BROWNSTONE SPECIALTY FINANCE, INC. v. FREEDOM MORTGAGE CORPORATION
OPINION FILED. Signed by Judge Noel L. Hillman on 6/30/17. (js)
UNITED STATES DISTRICT COURT
DISTRICT OF NEW JERSEY
BROWNSTONE SPECIALTY FINANCE,
Civ. No. 16-5412 (NLH/AMD)
FREEDOM MORTGAGE CORPORATION,
Paul Castronovo, Esquire
Castronovo & McKinney, LLC
71 Maple Avenue
Morristown, NJ 07960
Attorney for Plaintiff Brownstone Specialty Finance
Matthew A. Green, Esquire
Mathieu J. Shapiro, Esquire
Samantha J. Koopman, Esquire
Obermayer Rebmann Maxwell & Hippel LLP
Woodland Falls Corporate Park
200 Lake Drive East, Suite 110
Cherry Hill, NJ 08002
Attorneys for Defendant Freedom Mortgage Corporation
HILLMAN, District Judge
This matter comes before the Court by way of Defendant
Freedom Mortgage Corporation’s motion [Doc. No. 8] seeking to
dismiss Count I of Plaintiff’s amended complaint [Doc. No. 5]
pursuant to Federal Rule of Civil Procedure 12(b)(6) for failure
to state a claim upon which relief can be granted.
The Court has
considered the parties’ submissions and decides this matter
pursuant to Federal Rule of Civil Procedure 78.
For the reasons expressed below, Defendant’s motion will be
In this action, Plaintiff asserts claims for allegedly
unpaid commissions in violation of the New Jersey Sales
Representatives’ Rights Act (Count I), N.J. Stat. Ann. §§ 2A:61A1, et seq., and breach of contract (Count II).
exercises jurisdiction over Plaintiff’s state law claims pursuant
to 28 U.S.C. § 1332 based on diversity of citizenship and an
amount in controversy in excess of $75,000.
Plaintiff Brownstone Specialty Finance, Inc. (hereinafter,
“Brownstone” or “Plaintiff”) is incorporated in the State of
Texas and maintains its principal place of business in Texas.
(Pl.’s Am. Compl. [Doc. No. 5], ¶ 1.)
a citizen of the State of Texas.
Accordingly, Plaintiff is
Defendant Freedom Mortgage
Corporation (hereinafter, “Freedom” or “Defendant”) is
incorporated in the State of New Jersey and maintains its
principal place of business in New Jersey.
(Id. ¶ 2.)
Defendant is a citizen of the State of New Jersey.
complete diversity of citizenship exists between the parties.
The amount in controversy is met because the allegations
contained in Plaintiff’s amended complaint sufficiently
demonstrate that the damages sought are in excess of $75,000,
exclusive of interest and costs.
Specifically, Brownstone claims
damages of approximately $44,667 for allegedly unpaid commissions
under the Sales Representatives’ Rights Act (“SRRA”), which
permits exemplary damages in an amount three times greater than
the amount of unpaid commissions and allows for the recovery of
all attorney’s fees actually and reasonably incurred in bringing
such an action.
See N.J. Stat. Ann. § 2A:61A-3(a).
initial claim for damages, when multiplied by three, and
considered with a potential award for attorney’s fees, clearly
satisfies the amount in controversy requirement.1
Cf. Thomas v. Nova Se. Univ., 468 F. App'x 98, 100 (3d Cir.
2012) (recognizing that “[w]hether a claim is for less than the
jurisdictional amount depends on what damages a plaintiff could
recover under state law.”) (citing Packard v. Provident Nat'l
Bank, 994 F.2d 1039, 1046 (3d Cir. 1993); see also Prof'l
Cleaning & Innovative Bldg. Servs., Inc. v. Kennedy Funding,
Inc., 245 F. App'x 161, 163 n.2 (3d Cir. 2007) (observing that
“when state law provides for the recovery of attorneys’ fees by
a successful plaintiff, those fees must be considered in
calculating the jurisdictional amount in controversy.”)
