SCHAFFER et al v. HOME MORTGAGE CORPORATION et al
Filing
57
OPINION. Signed by Judge Noel L. Hillman on 3/31/2019. (tf, )
UNITED STATES DISTRICT COURT
DISTRICT OF NEW JERSEY
DEREK SCHAFFER,
Individually and on Behalf of
Home Mortgage Corporation,
and CARL DIANTONIO,
Individually and on Behalf of
Home Mortgage Corporation,
1:18-cv-08842-NLH-AMD
OPINION
Plaintiffs,
v.
HOME MORTGAGE CORPORATION,
MARVIN J. ZAGORIA, DONALD E.
SISSON, JOEL S. ARDGETTI,
ESQ., LARRY WARNER, ROBIN
HOLLAND, JANIS KOPLIN
ZAGORIA, and PNC BANK,
Defendants.
DONALD E. SISSON,
Counter-Claimant,
v.
DEREK SCHAFFER and CARL
DIANTONIO,
Counter-Defendants.
APPEARANCES:
DANIEL HENRY MARIANI
MATTHEW R. MCCRINK
MCCRINK, KEHLER & MCCRINK
475 ROUTE 73 NORTH
WEST BERLIN, NJ 08091
On behalf of Plaintiffs/Counter-Defendants
DOUGLAS F. JOHNSON
EARP COHN P.C.
20 BRACE ROAD
4TH FLOOR
CHERRY HILL, NJ 08034
On behalf of Defendant Janis Koplin Zagoria
DONALD E. SISSON
175 ACTION DRIVE
FAYETTEVILLE, GA 30215
Appearing pro se
JAMES A. KASSIS
SCHENCK, PRICE, SMITH, & KING, LLP
220 PARK AVENUE
PO BOX 0991
FLORHAM PARK, NJ 07932-0991
On behalf of Defendant PNC Bank
HILLMAN, District Judge
This matter concerns claims by Plaintiffs that Defendants
conspired to steal or convert Plaintiffs’ funds deposited in an
escrow account at PNC Bank intended as a good faith deposit for
Plaintiffs’ purchase of Home Mortgage Corporation.
Defendants
PNC Bank and Donald Sisson have moved to dismiss Plaintiffs’
claims.
For the reasons expressed below, Defendants’ motions will
be granted in part and denied in part. 1
Plaintiffs shall be
afforded thirty days to move for leave to file a third amended
complaint.
1
The Court will also dismiss without prejudice Defendant
Sisson’s counterclaim. See, infra, note 16.
2
BACKGROUND
According to Plaintiffs’ second amended complaint, 2 in early
2
On May 4, 2018, Plaintiffs filed a complaint asserting
jurisdiction based on diverse citizenship and an amount in
controversy in excess of $75,000, exclusive of interests and
costs, pursuant to 28 U.S.C. § 1332(a). (Docket No. 1.) On June
19, 2018, the Court issued an Order to Show Cause as to why
Plaintiffs’ complaint should not be dismissed for lack of
subject matter jurisdiction because Plaintiffs’ complaint failed
to properly allege the citizenship of the individual and
corporate parties. (Docket No. 8.) Plaintiffs filed an amended
complaint, and although the amended complaint corrected the
pleading deficiencies of the citizenship of the individual
parties, the amended complaint did not properly plead the
citizenship of the corporate entities. (Docket No. 10.) The
Court issued a second Order to Show Cause regarding the
remaining pleading deficiencies on July 3, 2018. (Docket No.
10.) On July 5, 2018, Plaintiffs filed a second amended
complaint, which appeared to correctly plead the citizenship of
all the parties, with Plaintiffs averring that they are citizens
of New Jersey, Defendant Home Mortgage Corporation is a citizen
of Georgia (principal place of business and state of
incorporation), the individual Defendants are citizens of
Georgia, and Defendant PNC Bank is a citizen of Delaware (where
it is incorporated and has its principal place of business).
(Docket No. 13.) In both of the Court’s Orders to Show Cause,
the Court noted that even though Plaintiffs’ basis for this
Court’s subject matter jurisdiction was diversity, Count XIV in
Plaintiffs’ complaint alleged a violation of the Racketeer
Influenced and Corrupt Organizations Act, 18 U.S.C. § 1962(c),
providing federal question jurisdiction under 28 U.S.C. § 1331
and supplemental jurisdiction over Plaintiffs’ state law claims
under 28 U.S.C. § 1367. The Court directed that Plaintiffs
should replead federal question jurisdiction if that was their
intent. (Docket No. 8, 12.) Neither the amended complaint nor
the second amended complaint changes the basis for this Court’s
subject matter jurisdiction. Moreover, it appears to the Court
that the citizenship of the parties is still in question in that
PNC Bank’s motion to dismiss indicates that it is incorporated
in Delaware and has its principal place of business in
Pennsylvania, not Delaware as pleaded by Plaintiffs. Although
Pennsylvania citizenship, if true, would not defeat diversity,
this Court requires certainty as to subject matter jurisdiction
not haphazard, shifting or inconsistent pleadings. Moreover,
3
2016, Plaintiffs Derek Schaffer and Carl DiAntonio entered into
an agreement to purchase Defendant Home Mortgage Corporation
from Defendants Donald Sisson and Marvin Zagoria.
