.
13 to Weisgold Decl.) and MTG LLC. (Ex. 20 to Weisgold Decl.) A
Statement of Financial Condition for Mr. Cohen from December 31,
2013 prepared by certified public accountants notes that, at
that time, Mr. Cohen owned 100% of the common stock of MTG and
50% of the common stock of Summary, and that MTG was an asset
with no value and Summary was an asset worth $2,000,000.
(Statement of Financial Condition (Ex. 11 to Weisgold Decl.) at
p. 2 of 5.) The parties dispute how involved Mr. Cohen was with
the operations of MTG during the time RNC and MTG had a business
relationship and whether representatives from RNC had any
interactions with him before September 2012, when Mr. Alpert
left MTG. (Compare Cohen Dep. at 9:14-23 (Mr. Cohen was an
absentee owner) with Deposition of Sharon Ronchetti (Ex. C to
Def. SMF) at 6:9-21 (Mr. Cohen became involved in day-to-day
operations in September 2012) and Declaration of Iric Cohen (Ex.
F to Def. SMF) at ¶¶ 11-13 (same); see also Def. SMF ¶¶ 19-22.)
Mr. Cohen would withdraw money from MTG’s bank accounts for
“personal reasons” (Alpert Dep. at 15-15-20; see also Ronchetti
Dep. at 13:21-14:17) and he told employees that “he was the one
who owned everything around here.” (Ronchetti Dep. at 7:15-25.)
MTG LLC owns property located at 3 Reeves Station Road,
Medford, New Jersey; this same address is listed as the
permanent address of Summary and the only business location for
MTG. (Deed (Ex. 4 to Weisgold Decl.); Ex. 13 to Weisgold Dep.;
Ex. 3 to Weisgold Dep.) MTG LLC entered into three mortgages on
the Property and has paid off two of them. (Mortgage dated July
2, 2003 (Ex. 16 to Weisgold Decl.); Mortgage dated February 4,
2008 (Ex. 17 to Weisgold Decl.); Mortgage dated May 16, 2014
(Ex. 18 to Weisgold Decl.); Discharge of Mortgage (Ex. 19 to
Weisgold Decl.) However, the Statement of Financial Condition of
Mr. Cohen lists the Property as owned 100% by Mr. Cohen, and he
referred throughout his deposition to the Property as his. (Ex.
11 to Weisgold Decl. at p. 4 of 5; Cohen Dep. at 24:14-16.) MTG
owns no real property, although it sold some property “about
three years ago,” or in around 2012. (Cohen Dep. at 45:2246:20.)
The RNC-MTG Business Relationship
RNC and MTG entered into a written Licensing Agreement
dated December 6, 2003, by which MTG was to pay RNC licensing
fees for the use of two different products to be used in the
limousine industry. (FFCL at 1.)
MTG stopped paying any
royalties to RNC after October 1, 2008, but continued to sell at
least one of the licensed products covered by the Licensing
Agreement after that date, at least until December, 2013. (Id.
at 7, 12, 24.) The parties now dispute when the business
relationship between RNC and MTG ended: whether it was when MTG
stopped paying royalties due under the Licensing Agreement, or
whether it continued as Mr. Cohen continued to use RNC-licensed
technology. (Compare Def. SMF ¶¶ 10, 21 with Pl. SMF ¶¶ 10, 21.)
RNC filed suit against MTG in February 2008, seeking a
declaration that MTG had breached the Licensing Agreement by
failing to discharge its obligations, and that the Licensing
Agreement was terminated; MTG filed counter-claims sounding in
breach of contract, fraud in the inducement, commercial
disparagement, and unfair competition. (Id. at 3.) Over six
years later, the case (“the Judgment lawsuit”) finally proceeded
to a bench trial before this Court, on the parties’ breach of
contract claims only. (Id.) The Court ultimately ordered and
adjudged that RNC prevailed on both its claim for breach of
contract and MTG’s counterclaim for breach of contract, and
entered a Judgment in favor of RNC and against MTG in the amount
of $265,463.18. (Id. at 42.) The Judgment remains unsatisfied.