In the amended complaint, Brownstone alleges that in August
of 2014 Brownstone began “working for Defendant as a
‘Consultant’ providing ‘commercial loan origination referral
services’ pursuant to a Services Agreement” between the parties.2
(Pl.’s Am. Comp. ¶ 5.)
Almost two years later, on July 1, 2016,
Freedom verbally terminated the parties’ Services Agreement.
(Id. ¶ 7.)
Freedom followed up by letter dated July 5, 2016,
and provided Brownstone with a written notice of termination
pursuant to the terms of the Services Agreement, which permitted
The amended complaint repeatedly references the parties’
Services Agreement and the Exhibits thereto, and it frequently
quotes portions of those documents. However, Brownstone did not
attach a copy of these documents to the amended complaint. In
moving to dismiss, Defendant included a copy of the Services
Agreement and the Exhibits thereto.
Generally, in considering a motion to dismiss based on Rule
12(b)(6), a district court may not consider matters outside the
pleadings. Fed. R. Civ. P. 12(b)(6). Accordingly, the Court is
limited to considering the facts as they are alleged in the
complaint, anything properly attached thereto and matters of
public record. Fed. R. Civ. P. 12(b)(6). However, “[a] court
may consider an undisputedly authentic document that a defendant
attaches as an exhibit to a motion to dismiss if the plaintiff’s
claims are based on the document. Otherwise a plaintiff with a
legally deficient claim could survive a motion to dismiss simply
by failing to attach a dispositive document on which it relied.”
Pension Benefit Guar. Corp., v. White Consol. Indus., Inc., 998
F.2d 1192, 1196 (3d Cir. 1993). Therefore, the Court may
properly consider the Services Agreement and its Exhibits
because Plaintiff’s claims are clearly based on those documents.
either party to terminate the Agreement “at any time for any
reason by giving the other party thirty (30) days prior written
(Id. ¶ 11; see also Ex. A [Doc. No. 8-1] to Def.’s
Mem. of Law, Services Agreement, 3, ¶ 6.1.)
the written notice of termination on July 7, 2016.
Relying upon Exhibit A to the Services Agreement, a document
entitled “Fee Schedule”, Brownstone alleges that after the
termination Freedom was still obligated to pay Brownstone a
Monthly Draw3 in the amount of $20,000 for each of the months of
June and July, and a pro-rata portion of the August Monthly Draw
based on the effective date of the termination.
12, 15, 18-20.)
(Id. ¶¶ 6-7, 9-
Brownstone now claims that Freedom’s failure to
pay the Monthly Draw constitutes a violation of the SRRA because
the Monthly Draw qualifies as a “commission” as defined by the
(Pl.’s Am. Compl. ¶¶ 22-29.)
Freedom seeks to dismiss Count I of Plaintiff’s amended
With respect to the Monthly Draw, the “Fee Schedule”
provides that Freedom “shall advance $20,000 per month to
[Brownstone] against expected earned Consultant Fees. The
Monthly Draw shall be distributed on the 1st business day of
each month.” (Ex. A [Doc. No. 8-1] to Def.’s Mem. of Law, “Fee
Schedule” – Exhibit A to the Services Agreement, 7.)
complaint asserting a claim under the SRRA pursuant to Federal
Rule of Civil Procedure 12(b)(6).
When considering a motion to
dismiss a complaint for failure to state a claim upon which
relief can be granted pursuant to Federal Rule of Civil Procedure
12(b)(6), a court must accept all well-pleaded allegations in the
complaint as true and view them in the light most favorable to
Evancho v. Fisher, 423 F.3d 347, 350 (3d Cir.
It is well settled that a pleading is sufficient if it
contains “a short and plain statement of the claim showing that
the pleader is entitled to relief.”
FED. R. CIV. P. 8(a)(2).
A district court, in weighing a motion to dismiss, asks
“‘not whether a plaintiff will ultimately prevail but whether the
claimant is entitled to offer evidence to support the claims[.]’”
