UNITED STATES OF AMERICA v. THE MARKET AT ASHBOURNE, INC. et al
OPINION FILED. Signed by Judge Robert B. Kugler on 8/4/16. (js)
UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF NEW JERSEY
UNITED STATES OF AMERICA
BARRY H. GERTSMAN,
Civil No 15-8215 (RBK/JS)
KUGLER, United States District Judge:
This case arises from a debt owed by The Market at Ashbourne, Inc., which was
guaranteed by Defendant Barry H. Gertsman (“Defendant” or “Gertsman”). Presently before the
Court is Gertman’s Motion to Dismiss (“Defendant’s Motion”) [Dkt. No. 3]. For the reasons that
follow, Defendant’s Motion will be DENIED.
FACTUAL BACKGROUND AND PROCEDURAL HISTORY
The matter of what the Court may properly consider in this motion to dismiss is directly
at issue here. As discussed in Section III.B, infra, the Court will consider certain documents
outside of the complaint in reaching a decision on Defendant’s Motion. Thus, the Court recites
the facts as informed by those additional documents discussed in Section III.B, infra, as well as
the facts alleged in the Complaint [Dkt. No. 1] and the Certificate of Indebtedness (the “COI”)
(attached to the Complaint as [Dkt. No. 1-1]).
On or about June 5, 2000 the U.S. Small Business Administration (the “SBA”) made a
loan in the amount of $423,000.00 to Ashbourne 4 Properties, LLC (the “Borrower”), operated
by The Market at Ashbourne, Inc. (the “Operator”) through the 504 Loan Program. (Note (Gov’t
Ex. A [Dkt. No. 17-2]) at 1.) The loan was evidenced by a promissory note made by the
Borrower to DelVal Business Finance Corp. (“DelVal”), a Certified Development Company (a
“CDC”). (See Note.) As indicated by the Note, the interest rate, monthly payment, and monthly
principal and interest installment amount were left blank. (See Note at 1–2.) As further
indicated in the Note, the blank terms were to be filled in later and be binding on the Borrower as
if completed prior to signing. (See Note ¶ 12.B.) On the same day, Borrower and DelVal
entered into the Servicing Agreement (Gov’t Ex. B [Dkt. No. 17-3]) which set forth the fees,
interest rates, and other terms contemplated by the Note. (See Servicing Agreement.) Also on
that same day, Gertsman guaranteed the loan. (See Guarantee (Gov’t Ex. C [Dkt. No. 17-4]).)
The Note and Guarantee were assigned to the SBA on or about June 21, 2000. (See Assignment
(Gov’t Ex. D [Dkt. No. 17-5]).)
On November 24, 2009, DelVal on behalf of itself and the SBA sent a letter to Gertsman
advising him that, as a guarantor of the loan, “the loan is in extreme default; real estate taxes are
delinquent; insurances have lapsed; Chapter 11 bankruptcy filing was dismissed; and alleged
Sales Agreement has expired.” (Nov. 24, 2009 Letter (Gov’t Ex. E [Dkt. No. 17-6] and Def. Ex.
B).) The letter further explained that DelVal and the SBA “are commencing collecting
proceedings against the guarantors, including you, for full payment of the 504 loan balance.”
Ultimately, only a portion of the loan was repaid, such that as of November 18, 2015, the
amount of principal remaining was $314,790.27. (Compl ¶ 2; COI at 2–3.) Additionally,
interest had accrued in the additional amount of $161,513.47. (Compl. ¶ 4a; COI at 2–3.) Thus,
the total amount due on the loan as of November 18, 2015 was $476,303.74, with interest
accruing at a rate of $63.98 per day. (Id.) A letter was sent to Gertsman by the SBA on
November 18, 2015 informing him of this, and stating that the SBA again demanded payment in
full. (COI at 3.)
The Government then filed suit to recover the unpaid money on November 23, 2015
against both Gertsman and the Operator. (See generally Compl.) The defendants made the
instant motion on January 19, 2016 as a pre-answer motion to dismiss under Rule 12(b)(6). (See
generally Def.’s Mot.) On March 22, 2016, this Court on consent of counsel for the Government
and the Operator dismissed claims against the Operator with prejudice, leaving Gertsman as the
sole defendant and the sole movant. (See Stipulation and Consent Order (Mar. 22, 2016) [Dkt.