Following entry of the Judgment against MTG and in favor of
RNC, RNC engaged in discovery in aid of execution in the early
months of 2015, including serving an Information Subpoena on
February 22, 2015 (Ex. 3 to Weisgold Decl.) and deposing Mr.
Cohen as a corporate designee of MTG in June of 2015. (Cohen
Dep. (Ex. A to Def. SMF).) This lawsuit, seeking to hold Mr.
Cohen, MTG LLC, and Summary liable for the Judgment, followed on
July 6, 2015. [Docket Item 1.] RNC’s six-count Complaint
asserted claims for injunctive relief, piercing the corporate
veil, breach of fiduciary duty, accounting, conspiracy, and
RNC withdrew its claims for a temporary restraining order and
preliminary injunction by letter earlier in the case [Docket
RNC apparently became aware that MTG had ceased operations
only on account of MTG’s responses to the Information Subpoena.
(Ex. 3 to Weisgold Decl.; Pl. Counterstatement of Material Facts
¶ 23.) The parties offer differing accounts of when and why MTG
became insolvent, what became of MTG’s assets during the wind
down, and why certain deposits were made to Mr. Cohen’s account
in 2014 and 2015. Essentially, Defendants assert that MTG
stopped being profitable in 2008, became insolvent in 2012, and
and went out of business in early 2014 because of the economic
downturn. (Def. SMF ¶¶ 23, 24, 27, 28.) According to Defendants,
Infinite Innovations, Inc. and Mastrcon issued checks to MTG for
$50,000 and $9,995, respectively, for MTG’s inventory and
equipment in 2014 and 2015, but that those checks had to be
deposited to MTG LLC or Mr. Cohen’s bank accounts because MTG no
longer held its own accounts. (Id. ¶¶ 32-34.)
RNC offers a different version of events, relying largely
on bank transfers between accounts held by Mr. Cohen, Summary,
and MTG. (Pl. Response to Def. SMF ¶ 23; Bank Statements (Ex.
22, 24, 27, 33, 48, 57 to Weisgold Decl.) RNC asserts that MTG’s
bank statements, showing activity in 2014 and 2015, prove that
the company was solvent past 2012 and that it may have failed
Items 55 & 56], and its breach of fiduciary duty and conspiracy
at the February 15, 2017 argument. None of these claims appear
in the now-operative Amended Complaint, discussed below.
because of excessive payments made to Mr. Cohen. According to
RNC, because Defendants have failed to produce full financial
records for MTG and MTG LLC, despite an Order from Judge
Williams to do so [Docket Item 19], there are factual questions
as to whether payments due to MTG were improperly diverted to
Mr. Cohen or another of his companies.
B. Parties’ Arguments
Defendants principally seek summary judgment on the grounds
that RNC cannot pierce the corporate veil of MTG because MTG has
not been named as a defendant in this lawsuit. Defendants also
take the position that none of the factors relevant to finding
that a corporation was a sham or fraud were present when the
corporation was formed, or during the time RNC and MTG had a
business relationship. Additionally, Defendants assert that
RNC’s fraudulent transfer claim must be dismissed because RNC
would need to bring that claim on behalf of all of MTG’s
creditors and that RNC’s claims for an injunction and an
accounting have been mooted by this case.
RNC asserts that summary judgment is not warranted on its
piercing the corporate veil and fraudulent transfer claims
because there is evidence in the record to support such claims.
In particular, RNC takes the position that piercing the
corporate veil is appropriate in this case because all of Mr.
Cohen’s companies – MTG, Summary, and MTG LLC – failed to
observe corporate formalities or keep corporate records, and
that Mr. Cohen improperly transferred or commingled assets
between the companies. RNC additionally argues that its
fraudulent transfer claim need not be brought on behalf of all
creditors and that factual issues on that claim preclude the
entry of summary judgment.
STANDARD OF REVIEW
Federal Rule of Civil Procedure 56(a) generally provides
that the “court shall grant summary judgment if the movant shows
that there is no genuine dispute as to any material fact” such
that the movant is “entitled to judgment as a matter of law.”
