SALANDSTACY CORP. et al v. FREENEY et al
Filing
42
OPINION. Signed by Judge Jose L. Linares on 3/21/2012. (nr, )
NOT FOR PUBLICATION
UNITED STATES DISTRiCT COURT
DISTRICT OF NEW JERSEY
Civil Action No.: 11-3439 (JLL)
SALANDSTACY CORP., SALVATORI
FELl, and STACY FELl,
OPINION
Plaintiffs,
V.
DWIGHT FREENEY, et al.,
Defendants.
LINARES, District Judge.
This matter comes before the Court by way of Defendants’ Motion to Dismiss
Plaintiffs’ Complaint for failure to state a claim on which relief may be granted pursuant
to Fed. R. Civ. P. 12(b)(6), or, in the alternative, for lack of personal jurisdiction under
Fed. R. Civ. P. 12(b)(2). [Docket Entry No. 9]. The Court has considered the Parties’
submissions made in support of and in opposition to the instant motion and decides the
motion without oral argument pursuant to Fed. R. Civ. P. 78. Based on the reasons that
follow, Defendants’ motion to dismiss is GRANTED in part and DENIED in part.
I. BACKGROUND
The matter arises from a contractual agreement entered into by Plaintiffs
SalandStacy Corp. (“S & S”), Salvatori Feli and Stacy Feli, as individuals and sole
officers and shareholders of S & S (“Plaintiffs”), to manage, operate and provide services
for the Rolling Stone Los Angeles (“RSLA”) restaurant, lounge and bar on behalf of
Defendant Roof Group, LLC (“Roof Group”) and individual officers thereof, including
I
Dwight Freeney (“Freeney”), Aaron West (“West”), and David M. Millar alk!a Michael
Millar (“Millar”)(”Roof Group Defendants”). After entering a License Agreement with
Rolling Stone Licensing, LLC, through which it received the right to develop RSLA,
Roof Group and the Roof Group Defendants entered into negotiations with Plaintiffs in
April 2010 to manage and operate said establishment. (Compl., ¶J 23-25). Prior to
Plaintiffs’ signing of the agreement on May 13, 2010, Plaintiffs allege that the Roof Top
Defendants made a series of false statements to induce them to relocate their family from
New Jersey to Los Angeles to manage and operate the RLSA. (Id.,
¶J 17, 23-33).
Specifically, Plaintiffs allege that Defendants made the following fraudulent statements:
(1) Defendants Freeney, West and Millar told Plaintiffs that they would have full control
over the management and operation of RSLA
(, ¶ 24); (2) Freeney, West and Millar
told Plaintiffs that RSLA was fully funded with all capital necessary for its construction
based on Freeney’s financial resources resulting from his $72 million contract with the
Indianapolis Colts in 2007 (Id., ¶J 26-27); (3) Defendants West, Millar and Eva
Weinberg (“Weinberg”), Freeney’ s financial advisor, told Plaintiffs that Millar could
ensure adequate capital in the amount of a $7 million line of credit, and representing that
Millar was a “multi-millionaire owning a private airplane and multiple private Caribbean
island homes” when he was not in fact a wealthy individual, had not invested in Roof
Group and did not own the airplane or the homes (Id.,
¶J
12, 28-30). These statements
are alleged to have occurred during meetings which in Miami and New York, and
specifically during a meeting in New York City on April 13, 2010 when the Roof Group
Defendants and Plaintiffs met with Rolling Stone Executives Tommy Cohn, Jann Wenner
and John Ruber. (Id.,
¶ 23).