Bell Atl. Corp. v. Twombly, 550 U.S. 544, 563 n.8 (2007) (quoting
Scheuer v. Rhoades, 416 U.S. 232, 236 (1974)); see also Ashcroft
v. Iqbal, 556 U.S. 662, 129 S. Ct. 1937, 1953 (2009) (“Our
decision in Twombly expounded the pleading standard for ‘all
civil actions[.]’”) (citation omitted).
The Third Circuit has
instructed district courts to conduct a two-part analysis in
deciding a motion to dismiss.
Fowler v. UPMC Shadyside, 578 F.3d
203, 210 (3d Cir. 2009).
First, a district court “must accept all of the complaint’s
well-pleaded facts as true, but may disregard any legal
Fowler, 578 F.3d at 210-11 (citing Iqbal, 129 S.
Ct. at 1949).
Second, a district court must “determine whether
the facts alleged in the complaint are sufficient to show that
the plaintiff has a ‘plausible claim for relief.’”
F.3d at 211 (citing Iqbal, 129 S. Ct. at 1950).
must do more than allege the plaintiff’s entitlement to relief.”
Fowler, 578 F.3d at 211; see also Phillips v. Cnty. of Allegheny,
515 F.3d 224, 234 (3d Cir. 2008) (“The Supreme Court’s Twombly
formulation of the pleading standard can be summed up thus:
‘stating ... a claim requires a complaint with enough factual
matter (taken as true) to suggest’ the required element.
‘does not impose a probability requirement at the pleading
stage,’ but instead ‘simply calls for enough facts to raise a
reasonable expectation that discovery will reveal evidence of’
the necessary element.”) (citing Twombly, 550 U.S. at 556).
A court need not credit “‘bald assertions’” or “‘legal
conclusions’” in a complaint when deciding a motion to dismiss.
In re Burlington Coat Factory Sec. Litig., 114 F.3d 1410, 1429–
30 (3d Cir. 1997).
The defendant has the burden of
demonstrating that no claim has been presented.
United States, 404 F.3d 744, 750 (3d Cir. 2005) (citing Kehr
Packages, Inc. v. Fidelcor, Inc., 926 F.2d 1406, 1409 (3d Cir.
In moving to dismiss Brownstone’s SRRA claim, Freedom’s
primary argument is that any alleged failure to pay the Monthly
Draw, does not state a valid claim for unpaid “commissions”
under the SRRA.
(Def.’s Mem. of Law. [8-1], 5.)
counters that the Monthly Draws are an advance financed by
expected “commissions” that Brownstone is entitled to for June
and July because it “worked those months soliciting commercial
loans for” Freedom.
(Pl.’s Opp’n [Doc. No. 10], 4.)4
The New Jersey Sales Representatives’ Rights Act provides
in pertinent part:
When a contract between a principal and a sales
representative to solicit orders is terminated,
the commissions and other compensation earned as
a result of the representative relationship and
unpaid shall become due and payable within 30
days of the date the contract is terminated or
within 30 days of the date commissions are due,
whichever is later.
Brownstone’s opposition to the pending motion includes
several exhibits including an affidavit by the President of
Brownstone. These documents are outside of the pleadings and
cannot be properly considered by the Court on a motion to
Accordingly, the Court’s review here is limited to
the amended complaint, the Services Agreement, and the Exhibits
thereto for the reasons set forth supra.
N.J. Stat. Ann. § 2A:61A-2.
Importantly, the SRRA specifies
that the term Commission “means compensation accruing to a
sales representative for payment by a principal, earned through
the last day on which services were performed by the sales
representative, the rate of which is expressed as a percentage
of the dollar amount of orders or sales or as a specified
amount per order or per sale.”
N.J. Stat. Ann. § 2A:61A-1.
To determine whether Brownstone has alleged a claim under
the SRRA, the Court must determine whether the compensation
terms of the parties’ Services Agreement and the attached “Fee
Schedule” fall within the definition of a “commission” as set
forth by the Act.