FED. R. CIV. P. 56(a). A “genuine” dispute of “material” fact
exists where a reasonable jury’s review of the evidence could
result in “a verdict for the non-moving party” or where such
fact might otherwise affect the disposition of the litigation.
Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986).
Disputes over irrelevant or unnecessary facts, however, fail to
preclude the entry of summary judgment. Id.
serving submissions cannot alone withstand a motion for summary
judgment. Gonzalez v. Sec’y of Dept. of Homeland Sec., 678 F.3d
254, 263 (3d Cir. 2012) (internal citations omitted).
In evaluating a motion for summary judgment, the Court must
view the evidence in the light most favorable to the non-moving
party, and must provide that party the benefit of all reasonable
Scott v. Harris, 550 U.S. 372, 378 (2007); Halsey
v. Pfeiffer, 750 F.3d 273, 287 (3d Cir. 2014).
such inferences “must flow directly from admissible evidence
[,]” because “‘an inference based upon  speculation or
conjecture does not create a material factual dispute sufficient
to defeat summary judgment.’”
Halsey, 750 F.3d at 287 (quoting
Robertson v. Allied Signal, Inc., 914 F.2d 360, 382 n. 12 (3d
Cir. 1990); citing Anderson, 477 U.S. at 255).
A. Defendants’ Motion to Strike
As a preliminary matter, the Court will address Defendants’
motion to strike RNC’s Response Statement to their motion for
summary judgment. [Docket Item 84.] According to Defendants,
RNC’s factual submission runs afoul of L. Civ. R. 56.1 because
“it contains a counter statement of material facts supposedly
not in dispute and because its responsive paragraphs include
legal arguments and conclusions of law.”
The Court disagrees. The Local Civil Rules provide the
opponent to a motion for summary judgment the opportunity to
“furnish a supplemental statement of disputed material facts, in
separately numbered paragraphs citing to affidavits and other
documents submitted in connection with the motion, if necessary
to substantiate the factual basis for opposition.” L. Civ. R.
56.1(a). RNC has plainly taken advantage of this provision of
the Local Rules, and Defendants’ description of the supplement
as “a counter statement of undisputed facts” is a
mischaracterization. RNC’s submission, labeled a
“Counterstatement of Material Facts,” provides the Court with a
properly formatted and supported alternative to Defendants’
version of the facts. This is, by definition, a recounting of
disputed material facts. Furthermore, to the extent that both
parties’ factual submissions contain a few errant legal
arguments and conclusions of law, the Court will disregard such
points without taking the drastic step of striking any portion
of the papers before this Court. Accordingly, Defendants’ motion
to strike is denied.
B. Piercing the Corporate Veil
The gravamen of RNC’s Complaint is that it should be
permitted to pierce MTG’s corporate veil and recover the
Judgment from Mr. Cohen, MTG LLC, and Summary. Piercing the
corporate veil, also known as “alter ego liability,” is “a
remedy that is involved when [a subservient] corporation is
acting as an alter ego of [a dominant corporation.]” Bd. of
Trustees of Teamsters Local 863 Pension Fund v. Foodtown, Inc.,
296 F.3d 164, 171 (3d Cir. 2002) (internal quotations and
citation omitted). By piercing the corporate veil, a court “may
impose liability on an individual or entity normally subject to
the limited liability protections of the corporate form.” The
Mall at IV Group Props., LLC v. Roberts, No. 02-4692, 2005 WL
3338369, at *3 (D.N.J. Dec. 8, 2005). The New Jersey Supreme
Court has noted that the purpose of the doctrine is “to prevent
an independent corporation from being used to defeat the ends of
justice, to perpetuate fraud, to accomplish a crime, or
otherwise to evade the law.” State v. Ventron Corp., 468 A.2d
150, 164 (N.J. 1983).