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Plaintiffs allege that, based on such representations by the Roof Group
Defendants and Ms. Weinberg, they signed a five-year written agreement (“Agreement”)
with Roof Group on May 13, 2010. (Id.,
¶J 17, 21). The Agreement specified Plaintiffs’
annual compensation and benefits, and contained provisions regarding: (1) the ownership,
operation and management of RSLA (“The Company will own and operate a restaurant
known as ‘RSLA’ located in Los Angeles, California (the ‘Restaurant’). Company shall
enter into a Management Services agreement (the ‘Agreement’) with SalandStacy Corp, a
New Jersey corporation (‘S & S’) to manage and operate the Restaurant (the
‘Agreement’). Sal & Stacey must be included”); and (2) Plaintiffs’ membership interest
in Roof Group, LLC (“The Company shall issue to S&S a two percent (2%) membership
interest (the ‘Interests’) in the Company on the effective date of the Agreement. Such
Interests shall vest as of the first twelve (12) month period that the Restaurant generates
gross revenues of $6 million dollars or more (the ‘Vesting Event’). After Gross of 6
million.”). (Id.,
¶J 18-19; Defs. Mot. to Dismiss, Ex. A, “Term Sheet between
SalandStacy Corp and Roof, LLC”). The Agreement also contained a provision
allowing for termination by the Company only for cause. (Defs. Mot. to Dismiss, Ex. A,
“Term Sheet”).
In or about August 2010, Roof Group, and specifically Defendant Weinberg,
retained Defendant Krost, Baumgarten, Kniss & Guerrero (“KBKG”), an accounting and
consulting firm of whom Defendant Gregory Kniss (“Kniss”) was a certified public
accountant and principal shareholder. (Compl., ¶J 14-15, 34). KBKG was retained to
perform RSLA’s accounting services, and following their retention, allegedly “engaged
in a scheme to induce Roof Group to breach the Agreement [with Plaintiffs) and to
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interfere with the contractual relationship between Plaintiffs and Roof Group.” (Id.,
¶
35). Specifically, KBKG and Weinberg: (1) “repeatedly made false and defamatory
statements to Freeney and West about the nature and quality of services rendered by
S&S” (Id.,
¶ 37); (2) “repeatedly interfered with S&S’s duties to attempt to prevent S&S
from fulfilling its obligations under the Agreement”
(, ¶ 38); (3) Weinberg falsely
blamed S&S “for her own mistakes including failures to pay invoices on time as well as
pay employees their proper wages” (Id.,
¶ 39); and (4) attempted to force S&S “out of its
position by causing Roof Group to demand that Plaintiffs agree to an amendment of the
Agreement which would drastically reduce the agreed upon Base Fee and contingent
compensation from RSLA and other locations, and to change other terms of the
Agreement.” (Id., ¶ 40). On November 2, 2010, Defendants Weinberg, Kniss, West and
Jean Hagen (“Hagen”), an employee of KBKG, met with Freeney in Indiana and
allegedly convinced him to terminate S&S in the event that Plaintiffs refused to amend
the Agreement. (Id., ¶J 16, 41). When Plaintiffs did offer to amend the Agreement
following this meeting, Defendants rejected their offer and KBKG allegedly convinced
Roof Group to terminate the Agreement without cause.
(Ii, ¶J 42-43). On December
22, 2010, Roof Group notified Plaintiffs that they were terminating the Agreement on the
basis that S&S refused to amend the Agreement quickly enough.
(, ¶ 44).
Plaintiffs filed the instant action on April 13, 2011 in the Superior Court of New
Jersey Law Division, Essex County, and on June 14, 2011, Defendants removed the
Complaint to this Court. [Docket Entry No. I]. Plaintiffs’ Complaint alleges: (I) two
counts against Roof Group for breach of contract and for an accounting; (2) one count
against the KBKG Defendants and Weinberg for tortious interference with contract; and
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(3) three counts against the all Roof Group Defendants for conversion, fraud, and breach
of fiduciary duty. Defendants’ Motion to Dismiss seeks to dismiss some but not all of
Plaintiffs’ claims: (1) the conversion, fraud and breach of fiduciary duty claims as against
the Roof Group Defendants; and (2) the tortious interference with contract claim as
against the KBKG Defendants and Weinberg. (Def. Br., at 2-3). In the alternative,
Defendants argue that this Court lacks personal jurisdiction over Defendants due to
Defendants’ lack of minimum contacts with this forum. (Id., at 3).
II. LEGAL STANDARD
Federal Rule of Civil Procedure 1 2(b)(2) states that a defendant may move to
dismiss a complaint for “lack of personal jurisdiction.” Fed. R. Civ. P. 12(b)(2). A court
has personal jurisdiction over a nonresident defendant or defendants only to the extent
authorized by the forum’s long-arm statute. M. Eagles Tool Warehouse v. Fisher
Tooling, 205 F. Supp. 2d 306, 311 (D.N.J. 2002). New Jersey’s long-arm statute permits
the exercise of personal jurisdiction over a non-resident defendant “consistent with due
process of law” and to the extent permitted by the Fourteenth Amendment of the United
States Constitution. N.J. Sup. Ct. R. 4:4-4(c)(1); Weber v. Jolly Hotels, 977 F. Supp.