The Services Agreement provides that:
Fees. Consultant [Brownstone] shall be deemed
to have earned a fee at time of closing of the loan.
The fees will be based upon the profitability of the
sale of the loan into a capital
markets/securitization structure for any such
borrower referral, and determined in accordance with
the attached Fee Schedule. All fees shall be
distributed within 15 business day from the time the
fee is earned.
(Ex. A [Doc. No. 8-1] to Def.’s Mem. of Law, Services
Agreement, 1, ¶ 3.1.)
More specifically, the “Fee Schedule”
defines Brownstone’s Consultant Fee as follows:
[Brownstone] shall be entitled to 12% of realized Net
Profits from the sale of each referred loan into a
capital markets/securitization structure (a "Sale").
Net Profits shall mean the Gross Gain generated from
a Sale less Expenses comprised of (i) pro rata
securitization costs, (ii) allocated Client
administrative costs, and (iii) allocation of direct
travel and entertainment costs. Expenses shall be
disclosed to Consultant as they are updated on a
(Ex. A [Doc. No. 8-1] to Def.’s Mem. of Law, “Fee Schedule” –
Exhibit A to the Services Agreement, 7.)
Freedom contends that the language of the Services
Agreement and the “Fee Schedule” demonstrates that Brownstone’s
compensation is not a “commission” as defined by the SRRA
because a “commission” covered by the Act is a form of
compensation the rate of which is expressed in one of two ways:
(1) “‘as a percentage of the dollar amount of orders or
sales,’” or (2) “‘as a specified amount per order or per
(Def.’s Mem. of Law, 8) (citing N.J. Stat. Ann. §
Freedom argues, that neither the Monthly Draw, nor
the Consultant Fee which is calculated based on a percentage of
Net Profits, fall within this definition.
(Def.’s Mem. of Law,
Under New Jersey law, when interpreting “the construction
of ... statutes ..., both civil and criminal, words and phrases
shall be read and construed with their context, and shall,
unless inconsistent with the manifest intent of the legislature
or unless another or different meaning is expressly indicated,
be given their generally accepted meaning, according to the
approved usage of the language.”
N.J. Stat. Ann. § 1:1-1.
Giving the words and phrases used to define a “commission”
under the SRRA their generally accepted meaning, the Court
agrees with Freedom that neither the Monthly Draw, nor the
Consultant Fee qualify as a “commission” within the meaning of
Specifically, the Monthly Draw is defined by the parties’
“Fee Schedule” as a specified amount of $20,000.
is predetermined by the parties’ “Fee Schedule”, and this
number is fixed, and independent of the number of sales of
loans referred by Brownstone.
By contrast, the SRRA’s
definition of “commissions” contemplates a form of compensation
the calculation of which is derived from, and dependent upon,
the work performance of the sales representative.
It is true
that the Monthly Draw constitutes an advance of “expected
earned Consultant Fees,” but that is not sufficient to make it
a “commission” under the Act.
The parties’ “Fee Schedule”
makes clear that the Monthly Draw was designed to insure cash
flow to Brownstone in order to affect additional sales.
More importantly, the Consultant Fee itself, which
Brownstone repeatedly calls a “commission”,5 is explicitly
defined by both the Services Agreement and the “Fee Schedule”
as compensation based on a percentage of net profitability of
the sale of the loans referred by Brownstone.
language of the SRRA encompasses percentage-based compensation
within the definition of a “commission” only where the
percentage-base is tied to “the dollar amount of orders or
N.J. Stat. Ann. § 2A:61A-1(a), not for those
percentage-based compensations related to profits.
correctly points, in drafting statutes like the SRRA, several
other state legislatures, including North Carolina, Oklahoma,
Maryland, and Ohio, have specifically included in the
At certain points in Plaintiff’s amended complaint and
opposition to the pending motion, Plaintiff attempts to conflate
the distinct concepts of a Monthly Draw and that of a Consultant
Fee, and Plaintiff appears to take the position that these are
one-in-the-same and qualify as commissions under the SRRA.