No. 10].) The Government filed its opposition on June 21, 2016 after multiple consented-to
extensions, (see Gov’t Opp. [Dkt. No. 17]), and Gertsman filed no reply. As the Government is
the plaintiff in this civil action for breach of contract, this Court exercises subject matter
jurisdiction pursuant to 28 U.S.C. § 1345.
Rule 12(b)(6) allows a court to dismiss an action for failure to state a claim upon which
relief can be granted. Fed. R. Civ. P. 12(b)(6). When evaluating a motion to dismiss, “courts
accept all factual allegations as true, construe the complaint in the light most favorable to the
plaintiff, and determine whether, under any reasonable reading of the complaint, the plaintiff
may be entitled to relief.” Fowler v. UPMC Shadyside, 578 F.3d 203, 210 (3d Cir. 2009)
(quoting Phillips v. Cty. of Allegheny, 515 F.3d 224, 233 (3d Cir. 2008)). In other words, a
complaint is sufficient if it contains enough factual matter, accepted as true, to “state a claim to
relief that is plausible on its face.” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009); Bell Atl. Corp. v.
Twombly, 550 U.S. 544, 570 (2007). It is not for courts to decide at this point whether the
moving party will succeed on the merits, but “whether they should be afforded an opportunity to
offer evidence in support of their claims.” In re Rockefeller Ctr. Prop., Inc., 311 F.3d 198, 215
(3d Cir. 2002). Yet, while “detailed factual allegations” are not necessary, a “plaintiff’s
obligation to provide the ‘grounds’ of his ‘entitle[ment] to relief’ requires more than labels and
conclusions, and a formulaic recitation of the elements of a cause of action will not do.”
Twombly, 550 U.S. at 555; see also Iqbal, 556 U.S. at 678–79.
To make this determination, a court conducts a three-part analysis. Santiago v.
Warminster Twp., 629 F.3d 121, 130 (3d Cir. 2010). First, the court must “tak[e] note of the
elements a plaintiff must plead to state a claim.” Id. (quoting Iqbal, 556 U.S. at 675). Second,
the court should identify allegations that, “because they are no more than conclusions, are not
entitled to the assumption of truth.” Id. at 131 (quoting Iqbal, 556 U.S. at 680). Finally, “where
there are well-pleaded factual allegations, a court should assume their veracity and then
determine whether they plausibly give rise to an entitlement for relief.” Id. This plausibility
determination is a “context-specific task that requires the reviewing court to draw on its judicial
experience and common sense.” Iqbal, 556 U.S. at 679. A complaint cannot survive where a
court can infer only that a claim is merely possible rather than plausible. Id.
The parties have two disputes here: (1) what documents the Court may consider other
than the Complaint and its attachments at this procedural posture; and (2) whether Gertsman
successfully argues a statute of limitations defense. The dispute centers around the operation of
the so-called “Third Circuit Rule” and the “integral documents exception.” Gertsman has not
raised the issue of whether the Complaint otherwise states a claim for breach of contract.
The “Third Circuit Rule”
Typically, a statute of limitations defense may only be raised as an affirmative defense in
an answer, and not in a pre-answer motion to dismiss. See Fed. R. Civ. P. 8(c), 12(b). However,
in this Circuit, the so-called “Third Circuit Rule” permits a defendant to make a statute of
limitations argument in a Rule 12(b)(6) motion, but only “when the defense is ‘apparent on the
face of the complaint’ and documents relied on in the complaint.” Bohus v. Restaurant.com,
Inc., 784 F.3d 918, 923 n.2 (3d Cir. 2015) (quoting Schmidt v. Skolas, 770 F.3d 241, 249 (3d Cir.
2014)); see also Robinson v. Johnson, 313 F.3d 128, 135 (3d Cir. 2002).