327, 334 (D.N.J. 1997). The Fourteenth Amendment requires (1) that the “defendant
have constitutionally sufficient ‘minimum contacts’ with the forum,” and (2) that
“subjecting the defendants to the court’s jurisdiction comports with ‘traditional notions of
fair play and substantial justice.” $çç Burger King Corp. v. Rudzewicz, 471 U.S. 462,
474 (1985); Int’l Shoe Co. v. Washington, 326 U.S. 310, 316 (1945).
A court may exercise general or specific jurisdiction over non-resident
defendants. General jurisdiction is based on the defendant’s “continuous and systematic”
5
contacts with the forum state, Eagles Tool Warehouse, 205 F. Supp. 2d at 312 n. 8
(citing Remick v. Manfredy, 238 F.3d 248, 255 (3d Cir. 2001)). Specific jurisdiction
arises only when the plaintiff’s claim is related to, or arises out of, the defendant’s
contacts with the forum. Helicopteros Nacionales de Colombia, S.A. v. Hall, 466 U.s.
408, 416 (1984). To establish whether specific jurisdiction exists over a non-resident
defendant, the court engages in a three-part inquiry: (1) whether the defendant
“purposefully directed” its activities at the forum; (2) whether the litigation “arise[s] out
of or relate[s] to” at least one of those activities; and (3) whether the exercise of
jurisdiction otherwise “comport[s] with ‘fair play and substantial justice.” O’Connor v.
Sandy Lane Hotel Co., 496 F.3d 312, 317 (3d Cir. 2007). When a defendant raises the
defense of the court’s lack of person jurisdiction, the burden falls on the plaintiff to come
forward with sufficient facts to establish that jurisdiction is proper. Mellon Bank PSFS,
Nat’l Ass’n v. Farino, 960 F.2d 1217, 1223 (3d Cir. 1992). In evaluating amovant’s
motion to dismiss pursuant to Fed. R. Civ. P. 1 2(b)(2), “courts must accept the plaintiff’s
allegations as true and construe disputed facts in favor of the plaintiff.” Machulsky v.
210 F. Supp. 2d 531, 531 (D.N.J. 2002)(citing Carteret Say. Bank, F.A. v. Shushan,
954 F.2d 141, 142, n. 1 (3d Cir. 1992)).
In reviewing a motion to dismiss pursuant to Fed. R. Civ. P. 12(b)(6), a district
court is “required to accept as true all factual allegations in the complaint and draw all
inferences from the facts alleged in the light most favorable” to the plaintiff. Phillips v.
County of Allegheny, 515 F.3d 224, 228 (3d Cir. 2008); see also Bell Atlantic Corp. v.
Twombly, 127 S.Ct. 1995, 1965 (2007). “However, a court need not credit either ‘bald
assertions’ or ‘legal conclusions’ in a complaint when deciding a motion to dismiss.”
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Evancho v. Fisher, 423 F.3d 347, 350 (3d Cir. 2005). A complaint survives a Rule
I 2(b)(6) motion to dismiss if it states a claim to relief that is “plausible on its face”
regarding plaintiff’s entitlement to the relief sought. Twombly, 127 S.Ct. at 1965-66.
This standard is satisfied only when a plaintiff “pleads factual content that allows the
court to draw the reasonable inference that the defendant is liable for the misconduct
alleged.” Ashcrofv. Iqbal, 129 S.Ct. 1937, 1949 (2009).
Fraud claims must meet a heightened pleading standard under Fed. R. Civ. P.
9(b), which requires that “in all averments of fraud or mistake, the circumstances
constituting fraud or mistake shall be stated with particularity.” Fed. R. Civ. P. 9(b). “To
satisfy this heightened 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.” Frederico v. Home Depot, 507 F.3d 188, 200 (3d Cir. 2007). The
plaintiff must also allege “who made the purported misrepresentations and what specific
misrepresentations were made.” Id.