For the principle to apply under New Jersey law, “a
plaintiff must show that: (1) one corporation is organized and
operated as to make it a mere instrumentality of another
corporation, and (2) the dominant corporation is using the
subservient corporation to perpetrate fraud, to accomplish
injustice, or to circumvent the law.” Foodtown, Inc., 296 F.3d
at 171 (citing Craig v. Lake Asbestos of Quebec, Ltd., 843 F.2d
145, 149 (3d Cir. 1988)); see also Holzli v. DeLuca Enterprises,
No. 11-6148, 2012 WL 983693, at *2 (D.N.J. Mar. 21, 2012)
(Simandle, J.) (piercing the corporate veil requires “such unity
of interest and ownership that the separate personalities of the
corporation and the individual no longer exist.”) In other
words, “[a]n individual may be liable for corporate obligations
if he was using the corporation as his alter ego and abusing the
corporate form in order to advance his personal interests.” Sean
Wood, LLC v. Hegarty Grp., Inc., 29 A.3d 1066, 1076 (N.J. App.
Div. 2011) (emphasis added).
In determining whether to pierce the corporate veil, common
ownership and common management alone will not automatically
give rise to common liability. Stochastic Decisions, Inc v.
DiDomenico, 565 A.2d 1133, 1136 (N.J. App. Div. 1989). Rather,
to find whether a defendant abused the corporate structure, New
Jersey courts consider factors such as
gross undercapitalization . . . failure to observe
corporate formalities, non-payment of dividends, the
insolvency of the debtor corporation at the time,
siphoning of funds of the corporation by the dominant
stockholder, non-functioning of other officers or
directors, absence of corporate records, and the fact
that the corporation is merely a façade for the
operations of the dominant stockholder or stockholders.
Craig, 843 F.2d at 150 (quoting American Bell, Inc. v.
Federation of Telephone Workers, 736 F.2d 879, 886 (3d Cir.
1984)). Even where a plaintiff can establish alter ego identity
under the first prong of New Jersey’s corporate piercing
analysis, liability may only be imposed where the defendant used
the other company to “perpetrate a fraud or injustice, or
otherwise to circumvent the law.” Ventron, 468 A.2d at 164. This
means that “there must be some ‘wrong’ beyond simply a judgment
creditor’s inability to collect.” The Mall at IV Grp. Props.,
LLC v. Roberts, Case No. 02-4692, 2005 WL 3338369, at *3 (D.N.J.
Dec. 8, 2005).
Defendants seek summary judgment on RNC’s alter ego count
principally on the ground that, because MTG is not a party to
this suit, RNC may not pierce its corporate veil. Defendants
offer no legal support for this argument, and indeed, there is
none. A judgment creditor need not name the dominant corporation
in a veil-piercing suit in order to recover against its
subsidiaries or principals. See Cevdet Aksut Ve Ogullari Koll.
Sti v. Cavusoglu, Case No. 12-2899, 2015 WL 4315330 (D.N.J. July
14, 2015) (Plaintiff named only the sole director and
shareholder of a dissolved corporation in a suit to pierce the
corporate veil and hold individual liable for judgment obtained
against the dissolved corporation); AYR Composition, Inc. v.
Rosenberg, 619 A.2d 592 (N.J. App. Div. 1993) (Judgment
creditor-plaintiff named individual officers as defendants in
suit to pierce the corporate veil and recover a judgment awarded
against their former corporation in a separate lawsuit).
Defendants are not entitled to summary judgment on this
technicality alone. The Court has found no New Jersey precedent
holding that a plaintiff must name the dominant corporation in
order to pierce the corporate veil, and in any event, the Court
will permit Plaintiff to amend the Complaint to name MTG as a
Shortly after the February 15 oral argument, Plaintiff
submitted a proposed Motion to Amend the Complaint, which this
Court permitted to be filed beyond the motion deadline. [Docket
Item 95.] By its motion to amend, Plaintiff seeks to add MTG as
a Defendant in this case; the proposed Amended Complaint
includes no other new allegations. Under Rule 15(a), “the court
In the alternative, Defendants argue that summary judgment
is proper because RNC has adduced no evidence that piercing the
corporate veil would be proper under any of the Craig factors.