Dismissal is appropriate under the Third Circuit Rule “only 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.” Schmidt, 770 F.3d at 249 (quoting Robinson, 313 F.3d at 135) (internal quotation
marks omitted). “However, ‘if the bar is not apparent on the face of the complaint, then it may
not afford the basis for a dismissal of the complaint under Rule 12(b)(6).’” Id. (quoting
Robinson, 313 F.3d at 135) (internal quotation marks and alterations omitted).
With this in mind, the Court turns to what it may properly consider in evaluating
Documents Outside the Complaint
In support of their arguments, both Gertsman and the Government have relied on
documents outside the pleadings. It is well settled in this Circuit that when deciding a Rule
12(b)(6) motion to dismiss, the Court will “consider only the complaint, exhibits attached to the
complaint, matters of public record, as well as undisputedly authentic documents if the
complainant’s claims are based upon these documents.” Guidotti v. Legal Helpers Debt
Resolution, L.L.C., 716 F.3d 764, 772 (3d Cir. 2013) (quoting Mayer v. Belichick, 605 F.3d 223,
230 (3d Cir. 2010)) (internal quotations omitted). However, as explained by the Third Circuit:
[A]n exception to the general rule is that a document integral to or explicitly relied
upon in the complaint may be considered without converting the motion to dismiss
into one for summary judgment. The rationale underlying this exception is that the
primary problem raised by looking to documents outside the complaint—lack of
notice to the plaintiff—is dissipated where the plaintiff has actual notice and has
relied upon these documents in framing the complaint. What is critical is whether
the claims in the complaint are “based” on an extrinsic document and not merely
whether the extrinsic document was explicitly cited.
Schmidt, 770 F.3d at 249 (internal quotations and modifications omitted). The Third Circuit
further explained in Schmidt that “the justification for the integral documents exception is that it
is not unfair to hold a plaintiff accountable for the contents of documents it must have used in
framing its complaint, nor should a plaintiff be able to evade accountability for such documents
simply by not attaching them to his complaint.” Id. at 250 (citing In re Burlington Coat Factory
Sec. Litig., 114 F.3d 1410, 1426 (3d Cir. 1997)).
The determination of whether or not extrinsic documents are integral to a complaint is an
issue that has often addressed by courts within this District. There are three typical cases where
this becomes important: (1) the plaintiff, alleging some variety of mortgage dispute, fails to
attach the note and the mortgage secured by plaintiff’s property, see, e.g., Martinez v. Capital
One Fin. Corp., Civ. No. 15-266 (JLL/JAD), 2016 WL 3129621, at *1 & n.3 (D.N.J. June 2,
2016); (2) the plaintiff arguing about ERISA benefits fails to attach the pertinent plan
documents, see, e.g., Lewis-Burroughs v. Prudential Ins. Co. of Am., Civ. No. 14-1632 (KM),
2015 WL 1969299, at *4 (D.N.J. Apr. 30, 2015); and (3) the plaintiff fails to attach a contract to
its complaint when alleging breach of the contract, see, e.g., Freightmaster USA, LLC v. Fedex,
Inc., Civ. No. 14-3229 (KSH/CLW), 2015 WL 1472665, at *1 & n.2 (D.N.J. Mar. 31, 2015).
As another judge has noted, “letters, an attorney’s notes of a phone call, [and] a cancelled
check [were] too far afield” to be considered on a Rule 12(b)(6) motion. Steiner v. Cigna Life
Ins. Co. of N.Y., Civ. No. 15-391 (KM), 2016 WL 916687, at *1 (D.N.J. Mar. 10, 2016).
However, the court in Steiner recognized that “a contract or a securities prospectus (even if not
attached to the complaint), where the action is one for breach of that contract or a false statement
in that prospectus” would be considered. Id. The Third Circuit has also ruled that a declaration
explaining the distinction between two parties that forms the basis for a motion to dismiss is “the
very declaration that [the court] must ignore in ruling on [defendant]’s 12(b)(6) motion.” Davis
v. Wells Fargo, --- F.3d ---, 2016 WL 3033938, at *12 (3d Cir. May 27, 2016).