III. DISCUSSION
1. Personal Jurisdiction Over Defendants
The Court will first address Defendants Motion to Dismiss this action for lack of
general or specific jurisdiction over the Defendants pursuant to Fed. R. Civ. P. 1 2(b)(2).
First, aside from Roof Group itself, Defendants allege insufficient minimum contacts
with this forum on the basis of this Court’s specific jurisdiction.’ Defendants argue that
they did not direct any activity towards New Jersey in connection with the dispute, and
Roof Group voluntarily submitted to this Court’s jurisdiction by filing counterclaims against Plaintiffs.
[Docket Entry No. 10]. (See also Defs. Mot. to Dismiss, at 25 n. 9).
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that the Agreement at issue was “signed in California, with a California limited liability
company, following discussions that occurred in California, Florida, and New York,
about a business that would operate in California.” (Defs. Br., at 25-26). Further, the
KBKG Defendants are all citizens of California and provide services to RSLA in
California. (j, at 26). Thus, the “only connection with New Jersey comes from
Plaintiffs who, despite moving to California to operate RSLA, are citizens of the state.”
(Id.). Second, Defendants claim that Plaintiffs cannot establish general jurisdiction as
Defendants have not had “systematic and continuous contacts” with New Jersey, stating
that: (1) none of the individual Defendants is a resident of or owns property in New
Jersey; (2) KBKG is a California corporation based in Pasadena, California; and (3)
Defendants have no bank accounts or offices in New Jersey, nor do they pay taxes or
conduct business in New Jersey. (Id., at 26-27). Finally, Defendants assert that exercise
of personal jurisdiction over them offends established notions of fair play and substantial
justice in that: (1) it is unduly burdensome to Defendants, who are all citizens of
California and other states, to defend this action in New Jersey since they have no other
contacts with New Jersey; (2) New Jersey has no interest in the dispute aside from
providing a convenient forum for its residents; and (3) New Jersey’s interest in the
dispute is diminished since Plaintiffs chose to contract with a California company and to
provide services in California, so California law will likely govern the Parties’ dispute.
(Id., 28-29).
In Plaintiffs’ Opposition Brief and Plaintiff Salvatore Feli’s sworn declaration,
Plaintiffs allege a series of purposefully directed activities towards New Jersey which
“form the basis of personal jurisdiction and.
.
8
.
evidence of the contacts sufficient to
overcome Defendants’ motion.” (Pls. Opp’n Br., at 29). Specifically, Plaintiffs state the
following facts in support of establishing sufficient contacts with this forum: (1) the Roof
Defendants hired a New Jersey corporation (S & S) to avail themselves of the services of
its New Jersey shareholders to supervise and oversee all Roof Group operations (Pis.
Opp’n Br., at 29); (2) Defendants agreed that Plaintiffs would initially perform those
services from New Jersey and that Plaintiffs would return to New Jersey after the opening
of the California restaurant in order to open a New York restaurant which they would
supervise (ç; Aff. of Salvatore Feli (“Feli Aff.”),
¶J 5-6); (3) Plaintiffs’
services under
the Agreement prior to the alleged breach were performed mostly in New Jersey, from
April 2010 until September 8, 2010 (Id.); (4) during that period in which Plaintiffs
provided services to Defendants from New Jersey, Plaintiff Salvatore Feli worked nearly
seven days a week in New Jersey and was in constant contact with Defendants Freeney,
West, Millar and Weinberg from New Jersey (Pis. Opp’n Br., at 30; Feli Aff., ¶ 6); (5)
from April to September 2010, Plaintiff Salvatore Feli made no less than five calls a day
from New Jersey to the Roof Defendants or for the Roof Defendants’ business, and there
were numerous telephone calls, c-mails and text messages exchanged by Plaintiffs from
New Jersey with the Roof Defendants regarding the Agreement with Plaintiffs (Pls.