On March 10,
2016, Schaffer, DiAntonio, Sisson, and Zagoria went to a PNC
Bank branch in Georgia.
Schaffer and DiAntonio became
signatories on a new account in the name of Home Mortgage
Corporation (apparently called the “HMC-North account”), and
deposited $100,000 into the account as a good faith deposit to
be held in escrow as part of the agreement between the parties
to purchase Home Mortgage Corporation.
A PNC Bank employee,
Evelyn A. Stevenson, facilitated the transaction.
Plaintiffs left the bank, but they contend that Sisson and
Zagoria stayed behind.
Plaintiffs claim that without their
knowledge and permission, Stevenson added Sisson and Zagoria to
the new HMC-North account as co-signatories.
Plaintiffs relate
that Sisson and Zagoria maintained a separate bank account for
Home Mortgage Corporation at PNC Bank (referred to as the “HMC–
because the Court will dismiss Plaintiffs’ RICO claim, the
parties’ citizenships must be properly averred to confirm that
this Court may exercise diversity jurisdiction. The parties
will be directed, therefore, to file a Joint Certification of
the Citizenship of the Parties within 10 days of the date of
this Opinion and accompanying Order. See
https://www.njd.uscourts.gov/sites/njd/files/HillmanStandOrdDivC
itiz.pdf; Zambelli Fireworks Mfg. Co. v. Wood, 592 F.3d 412, 418
(3d Cir. 2010) (explaining that federal courts have an
independent obligation to address issues of subject matter
jurisdiction sua sponte and may do so at any stage of the
litigation).
4
South account”).
Plaintiffs returned to New Jersey, and in that same month
of March 2016, obtained a license for Home Mortgage Corporation
through the New Jersey Department of Banking, and opened a
branch in Voorhees, New Jersey.
Plaintiffs claim that they
transacted mortgage business until December 2016.
On December 16, 2016, Plaintiffs allege that they
discovered various fraudulent activities by Sisson and Zagoria
when the IRS froze the HMC–North and HMC–South bank accounts.
Plaintiffs claim that Sisson and Zagoria improperly used $92,000
of the $100,000 that was supposed to be held in escrow as good
faith money for the sale of Home Mortgage Corporation.
Plaintiffs also allege that Defendants failed to pay them over
$62,800 in mortgage settlement funds, fees, and other charges.
In addition to the money Defendants allegedly unlawfully
converted, Plaintiffs claim that Defendants further defrauded
Plaintiffs by failing to add Plaintiffs’ names as corporate
officers to Home Mortgage Corporation’s corporate documents or
to register the corporate documents with the Georgia Secretary
of State, even though it was understood between the parties when
they entered into the purchase agreement that Plaintiffs would
be named as corporate officers to Home Mortgage Corporation as
part of the purchase agreement.
Plaintiffs have asserted fourteen counts in their complaint
5
as follows:
Count I – Fraud/Fraudulent Inducement against all
Defendants;
Count II – Breach of Contract against all Defendants;
Count III – Breach of Covenant of Good Faith and Fair
Dealing against all Defendants;
Count IV – Conversion against all Defendants;
Count V – Intentional Misrepresentation against all
Defendants;
Count VI – Negligent Misrepresentation against all
Defendants;
Count VII – Disgorgement against all Defendants except PNC
Bank 3;
Count VIII – Breach of Fiduciary Duty against all
Defendants;
Count IX – Accounting against all Defendants except PNC
Bank;
Count X – Civil Conspiracy to Commit Fraud against all
Defendants;
3
Plaintiffs’ complaint asserts Counts VII (Disgorgement), IX
(Accounting), and XI (Imposition of Constructive Trust) against
all Defendants. PNC Bank’s motion to dismiss states that it
does not appear that those claims are directed at PNC Bank even
though Plaintiffs assert those claims against “All Defendants.”
In their opposition brief, Plaintiffs concede that those claims
are not against PNC Bank.
6
Count XI – Imposition of Constructive Trust against all
Defendants except for PNC Bank;
Count XII – Negligence against all Defendants;
Count XIII – Breach of Fiduciary Duty against PNC Bank; and
Count XIV – RICO against all Defendants.
(Docket No. 13 at 9-23.)
PNC Bank has moved to dismiss all of Plaintiffs’ claims on
various bases, including lack of standing, a forum selection
clause, and deficient pleading.
dismiss Plaintiffs’ claims. 4
Sisson has also moved to
None of the other Defendants,
4
Sisson filed an answer to Plaintiff’s original complaint and
asserted a counterclaim. (Docket No. 5.) After Plaintiffs filed
their first amended complaint and their second amended
complaint, Sisson filed two motions to dismiss. (Docket No. 16,
17.) Sisson’s motions contest the substance of Plaintiffs’
allegations and relate his version of what occurred. In that
way, Sisson’s motions are more akin to summary judgment motions
pursuant to Fed. R. Civ. P. 56, rather than motions to dismiss
pursuant to Fed. R. Civ. P. 12. See Fed. R. Civ. P. 12(d) (“If,
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.”). The Court, however, will not convert Sisson’s motion
into one for summary judgment because it is too early in the
case to resolve any disputed facts. See Petcove v. Public
Service Electric & Gas, 2019 WL 137652, at *3 (D.N.J. 2019)
(quoting Kurdyla v. Pinkerton Sec., 197 F.R.D. 128, 131 (D.N.J.