Defendants would have the Court limit the record to the time in
should freely give leave” to amend the complaint “when justice
so requires.” However, a court may deny leave to amend where it
is apparent from the record “(1) the moving party has
demonstrated undue delay, bad faith or dilatory motives, (2) the
amendment would be futile, or (3) the amendment would prejudice
the other party.” United States ex rel. Schumann v. Astrazeneca
Pharmaceuticals L.P., 769 F.3d 837, 849 (3d Cir. 2014) (citing
Lake v. Arnold, 232 F.3d 360, 373 (3d Cir. 2000)). “[P]rejudice
to the non-moving party is the touchstone for the denial of a
motion to amend.” Lorenz v. CSX Corp., 1 F.3d 1406, 1414 (3d
Here, Defendants demonstrate none of these factors in their
opposition to Plaintiff’s motion to amend. Defendants did not
raise the possibility that MTG is an indispensable party until
their motion for summary judgment, and even then, Plaintiff had
a good faith, reasonable basis in law for arguing that MTG need
not be named as a defendant in the piercing claim rather than
immediately moving to amend the complaint to correct the
purported deficiency. Nor would this amendment be futile: as
follows, there are factual disputes about whether the criteria
for piercing the corporate veil exist in this case. And finally,
the Court does not find that adding MTG at this stage would
result in prejudice to Defendants. MTG’s sole shareholder and
officer, Mr. Cohen, has actively participated in all aspects of
this case. Plaintiff already took post-judgment discovery from
MTG and Mr. Cohen, by which it learned that Mr. Cohen is the
only shareholder and officer who might have discoverable
material relating to the 2012-2015 time period. It is hard to
imagine what more information RNC could need from MTG to prepare
for trial that it does not already have in its possession. The
Court finds distinguishable the cases Defendants point to where
courts denied a motion to amend to add new claims late in the
game, where here, Plaintiff seeks only to add a related
corporate party who has essentially already participated in this
case. In the absence of undue delay, futility, or prejudice to
Defendants, the Court will grant Plaintiff’s motion to amend the
complaint and add MTG as a defendant in this action.
which RNC and MTG had a formal business relationship, or up
through 2008; this position ignores the essence of RNC’s
allegations, that Mr. Cohen moved MTG assets to himself and
other of his companies to avoid paying the judgment that was
forthcoming against MTG once summary judgment was granted in the
Judgment Lawsuit in 2012. After all, impermissible personal
payments to an owner is “the classic criteria for piercing the
corporate veil.” DiDomenico, 565 A.2d at 1136.
RNC points to facts in the record sufficient to create
factual issues about, at least, whether Mr. Cohen’s companies
observed corporate formalities and maintained corporate records;
MTG’s undercapitalization and insolvency; and whether the
dominant stockholder siphoned funds. Craig, 843 F.2d at 150.
Because at this juncture there are factual disputes about Mr.
Cohen’s involvement in MTG; whether MTG, MTG LLC, and Summary
commingled funds; when and why MTG became insolvent; how much
money Mr. Cohen withdrew from his companies’ bank accounts,
when, and why; and whether certain payments due to MTG were
ultimately made to Mr. Cohen or other of his companies instead,
the Court cannot grant Defendants’ motion for summary judgment.
C. Fraudulent Transfer
Defendants also seek summary judgment on Count VI of the
Complaint on the grounds that fraudulent transfer claims must be
brought on behalf of all creditors to be viable. The crux of
RNC’s claims in this count is that MTG made improper transfers
of funds to Mr. Cohen, Summary, and MTG LLC when it was
insolvent or in the zone of insolvency in 2014 and 2015, thereby
harming MTG’s creditors, including RNC. (See Compl. ¶¶ 51-58,
Defendants assert, for the first time, that RNC’s
fraudulent transfer claim on its sole behalf is foreclosed by
New Jersey law, pointing to a passage from the Superior Court,
Appellate Division of New Jersey:
When a corporation becomes insolvent a quasi-trust
relationship arises between its officers and directors
on the one hand and its creditors on the other. . . . An
action to set aside or recover such preferences, if
brought by a single creditor instead of by a receiver or
trustee in bankruptcy of the corporation, must be
brought for the benefit of all creditors of the
corporation. . . . The creditor may not, as plaintiff
here has done, bring in action at law to recover from
the beneficiaries of the preferential payments only the
amount due on the judgment which the creditor has
recovered against the corporation.