Opp’n Br., at 30; Feli Aff., ¶ 4); (6) numerous telephone calls, c-mails and text messages
were exchanged by Plaintiffs from New Jersey with the Roof Defendants regarding
Plaintiffs’ services for Roof Group, including: (a) a conference call with the restaurant’s
designer from the Felis’ home in New Jersey; (b) Plaintiffs traveled in the Tn-State Area
for a meeting with Rolling Stone magazine executive management; (c) Plaintiffs received
the venue’s updated floor plan in New Jersey via e-mail and forwarded it to West; (d)
9
Plaintiffs drafted financial projections in New Jersey; (e) Plaintiffs executed the
Agreement in New Jersey; (f) Plaintiffs prepared the opening budget in New Jersey; and
(g) Plaintiffs received numerous payments in exchange for services while present in New
Jersey. (Pis. Opp’n Br., at 30-3 1; Feli Aff., ¶J 7-8).
Plaintiffs cite to Schley v. Microsoft Corp. to support their contention that the
contacts as listed in their Complaint and the supporting affidavit to their Opposition Brief
are sufficient to establish minimum contacts. See 2008 U.S. Dist. LEXIS 96059, at
*
26-
35 (D.N.J. Nov. 24, 2008). In Schley, plaintiffjob candidate alleged, jp alia, breach of
contract, fraud and tort claims against defendant Microsoft and its associate general
counsel. In finding that plaintiff had met his burden in establishing the court’s personal
jurisdiction over the associate general counsel, the court reasoned in part that, since the
associate general counsel “purposefully directed her activities at the forum state by
conducting extensive employment negotiations with the Plaintiff while he was in New
Jersey and encouraging him to quit his job, thus availing herself of the New Jersey labor
market and purposefully inducing the Plaintiff to take actions that she knew would affect
him and his family in New Jersey.” I, at
*
31. The court further found that plaintiff’s
contract and tort claims arose out of these actions, and that the extension of personal
jurisdiction comports with fair play and substantial justice because defendant’s “alleged
actions were not “random,” “fortuitous,” or “attenuated,” but rather represented a
concerted effort to engage the Plaintiff in New Jersey and to induce him to take specific
actions that she knew would harm him in his home state.” Id.
First, the Court finds that Defendants have sufficiently met the “minimum
contacts” requirement to justify personal jurisdiction. Under New Jersey law, “the
10
‘minimum contacts’ requirement is satisfied so long as thç contacts resulted from the
defendant’s purposeful conduct and not the unilateral activities of the plaintiff.” Blakely
v. Cont’l Airlines, 164 N.J. 38, 67 (2000)(citing World-Wide Volkswagen Corp. v.
Woodson, 444 U.S. 286, 297-98 (1980)). Accepting as true the allegations made in
Plaintiff’s Complaint, Plaintiffs sufficiently show that Defendants approached Plaintiffs
to enter the Agreement, thus availing themselves of the New Jersey labor market to
facilitate the establishment, management and operation of RSLA. (See Compi., ¶J 17,
23). Plaintiffs’ supplemental Affidavit is even more specific with respect to Defendants’
purposeful conduct: not only did Defendants approach Plaintiffs in the first instance, but
they also communicated with Plaintiffs through phone calls, e-mails and text messages
while Plaintiffs were in New Jersey in April and May of2OlO. (Feli Aff.,
¶ 4).
Thus, the
Court finds that the contacts resulted not from Plaintiffs’ unilateral activities, but rather
from Defendants’ purposeful conduct.
Further, the Court finds that Defendants’ contacts are sufficient to establish this
Court’s specific jurisdiction over the Defendants. Having first determined that
Defendants purposefully directed their activities at the forum, the Court now assesses
whether the litigation arose out of or in relation to at least one of Defendants’ activities.