2000)) (“A court should not convert a motion . . . when little
or no discovery has occurred.”).
7
except for Janice Koplin Zagoria, 5 have appeared in the action. 6
Plaintiffs have opposed Defendants’ motions.
DISCUSSION
A.
Subject Matter Jurisdiction
As noted above, see supra note 2, Plaintiffs aver that this
Court has jurisdiction over this matter based on the diversity
of citizenship of the parties and an amount in controversy in
excess of $75,000, exclusive of interests and costs, pursuant to
28 U.S.C. § 1332(a).
5
Counsel for Janice Koplin Zagoria filed a letter on August 3,
2018, in which he relates that there is no good faith basis for
Janice Koplin Zagoria to be named in the complaint, as she had
been divorced from Martin Zagoria and had turned over her shares
in Home Mortgage Corporation before the events in the complaint
occurred. (Docket No. 25.) Counsel states that he reached out
to Plaintiffs’ counsel seeking a stipulation of dismissal, but
Plaintiffs’ counsel could not take any action on the stipulation
because of his pending motion to withdraw. Eventually, on
September 21, 2018, a stipulation dismissing Plaintiffs’ claims
against Janice Koplin Zagoria was entered. (Docket No. 33.) In
what appears to be an administrative error, Ms. Zagoria remains
as an active defendant on the docket and the Court will direct
the Clerk to terminate her from the action. With regard to
Plaintiffs’ original counsel’s motion to withdraw, the
Magistrate Judge granted that motion on September 21, 2018, and
new counsel was substituted on December 7, 2018. Briefing on
PNC Bank’s and Sisson’s motions was extended due to the
substitution of counsel. (Docket No. 35, 47.) As discussed
herein, the change in legal representation of Plaintiffs is
relevant to the Court’s resolution of the motions to dismiss.
6
It does not appear that Plaintiffs have filed proof of service
for any of the Defendants.
8
B.
Standard for Motion to Dismiss
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 the plaintiff.
Evancho v. Fisher, 423 F.3d 347, 351 (3d Cir. 2005).
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).
“While a complaint attacked by a Rule 12(b)(6) motion to
dismiss does not need detailed factual allegations, 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 . . . .”
Bell Atl. Corp. v.
Twombly, 550 U.S. 544, 555 (2007) (alteration in original)
(citations omitted) (first citing Conley v. Gibson, 355 U.S. 41,
47 (1957); Sanjuan v. Am. Bd. of Psychiatry & Neurology, Inc.,
40 F.3d 247, 251 (7th Cir. 1994); and then citing Papasan v.
Allain, 478 U.S. 265, 286 (1986)).
To determine the sufficiency of a complaint, a
court must take three steps.
First, the court must
“tak[e] note of the elements a plaintiff must plead to
state a claim.”
Second, the court should identify
allegations that, “because they are no more than
9
conclusions, are not entitled to the assumption of
truth.” Third, “whe[n] 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.”
Malleus v. George, 641 F.3d 560, 563 (3d Cir. 2011) (alterations
in original) (citations omitted) (quoting Ashcroft v. Iqbal, 556
U.S. 662, 664, 675, 679 (2009)).
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 claim.”
Twombly, 550 U.S. at 563 n.8 (quoting Scheuer v. Rhoades, 416
U.S. 232, 236 (1974)); see also Iqbal, 556 U.S. at 684 (“Our
decision in Twombly expounded the pleading standard for ‘all
civil actions’ . . . .”); Fowler v. UPMC Shadyside, 578 F.3d
203, 210 (3d Cir. 2009) (“Iqbal . . . provides the final nail in
the coffin for the ‘no set of facts’ standard that applied to
federal complaints before Twombly.”).
“A motion to dismiss
should be granted if the plaintiff is unable to plead ‘enough
facts to state a claim to relief that is plausible on its
face.’”
Malleus, 641 F.3d at 563 (quoting Twombly, 550 U.S. at
570).
A court in reviewing a Rule 12(b)(6) motion must only
consider the facts alleged in the pleadings, the documents
attached thereto as exhibits, and matters of judicial notice.
S. Cross Overseas Agencies, Inc. v. Kwong Shipping Grp. Ltd.,
10
181 F.3d 410, 426 (3d Cir. 1999).
A court may consider,
however, “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.”
Pension Benefit Guar. Corp.
v. White Consol. Indus., Inc., 998 F.2d 1192, 1196 (3d Cir.
1993).