Here, Gertsman has attached three documents to his motion: (1) an invoice dated May
27, 2015;1 (2) a letter dated November 24, 2009 to confirm that the loan is in extreme default;
and (3) a letter sent from the SBA to a Congressman confirming that the loan was referred to the
Treasury Department for collection and offset. (See Def.’s Mot. at Exs. A–C.) Gertsman
provides no affidavit or sworn declaration attesting to the veracity of these documents, merely
attaching them to his motion. The Government attaches (1) the Note; (2) the Servicing
Agreement; (3) the Guarantee; (4) the Assignment; (5) the same November 24, 2009 letter
attached by Gertsman; and (6) the November 18, 2015 letter that is included in the COI attached
to the complaint. (See Gov’t Exs. A–F.) These documents are all attested to be true and correct
copies by Mr. R. Wayne Vickery, a Loan Specialist at the SBA. (See Vickery Decl. [Dkt. No.
Gertsman puts forth no argument regarding why the documents he attaches should be
considered integral to the complaint. (See Defs.’ Mot.) He merely attaches the documents to the
Gertsman purports that this invoice is dated March 1, 2009. (Def.’s Mot. at 3.)
motion, and proceeds to make arguments based on those documents. The Government argues
that the Court should not consider the documents because “[f]urther discovery is needed to
ascertain the veracity of these exhibits and the validity of the assertions made in the Motion.”
(Gov’t Opp. at 7.)
The Court finds instructive a decision from another judge in this District, where the court
held in a breach of contract case that “[t]he contracts underlying the claims, which are attached
to the defendant’s papers, are properly considered, but the proofs of payment surpass what I, in
my discretion, am willing to consider on a motion to dismiss.” China Falcon Flying Ltd. v.
Dassault Falcon Jet Corp., Civ. No. 15-6210 (KM), 2016 WL 1394437, at *1 (D.N.J. Apr. 8,
2016). The Court applies the same discretion here. The documents submitted by Gertsman are,
first and foremost, unattested to and unauthenticated, with the exception of the November 24,
2009 letter that the Government has attached to its reply. Additionally, the other two documents
are not integral to the claim, and are not what the Court in its discretion considers proper on a
motion to dismiss.
The Court will consider the documents submitted by the Government, as they generally
constitute the contract upon which the entire breach of contract claim is predicated or are
attached to the Complaint, with the exception of the November 24, 2009 letter. With respect to
the November 24, 2009 letter, the policy underlying the “integral documents exception”—that
the Court must be concerned about prejudice to the plaintiff—is not implicated when it is the
plaintiff who has submitted the document. It is even less implicated when both parties have
submitted the document and agree that it should be considered in the analysis of the motion.
Therefore, the Court rejects the additional documents submitted by Gertsman and accepts
the additional documents submitted by the Government in addressing Gertsman’s arguments.
Considering the record as set forth in Section I, supra, the Court now turns to the merits of
Statute of Limitations Defense
As mentioned above, in the Third Circuit, the so-called “Third Circuit Rule” permits a
defendant to raise a statute of limitations defense in a Rule 12(b)(6) motion. See Robinson, 313
F.3d at 135. The sole issue raised by Gertsman is whether or not the Government has let the
limitations period provided by 28 U.S.C. § 2145(a) expire. Section 2415(a) generally provides
[E]very action for money damages brought by the United States or an officer or
agency thereof which is founded upon any contract express or implied in law or
fact, shall be barred unless the complaint is filed within six years after the right of
action accrues or within one year after final decisions have been rendered in
applicable administrative proceedings required by contract or by law, whichever is
28 U.S.C. § 2415(a). The statute further provides that “in the event of later partial payment or
written acknowledgment of debt, the right of action shall be deemed to accrue again at the time
of each such payment or acknowledgment.” Id. It is well-settled that § 2415(a) applies to
actions on behalf of the SBA. See United States ex rel. Small Bus. Admin. v. Richardson, 889
F.2d 37, 39 (3d Cir. 1989). Section 2145(a) contemplates two different limitations periods, with
the Government having the benefit of the later in time of the two periods. The Court discusses
each in turn.