However, in seeking damages here, the amended complaint clearly
relies on the dollar figure set forth in paragraph 20 of the
amended complaint. Therein, Plaintiff unequivocally contends
that it is “entitled to $44,667 as payment of the Monthly Draw
for June, July, and the first week of August 2016.” (Pl.’s Am.
Compl. ¶ 20.) This dollar figure clearly represents Plaintiff’s
attempt to collect on the Monthly Draw, as opposed to the
definition of “commission” those that are derived from a
percentage-base of profits.
See, e.g., N.C. Gen. Stat. Ann. §
66-190(1) (defining commission as “compensation accruing to a
sales representative for payment by a principal, the rate of
which is expressed as a percentage of the amount of orders,
sales, or profits or as a specified amount per order or per
sale.); Okla. Stat. Ann. tit. 15, § 676 (“‘Commission’ means
compensation accruing to a person for payment by another
person, the rate of which is expressed as a percentage of the
dollar amount of orders, sales or profits”); Md. Code Ann., Lab
& Empl. § 3-601(b) (defining commission as “compensation that:
(1) is due to a sales representative from a principal; and (2)
accrues at: (i) a specified amount for each order or sale; or
(ii) a rate expressed as a percentage of the dollar amount that
a sales representative: 1. takes in orders for the principal;
2. makes in sales for the principal; or 3. earns in profits for
Ohio Rev. Code Ann. § 1335.11(A)(1)(“
“Commission” means compensation accruing to a person for
payment by another person, the rate of which is expressed as a
percentage of the dollar amount of orders, sales, or
Unlike these states, the New Jersey SRRA does not
expressly include in the definition of commission, percentagebased compensation derived from profits.
The Court cannot read
into the generally accepted meaning of the words and phrases in
the current definition, a construction that encompasses a form
of compensation that the legislature explicitly left out.
Brownstone’s attempt to couch the Consultant Fee as a
“commission” and to allege its entitlement to the Monthly Draw
for expected earned “commissions” as set forth in the amended
complaint fails, and Count I must be dismissed.
In light of the dismissal of Count I, which provided the
basis for this Court’s original jurisdiction over this case
pursuant to 28 U.S.C. § 1332, the only remaining claim is Count
Count II alleges a state common law claim for breach of
Count II seeks the same $44,667 in unpaid Monthly
Draw (Pl.’s Am. Compl. ¶32.) an amount far below the
jurisdictional minimum for diversity jurisdiction.6
Section 1367(c)(3), “[a] district court may decline to exercise
supplemental jurisdiction over a claim if ‘the district court
Although Count II demands treble damages and attorney’s fees
there are no facts alleged or legal basis specified for an award
of such damages in a breach of contract claim based on common
has dismissed all claims over which it has original
Oras v. City of Jersey City, 328 F. App’x
772, 775 (3d Cir. 2009) (citing 28 U.S.C. § 1367(c)(3)).
Moreover, as recognized by the Third Circuit, “[w]here the
claim over which the district court has original jurisdiction is
dismissed before trial, the district court must decline to decide
the pendent state claims unless considerations of judicial
economy, convenience, and fairness to the parties provide an
affirmative justification for doing so.”
Oras, 328 F. App’x at
775 (citing Hedges v. Musco, 204 F.3d 109, 123 (3d Cir. 2000))
(internal quotations omitted) (emphasis in original).
case, rather than decline the exercise of supplemental
jurisdiction sua sponte, the Court will order the parties to show
cause and demonstrate how considerations of judicial economy,
convenience, and fairness affirmatively justify the exercise of
supplemental jurisdiction over Count II of the amended complaint.
The parties shall show cause within 20 days of the date of this
Opinion and its accompanying Order.
For the foregoing reasons, Defendant’s motion to dismiss
will be granted.
An Order and Order to Show Cause consistent
with this Opinion will be entered.
Dated: June 30, 2017
At Camden, New Jersey
s/ Noel L. Hillman
NOEL L. HILLMAN, U.S.D.J.
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