If any other matters outside the pleadings are presented
to the court, and the court does not exclude those matters, a
Rule 12(b)(6) motion will be treated as a summary judgment
motion pursuant to Rule 56.
C.
Fed. R. Civ. P. 12(b).
Analysis
1.
Plaintiffs’ claims against PNC Bank
Plaintiffs claim that on March 10, 2016, they engaged PNC
Bank to open an account to hold their $100,000 good faith
deposit as part of the agreement between the parties to purchase
Home Mortgage Corporation.
Plaintiffs claim that they signed a
PNC Bank account registration and agreement document, which was
validated by the PNC Bank employee, Ms. Stevenson. 7
Plaintiffs
claim that even though Home Mortgage Corporation principals
Donald Sisson and Marvin Zagoria were present during this
transaction, they did not sign the agreement establishing the
HMC-North account.
Plaintiffs allege that they left the bank,
7
Plaintiffs did not attach the PNC Bank account documents to
their complaint, but it is attached to their opposition to PNC
Bank’s motion to dismiss. (Docket No. 52-3 at 5.)
11
but Sisson and Zagoria stayed behind.
Plaintiffs allege that
unbeknownst to them, Stevenson added Sisson and Zagoria as
signatories to the HMC-North account, which later permitted
Sisson and Zagoria to impermissibly withdraw $92,000 of
Plaintiffs’ good faith money that was intended to be held in
escrow.
Plaintiffs claim that Stevenson’s actions, for which PNC
Bank is liable, constitute fraud, breach of contract, breach of
covenant of good faith and fair dealing, conversion, intentional
misrepresentation, negligent misrepresentation, breach of
fiduciary duty, conspiracy to commit fraud, negligence, and
RICO.
PNC Bank has moved to dismiss all of Plaintiffs’ claims.
PNC Bank argues that any claims arising out of the PNC Bank
accounts are subject to a forum selection clause – the chosen
forum being Pennsylvania state court – in the Treasury
Management Services Comprehensive Agreement that Home Mortgage
Corporation entered into with PNC Bank when it opened its
accounts.
PNC Bank further argues that Plaintiffs’ contract and
other common law claims are barred by the Uniform Commercial
Code’s one-year statute of limitations for such claims.
PNC
Bank also contends that the economic loss doctrine bars
Plaintiffs’ tort claims, and that Plaintiffs’ fraud claims fail
because they do not meet the heightened pleading requirements.
12
The Second Amended Complaint is not a model for modern
pleading standards and PNC Bank is correct that several of the
claims are not sufficiently pled.
However, PNC Bank’s motion,
which relies on technical and factual defenses not appropriate
for a motion to dismiss, ignores the gravamen of Plaintiffs’
complaint.
Whether the facts will sustain such claims or not,
Plaintiffs allege they went to a PNC Bank branch and engaged
with a bank officer for the purpose, and with the intent, to
open an escrow account.
An escrow account is different than a
demand deposit account by definition: an escrow is “property
delivered by a promisor to a third party to be held . . . .
until the occurrence of a condition, at which time the third
party is to hand over the . . . . property to the promisee.”
Black’s Law Dict., p. 624 (9th Ed. 2009).
Here, Plaintiffs aver
that Stevenson understood the HMC-North account was an escrow
account and nonetheless allowed the Defendants access to it for
reasons inconsistent with the intent of the escrow agreement.
It is from this basic factual allegation that Plaintiffs’ claims
against PNC Bank flow.
Essentially ignoring this central point, PNC Bank asserts
various defenses arising out of terms, conditions, and standards
applicable to ordinary banking and financial accounts.
However, even where a bank has complied with the UCC provisions
and the like, such compliance does not necessarily immunize it
13
from ordinary tort liability.
Wolens v. Morgan Stanley Smith
Barney, LLC, 155 A.3d 1, 5 (N.J. Super. Ct. App. Div. 2017)
(citing Pennsylvania Nat. Turf Club, Inc. v. Bank of West
Jersey, 385 A.2d 932, 936 (N.J. Super. Ct. App. Div. 1978)). 8
“N.J.S.A. 12A:1–103 9 provides that ‘principles of law and equity’
supplement the UCC, unless displaced by particular provisions,”
and “[t]his provision may be interpreted as permitting a claim
of negligence under the UCC absent a specific provision
8
PNC Bank extensively cites to New Jersey law in its brief. The
only legal citations in Plaintiffs’ brief are two U.S. Supreme
Court cases and one District of New Jersey case, both in
relation to PNC Bank’s forum selection clause argument. Because
Plaintiffs do not argue that New Jersey law does not apply to
their claims, the Court will apply the relevant New Jersey law
in assessing the viability of Plaintiffs’ claims.
9
N.J.S.A. 12A:1-103 provides:
a. The Uniform Commercial Code shall be liberally construed
and applied to promote its underlying purposes and
policies, which are:
(1) to simplify, clarify, and modernize the law governing
commercial transactions;
(2) to permit the continued expansion of commercial
practices through custom, usage, and agreement of the
parties; and
(3) to make uniform the law among the various
jurisdictions.
b. Unless displaced by the particular provisions of the
Uniform Commercial Code, the principles of law and equity,
including the law merchant and the law relative to capacity
to contract, principal and agent, estoppel, fraud,
misrepresentation, duress, coercion, mistake, bankruptcy,
and other validating or invalidating cause supplement its
provisions.