Six-Year Limitations Period
In order to decide a statute of limitations defense, the Court must determine when the
cause of action accrued. Gertsman here argues that the cause of action accrued on the date of
default, which according to Gertsman was March 1, 2009. (Def.’s Mot. at 4, 9.)2 Thus,
Gertsman argues that the complaint needed to be filed by March 1, 2015. (See id.) The
Government responds that the cause of action actually accrued on November 24, 2009, the date
on which the immediate demand for payment was made. (Gov’t Opp. at 8.) As such, the
Government submits that the limitations period ran through November 24, 2015 making the
Complaint filed on November 23, 2015 timely. (Id.)
The Third Circuit has held that in determining when a cause of action accrues under
§ 2415(a), “[a]pplication of the general rules on accrual will comport with the congressional
intent of uniformity and prompt disposition of claims.” Fed. Deposit Ins. Corp. v. Hinkson, 848
F.2d 432, 435 (3d Cir. 1988). As another judge in this District has determined, “[i]t is well
settled that a cause of action on a guaranty accrues at the time when the creditor exercises its
option under the acceleration clause of the guaranty agreement.” United States ex rel. Small Bus.
Admin. v. DelGuercio, 818 F. Supp. 725, 728 (D.N.J. 1993) (citations omitted). “Therefore, the
action accrues when the creditor exercises its option under the acceleration clause by demanding
immediate payment.” Id.
As noted by the Government, the SBA here is acting pursuant to an acceleration clause
contained within the Guarantee. (Gov’t Opp. at 11.) The Guarantee states that the “Guarantor
must pay all amounts due under the Note when Lender makes written demand upon Guarantor.”
(Guarantee ¶ 1.) Thus, the cause of action accrued when the written demand for payment in full
Defendant’s Motion consists of both the actual motion and the motion brief in the same
document. However, the pages as submitted are out of order, with a table of contents at the end.
Further, the motion is not paginated, although the motion brief is. With this in mind, the Court
cites to the page numbers assigned by the CM/ECF system, and refers to both documents
collectively as “Defendant’s Motion.” The Court further notes that the motion and the motion
brief are essentially the same, and make the same arguments.
was made. At this procedural juncture, the record before the Court shows that full payment was
not demanded until November 24, 2009. (See Nov. 24, 2009 Letter at 1 (indicating that DelVal
and the SBA “are commencing collection proceedings against the guarantors, including you, for
full payment of the 504 loan balance”) (emphasis added).) Thus, for the purposes of this motion,
the limitations period is as stated by the Government, and did not run until November 24, 2015,
the day after the Complaint was filed.3
One-Year Limitations Period
Section 2415(a) also provides that there is a one-year limitations period that runs from
any “final decisions have been rendered in applicable administrative proceedings required by
contract or law.” Gertsman argues that when the loan was referred to the Treasury Department
for collection on September 16, 2011, that was the equivalent of a final agency decision that
should trigger the one-year limitations period. (Def.’s Mot. at 4, 9.) The Government responds
that there is no evidence of an administrative proceeding in this matter, and that referral to the
Treasury Department is not a final agency decision. (Gov’t Opp. at 12–13.)
Without deciding the merits of this argument, even if Gertsman were correct, because the
Government is entitled to the later of the two limitations periods under the statute, the one-year
limitations period is irrelevant.
Accordingly, Defendant’s Motion will be denied as to his statute of limitations defense.
Pursuant to Rule 12(a)(4)(A), Gertsman’s Answer to the Complaint will be due within fourteen
(14) days of the order accompanying this opinion.
It may come out in discovery that there was an earlier demand for full payment. If that is
indeed the case, Gertsman may again raise his limitations defense on summary judgment.
For the foregoing reasons, Defendant’s Motion will be DENIED, and Gertsman must
answer the Complaint within fourteen (14) days. An appropriate order accompanies this opinion.
Date: August 4th , 2016
s/ Robert B. Kugler
ROBERT B. KUGLER, U.S.D.J.
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