Portage Insulated Pipe Co. v. Costanzo, 275 A.2d 452, 453 (N.J.
App. Div. 1971).
First, it is clear that there is no such requirement in the
New Jersey Uniform Fraudulent Transfer Act, N.J.S.A. 25:2-20 et
seq. (“NJUFTA”) itself. Nowhere does the statute mandate that a
singular plaintiff is barred from seeking to set aside a
fraudulent transaction on its own behalf. Second, the cases
Defendants point to applying this principle all consider breach
of fiduciary duty claims, and not fraudulent transfer claims
under the NJUFTA. The undersigned is not the only court to find
this distinction important: on the same day, in two very closely
related cases involving a single plaintiff, Judge Martini
simultaneously granted summary judgment on a breach of fiduciary
duty claim, citing Portage, while permitting an NJUFTA claim to
move forward. Compare Cevdet Aksut Ve Ogullari Koll. Sti v.
Cavusoglu, Civil No. 12-2899, 2015 WL 4315330, at *8 (D.N.J.
July 14, 2015) with Cevdet Aksut Ve Ogullari Koll. Sti v.
Cavusoglu, Civil No. 14-3362, 2015 WL 4317750, at *6-*7 (D.N.J.
July 15, 2015). And finally, even if a fraudulent transfer claim
must be brought on behalf of all creditors, the fact that RNC is
the sole plaintiff in this case means this requirement would
make little practical difference: as a judgment creditor, RNC
would have priority in recovering its losses over other
creditors, and all parties agreed at the February 15 argument
that RNC is the only known judgment creditor. No other creditors
would be meaningfully harmed if a superior creditor’s claim was
paid out ahead of their own.
Turning to the substance of RNC’s claim, factual disputes
preclude this Court from granting Defendants’ motion for summary
judgment on Plaintiff’s fraudulent transfer claim. The NJUFTA
provides, inter alia, that
A transfer made or obligation incurred by a debtor is
fraudulent as to a creditor whose claim arose before the
transfer was made or the obligation was incurred if the
debtor made the transfer or incurred the obligation
without receiving a reasonably equivalent value in
exchange for the transfer or obligation and the debtor
was insolvent at that time or the debtor became insolvent
as a result of the transfer or obligation.
N.J.S.A. 25:2-27(a). A factfinder could determine, on the record
before the Court, that RNC’s creditor claim against MTG arose in
2008 (and possibly continued to build through at least 2013)
when MTG failed to pay royalties due under the Licensing
Agreement between the companies; that MTG became insolvent at
some point between the end of 2012 (Def. SMF ¶ 24) and the trial
in the Judgment lawsuit in March of 2014 (Ex. 3 to Weisgold
Decl. at Response ¶ 15); that a number of four- and five-figure
transfers were made from MTG’s account in the days leading up to
MTG’s cessation of business (Ex. 24 to Weisgold Decl.); and that
at least the payments from Infinite Innovations, Inc. and
Mastrcon due to MTG were instead deposited by Mr. Cohen or
another of his companies instead of MTG. (Ex. 10 to Weisgold
Decl.; Ex. 23 to Weisgold Decl.) Especially important to RNC’s
case is the fact that the transferees were alter egos of Mr.
Cohen, and that insider transactions are singled out for special
scrutiny under the NJUFTA. See N.J.S.A. 25:2-27(b). Accordingly,
Defendants’ motion for summary judgment is denied as to the
fraudulent transfer count.
D. Injunction and Accounting
Summary judgment will be denied on the remaining counts of
the Complaint, seeking permanent injunctive relief and an
accounting, because the record indicates that there are still
outstanding disputes over these claims – Defendants are still
trying to sell the Medford Property, and there may still be
documents relevant to an accounting that were not disclosed
during the course of discovery.
An accompanying Order will be entered.
March 27, 2017
s/ Jerome B. Simandle
JEROME B. SIMANDLE
Chief U.S. District Judge
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