14
preempting such a claim.”
Trump Plaza Associates v. Haas, 692
A.2d 86, 91–92 (N.J. Super. Ct. App. Div. 1997) (citations
omitted).
“Where the question is one of a bank’s negligence, a
plaintiff must establish the same four elements as in any other
negligence action, namely: a duty of care; a breach of that
duty; proximate cause; and damages.”
Brick Professional, L.L.C.
v. Estate of Napoleon, 2014 WL 1394191, at *12 (N.J. Super. Ct.
App. Div. 2014) (citing Brunson v. Affinity Fed. Credit Union,
199 N.J. 381, 400 (2009)).
A fundamental requisite for tort liability is the existence
of a duty owing from defendant to plaintiff, and a bank’s duty
does not arise in the absence of a contract or “special”
circumstances.
Wolens, 155 A.3d at 5 (citing Pennsylvania Nat.
Turf Club, 385 A.2d at 936) (finding that in “the absence of
evidence of any agreement, undertaking or contact between
plaintiff and defendant from which any special duty can be
derived,” the bank did not owe a duty to a non-customer for
negligence and other claims).
question of law.
Whether a duty exists presents a
Brick Professional, 2014 WL 1394191 at *12
(citing Kernan v. One Washington Park Urban Renewal Associates,
713 A.2d 411, 415 (N.J. 1998)).
“In making that determination,
a court must apply a fairness analysis in light of the
relationship of the parties, the nature of the risk, the
15
opportunity and ability to exercise care, and the public
interest.”
Id. (citing Kernan, 713 A.2d at 445–46).
In this case, Plaintiffs allege that PNC Bank owed them a
duty of care when they – and only the two Plaintiffs – signed an
agreement to become signatories on a PNC Bank account in which
they deposited their good faith $100,000 to be held in escrow. 10
Plaintiffs claim that PNC Bank breached this duty when Ms.
Stevenson added Sisson and Zagoria to the account without their
knowledge, which enabled Sisson and Zagoria to impermissibly
withdraw their money.
Plaintiffs allege that if PNC Bank had
not breached its duty to hold in escrow their good faith money
and maintain only Plaintiffs as signatories to the account as
they had intended, they would not have lost $92,000.
These
allegations, while admittedly sparse, if accepted as true, meet
the Twombly/Iqbal and Rule 8 pleading requirements to state a
claim of negligence against PNC Bank.
Thus, Plaintiffs’
negligence claim survives PNC Bank’s motion to dismiss.
The same can be said for Plaintiffs’ claims sounding in
breach of fiduciary duty and contract.
10
As for Plaintiffs’
The Court construes this agreement to constitute the requisite
“agreement, undertaking or contact between plaintiff and
defendant from which any special duty can be derived” as
required under New Jersey law. Plaintiffs refer to it in their
complaint, although it is not attached as an exhibit.
Plaintiffs submitted a copy of the agreement in their opposition
to PNC Bank’s motion to dismiss. (Docket No. 52-3 at 5.)
16
breach of fiduciary duty claim against PNC Bank, ordinarily a
“bank’s relationship with a depositor is one of debtorcreditor,” and a “[t]he virtually unanimous rule is that
creditor-debtor relationships rarely give rise to a fiduciary
duty.”
United Jersey Bank v. Kensey, 704 A.2d 38, 44 (N.J.
Super. Ct. App. Div. 1997) (citations omitted).
But here
Plaintiffs claim a fiduciary relationship existed between
Plaintiffs and PNC Bank in the form of an escrow which is by its
very nature a relationship of trust.
Accordingly, Plaintiffs
have alleged sufficient facts to support a claim that their
relationship with PNC Bank was one of the rare cases giving rise
to a fiduciary duty.
As for a breach of contract claim, under New Jersey law a
breach of contract claim includes four elements: (1) the parties
entered into a valid contract, (2) the plaintiff honored his own
obligations under the contract, (3) the defendant failed to
perform his obligations under the contract, and (4) the
plaintiff sustained damages as a result.
MZL Capital Holdings,
Inc v. TD Bank, N.A., 734 F. App’x 101, 105–06 (3d Cir. 2018)
(citing Frederico v. Home Depot, 507 F.3d 188, 203 (3d Cir.
2007) (citing Video Pipeline, Inc. v. Buena Vista Home
Entertainment, Inc., 210 F. Supp. 2d 552, 561 (D.N.J. 2002))).
This claim too hinges on the essential reason that Plaintiffs
claim they opened an account with PNC Bank: the creation of an
17
escrow account to hold a good faith down payment for the same of
Home Mortgage Corporation.
To the extent that PNC Bank opened
an escrow account to facilitate the underlying purchase
agreement and agreed to act as an escrow agent, use of the funds
inconsistent with that agreement and alleged agency relationship
makes out a plausible claim of breach of contract.
Moreover, a
valid breach of contract claim supports Plaintiffs’ breach of
the implied covenant of good faith and fair dealing. 11
PNC Bank’s motion does not warrant dismissal of Plaintiffs’
tort-based or contractual claims as they simply assert defenses
based on an alternative set of facts.
Plaintiffs refute, and
PNC Bank’s documents do not establish, that Plaintiffs entered
into the Treasury Management Services Comprehensive Agreement
proffered by the bank when they opened the alleged escrow
account, which contain the forum selection clause PNC Bank
relies on and argues otherwise governs Plaintiffs’ claims
against PNC Bank.
While it may very well turn out to be the
11
“Every party to a contract, including one with an option
provision, is bound by a duty of good faith and fair dealing in
both the performance and enforcement of the contract.”
Brunswick Hills Racquet Club, Inc. v. Route 18 Shopping Center
Associates, 864 A.2d 387, 395 (N.J. 2005) (citations omitted).
“‘Although the implied covenant of good faith and fair dealing
cannot override an express term in a contract, a party’s
performance under a contract may breach that implied covenant
even though that performance does not violate a pertinent
express term.’” Hughes v. TD Bank, N.A., 856 F. Supp. 2d 673,
681 (D.N.J. 2012) (quoting Wilson v. Amerada Hess Corp., 244,
773 A.2d 1121 (N.J. 2001)).
18
operative document (or not) the Court has no basis at this stage
to conclude that the account documents proffered by the bank are
undisputedly authentic documents upon which Plaintiff’s claims
are based. 12
See Pension Benefit Guar., 998 F.2d at 1196.
These
fact-based defenses are better left to summary judgment motion
practice after appropriate discovery.
The remainder of Plaintiffs’ claims against PNC Bank are
problematic in that they stray from the escrow account
allegation and lump the bank in with the principals of Home
Mortgage Corporation.
In these Counts, Plaintiffs simply allege
that “all Defendants” collectively committed the various
violations of law, without specifying any facts to show how PNC
Bank committed those violations.
12
This is fatal to the remaining
The Treasury Management Services Comprehensive Agreement
proffered by PNC Bank appears to be a blank template (Docket No.
23-2 at 4-41), except for Zagoria’s signature on two pages that
are dated five days after Plaintiffs, Sisson, and Zagoria
appeared at PNC Bank to open the HMC-North account (Docket No.
23-2 at 43, 45). PNC Bank has not provided documents to show
that Plaintiffs signed this agreement or otherwise agreed to be
bound to its terms. Thus, the Court cannot enforce its terms,
including the forum selection clause, against Plaintiffs. This
also causes PNC Bank’s economic loss doctrine argument based on
the Treasury Management Services Comprehensive Agreement to be
without merit at this time. See Arcand v. Brother Intern.
Corp., 673 F. Supp. 2d 282, 308 (D.N.J. 2009) (citing (citing
Alloway v. General Marine Indus., L.P., 149 N.J. 620, 641, 695
A.2d 264 (1997)) (“[T]e economic loss doctrine prohibits
plaintiffs from recovering in tort economic losses to which they
are entitled only by contract.” “To be barred by the economic
loss doctrine, the claims must be duplicative of those provided
for under the U.C.C.”).
19
claims, and particularly so for their claims of fraud.
See Fed.
R. Civ. P. 9(b); EJ MGT LLC v. Zillow Group, Inc., 2019 WL
981649, at *4 (D.N.J. 2019) (citing In re Rockefeller Ctr.
Props., Inc. Sec. Litig., 311 F.3d 198, 216 (3d Cir. 2002))
(“Independent of the standard applicable to Rule 12(b)(6)
motions, Rule 9(b) imposes a heightened pleading requirement of
factual particularity with respect to allegations of fraud.”).
Based on the foregoing, the Court will deny PNC Bank’s
motion to dismiss those counts sounding in contract (Counts II,
III and IV), negligence (Counts VI and XII) and breach of
fiduciary duty (Counts VIII 13 and XIII) and grant such motion
regarding those claims sounding in fraud (Counts I, V, X and
XIV).
2.
Plaintiffs’ other claims
Plaintiffs have asserted numerous claims against the
principals of Home Mortgage Corporation - Sisson and Zagoria individually and on behalf of Home Mortgage Corporation. 14
They
have also asserted claims against Home Mortgage Corporation.
As
it relates to Sisson and Zagoria, to the extent these claims
13
As set forth infra, Count VIII will be dismissed insofar as it
asserts a derivative claim on behalf of Home Mortgage
Corporation.
14
The second amended complaint also lists Defendants Larry
Warner, Robin Holland, and Janis Koplin Zagoria as principals of
Home Mortgage Corporation. As discussed below, Plaintiffs’
claims against these Defendants will be dismissed.
20
center on their personal involvement in a failed escrow
agreement and breach of the terms of an agreement to purchase
Home Mortgage Corporation they will be allowed to proceed.
(Counts II, III, IV, VI, VIII, XII and XIII).
So too will those
related equitable claims alleged only against the individuals
defendants.
(Count VII (Disgorgement), Count IX (Accounting)
and Count XI (Constructive Trust)).
Plaintiffs’ other claims do not fare as well.
As a primary
matter, Plaintiffs admit that they are not shareholders of Home
Mortgage Corporation, and they have not articulated how they may
pursue shareholder derivative claims on behalf of Home Mortgage
Corporation without being shareholders.
See, e.g., Tully v.
Mirz, 198 A.3d 295, 301 (N.J. Super. Ct. App. Div. 2018) (citing
Strasenburgh v. Straubmuller, 683 A.2d 818, 828–29 (N.J. 1996)
(quoting Kamen v. Kemper Financial Svcs., Inc., 500 U.S. 90, 95
(1991)) (“A shareholder derivative action is a unique and
anomalous legal remedy.
The purpose of the derivative action
was to place in the hands of the individual shareholder a means
to protect the interests of the corporation from the misfeasance
and malfeasance of faithless directors and managers.”); N.J.S.A.
14A:3-6.2 (“A shareholder may not commence or maintain a
derivative proceeding unless the shareholder: (1) was a
shareholder of the corporation at the time of the act or
omission complained of or became a shareholder through transfer
21
by operation of law from one who was a shareholder at that time
and remains a shareholder throughout the derivative proceeding;
and (2) fairly and adequately represents the interests of the
corporation in enforcing the right of the corporation.”).
Thus,
the Court must dismiss any of Plaintiffs’ claims to the extent
they are asserted on behalf of Home Mortgage Corporation, in
particular Count VIII.
In addition to their attempt to lodge their claims on
behalf of Home Mortgage Corporation, Plaintiffs have also
asserted the same claims against Home Mortgage Corporation as
they have asserted against Sisson and Zagoria.
Plaintiffs,
however, make no distinction between Home Mortgage Corporation
in its corporate form and the individual members of Home
Mortgage Corporation. 15
“A corporation is regarded as an entity
separate and distinct from its shareholders.”
Tully, 198 A.3d
at 301 (citing Strasenburgh, 683 A.2d at 828 (other citation
omitted).
“Only upon proof of fraud or injustice will the
corporate veil be pierced to impose liability on the corporate
principals.”
Id. (citations omitted).
15
Home Mortgage Corporation has not appeared in the action. “It
has been the law for the better part of two centuries . . . that
a corporation may appear in the federal courts only through
licensed counsel. As the courts have recognized, the rationale
for that rule applies equally to all artificial entities.” Van
De Berg v. C.I.R., 175 F. App’x 539, 541 (3d Cir. 2006) (quoting
Rowland v. California Men's Colony, 506 U.S. 194, 201-02
(1993)).
22
Even though Plaintiffs’ allegations of breach of the
purchase agreement, fraudulent conversion of their funds, and
other claims regarding outstanding payments appear to reach
beyond Home Mortgage Corporation’s veil to Sisson and Zagoria
individually, Plaintiffs’ claims are pleaded collectively
against “all Defendants,” and do not articulate the distinction
between the corporate and individual defendants.
In order to
comply with Twombly/Iqbal and Rule 8, Plaintiffs must
specifically plead which Defendant committed which acts that
constitute the alleged violations of law.
As presently pleaded,
the Second Amended Complaint fails to allege sufficient facts to
make out a claim for corporate, as opposed to individual,
liability.
This obligation is even higher for Plaintiffs’ fraud-based
claims and applies with equal force to the individuals and the
corporation.
Allstate New Jersey Ins. Co. v. Lajara, 117 A.3d
1221, 1231 (N.J. 2015) (citation omitted) (“The elements of
common-law fraud are (1) a material misrepresentation of a
presently existing or past fact; (2) knowledge or belief by the
defendant of its falsity; (3) an intention that the other person
rely on it; (4) reasonable reliance thereon by the other person;
and (5) resulting damages.”); Frederico v. Home Depot, 507 F.3d
188, 200 (3d Cir. 2007) (explaining that Rule 9(b) requires that
a party alleging fraud or mistake must state with particularity
23
the circumstances constituting fraud or mistake, and to “satisfy
this standard, the plaintiff must plead or allege the date, time
and place of the alleged fraud or otherwise inject precision or
some measure of substantiation into a fraud allegation”);
Capital Health System, Inc. v. Veznedaroglu, 2017 WL 751855, at
*12 (D.N.J. 2017) (quoting In re Ins. Brokerage Antitrust
Litig., 618 F.3d 300, 362 (3d Cir. 2010); The Knit With v.
Knitting Fever, Inc., 625 F. App’x 27, 36 (3d Cir. 2015))
(explaining that to state a proper RICO claim, a plaintiff must
plead: “(1) conduct (2) of an enterprise (3) through a pattern
(4) of racketeering activity,” and in order “to survive a motion
to dismiss, a plaintiff must allege facts to show that each
[d]efendant objectively manifested an agreement to participate,
directly or indirectly, in the affairs of a RICO enterprise
through the commission of two or more predicate acts”).
Because Plaintiffs have failed to properly plead any claims
against Home Mortgage Corporation and failed to allege
sufficient facts to make out plausible claims of fraud or
related theories against Sisson and Zagoria individually or the
corporate defendant, the Court must dismiss those claims for
insufficient pleading.
Similarly, Plaintiffs’ complaint contains no facts which
could support plausible claims against any of the other
individual defendants named in the complaint.
24
Plaintiffs assert
claims against Larry Warner, Robin Holland, and Janis Koplin
Zagoria as principals of Home Mortgage Corporation, as well as
Joes S. Ardgetti, Esquire, Home Mortgage Corporation’s
registered agent.
Plaintiffs’ complaint fails to allege a
single fact as to how any of these Defendants were involved in
Plaintiffs’ failed business relationship with Home Mortgage
Corporation.
Other than asserting thirteen counts against “all
Defendants,” Plaintiffs’ complaint is silent as to how these
Defendants are liable for Plaintiffs’ alleged damages.
Plaintiffs’ claims against these defendants must be dismissed as
well.
Apparently in acknowledgement of many of the pleading
deficiencies noted above, Plaintiffs state that they intend to
seek to amend their complaint, and since they have not yet done
so, any dismissal of their claims should be without prejudice.
Plaintiffs, however, have not actually moved for leave to file
an amended complaint.
Moreover, except in civil rights cases, a
court is not obligated to afford a plaintiff the opportunity to
amend his complaint, either sua sponte or following the
dismissal of the complaint pursuant to a motion to dismiss.
Fletcher Harlee Corp. v. Pote Concrete Contractors, Inc., 482
F.3d 247, 251 (3d Cir. 2007).
The Court recognizes that Plaintiffs’ counsel who filed the
Second Amended Complaint has been relieved as counsel, and
25
Plaintiffs’ new counsel only recently came into the matter while
the motions to dismiss were already pending.
The Court’s Order
of dismissal as outlined above will be without prejudice.
Plaintiffs with have thirty days to file a motion for leave to
file a third amended complaint pursuant to Federal Civil
Procedure Rule 15. 16
When filing their motion and proposed third
amended complaint, Plaintiffs shall take into consideration the
Court’s analysis of their claims and the relevant law set forth
in this Opinion.
Any proposed third amended complaint must
comply with Federal Rules of Procedure 8(a), Rule 9(b), and Rule
16
The Court is aware that Sisson has filed a counterclaim
against Plaintiffs. (Docket No. 5.) Sisson’s counterclaim was
filed in relation to the original complaint, which was
superseded by the amended complaint and second amended
complaint, which has now been dismissed at least in part.
Although the dismissal of Plaintiffs’ complaint does not
automatically extinguish Sisson’s counterclaim, the Court’s sua
sponte review of Sisson’s counterclaim reveals that it does not
assert any affirmative claims against Plaintiffs, other than to
claim that “Plaintiffs are misrepresenting themselves as Home
Mortgage Corporation when in fact they have no role in the
operation of the Company,” and Sisson should be awarded damages.
(Docket No. 5 at 8.) The Court will therefore dismiss Sisson’s
counterclaim for failure to meet the Twombly/Iqbal and Rule 8
standard, without prejudice to his right to reassert any
counterclaims pursuant to Fed. R. Civ. P. 13 in the event
Plaintiffs file a third amended complaint. See, e.g., County of
Hudson v. Janiszewski, 351 F. App’x 662, 667 (3d Cir. 2009)
(quoting Baraka v. McGreevey, 481 F.3d 187, 195 (3d Cir. 2007))
(affirming the district court’s sua sponte dismissal of a
defendant’s counterclaim, noting that “we must accept all
factual allegations in [the] complaint[, or in this case, the
counterclaim,] as true, [ ] we are not compelled to accept
unsupported conclusions and unwarranted inferences, or a legal
conclusion couched as a factual allegation”).
26
11.
CONCLUSION
For the reasons expressed above, the Court will deny the
motions to dismiss brought by the moving Defendants regarding
those counts sounding in contract (Counts II, III and IV),
negligence (Counts VI and XII) and breach of fiduciary duty
(Counts VIII 17 and XIII), which may proceed as individual and not
derivative claims, and grant such motion regarding those claims
sounding in fraud (Counts I, V, X and XIV).
Claims against
Sisson and Zagoria on related equitable claims will also be
allowed to proceed (Count VII (Disgorgement), Count IX
(Accounting) and Count XI (Constructive Trust)).
dismissed are dismissed without prejudice.
All claims
Plaintiffs are
afforded thirty days to move for leave to file a third amended
complaint.
To the extent the parties have not already done so,
they are directed to proceed to discovery under the direction of
the assigned Magistrate Judge.
An appropriate Order will be entered.
Date:
March 31, 2019
At Camden, New Jersey
s/ Noel L. Hillman
NOEL L. HILLMAN, U.S.D.J.
17
As set forth supra, Count VIII will proceed only as an
individual claim and not as a derivative claim.
27
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