Since the Plaintiffs’ contract and tort claims are centered around allegations of
Defendants’ inducement of Plaintiffs to sign the Agreement and refusal to grant Plaintiffs
the benefit of that Agreement, any claim of personal jurisdiction must rest on whether
each of the named Defendants purposefully directed their activities towards this forum in
relation to the signing of and arising out of that Agreement. It is clear from the
Complaint that all alleged contacts with this forum leading up to the signing of the
11
Agreement on the part of the Roof Group Defendants were made prior to Plaintiffs’ move
to California from New Jersey and were made in relation to the signing and
implementation of the Agreement and services bargained for therein. Thus, the Court is
satisfied that Plaintiffs have sufficiently shown that the Roof Group Defendants’ conduct
in New Jersey arose from the Agreement. Insofar as Defendant Weinberg served as
Defendant Freeney’s financial advisor throughout the negotiations and following the
signing of the Complaint, and is also alleged to have induced Plaintiffs to sign the
Agreement based on representations she made regarding adequate capitalization, this
litigation may also be deemed to have arisen from her conduct as directed towards this
forum. The KBKG Defendants, however, have a more tenuous relationship to the
litigation as it arises out of the Roof Group Defendants’ procurement of Plaintiffs’
services for RSLA. Insofar as the KBKG Defendants are not only alleged to have
induced Defendant Roof Group’s breach of the agreement, and to have interfered with
Plaintiffs’ duties under the Agreement while they were performing those duties in New
Jersey until September 8, 2010, the Court finds that the allegations in the Complaint
concerning the KBKG Defendants arises out of their activities as they relate to the
Agreement.
The Court also finds that the exercise of personal jurisdiction over the
Defendants does not offend “established notions of fair play and substantial justice.” The
Supreme Court has established a set of factors for determining the reasonableness of the
exercise ofjurisdiction over a non-resident defendant, and these include: “the burden on
the defendant, the interests of the forum State,.
relief.
.
.
.
.
the plaintiff’s interest in obtaining
[and] ‘the interstate judicial system’s interest in obtaining the most efficient
12
resolution of controversies; and the shared interest of the several States in furthering
fundamental substantive social policies.” Asahi Metal Indus. Co. v. Superior Court of
Cal., 480 U.S. 102, 113 (l987)(citing World-Wide Volkswagen, 444 U.S., at 292). New
Jersey law closely follows the above-cited factors, stating that courts must evaluate: (1)
the burden on the non-resident defendant of having to defend itself in the forum; (2) the
interests of the forum state in the case; (3) Plaintiffs’ interest in obtaining convenient and
effective relief; (4) the interstate judicial system’s interest in the most efficient resolution
of controversies; and (5) the shared interests of the states in furthering fundamental
substantive social policies. Blakey, 164 N.J. at 69.
While the Court acknowledges Defendants’ burden in having to defend itself in
this forum rather than in California, that burden is lessened by the fact that the Roof
Group Defendants have voluntarily subjected themselves to this Court’s jurisdiction in
this matter regarding two claims in Plaintiffs’ Complaint and by asserting counterclaims.
New Jersey has an interest in this case in the enforcement of contracts entered into by its
residents and business entities, and Plaintiffs have a clear interest in obtaining convenient
and effective relief in the State of New Jersey. Further, the interstate judicial system’s
interest in the most efficient resolution of controversies favors the granting ofjurisdiction
in this case as denying jurisdiction with respect to four of the six claims in Plaintiffs’
Complaint would fragment all tort claims alleged to arise out of the underlying contract
dispute for potential litigation elsewhere. Therefore, the shared interests of the states of
New Jersey, California, New York and Florida, the states in which the facts alleged in the
Complaint have occurred, favor litigation in one forum, and the granting ofjurisdiction in
this Court furthers the substantive social policy of enforcing contracts made by a State’s
13
residents and mostly executed from a single state. While the KBKG Defendants have not
waived any potential jurisdictional defects, an overall assessment of the relevant factors
weigh in favor of a finding of personal jurisdiction over said Defendants.
2. Defendants’ Motion to Dismiss Pursuant to Fed. R. Civ. P. 12(b)(6)
Defendants contend that Plaintiffs’ conversion, breach of fiduciary duty,
conversion, accounting, and tortious interference with contractual relations claims do not
meet the pleading requirements of Fed. R. Civ. P. 8(a) following Twombly and Iqbal,
also claiming that Plaintiffs’ fraud claims are not sufficiently pled pursuant to the
heightened pleading requirements of Fed. R. Civ. P. 9(b). Further, Defendants argue that
all of Plaintiffs’ tort claims should be dismissed, including their conversion, fraud, breach
of fiduciary duty and tortious interference with contract claims because, under the
economic loss doctrine, a tort remedy “does not arise from a contractual relationship
unless the breaching party owes an independent duty imposed by law.” (Defs. Br., at 22
(quoting Farash & Robbins, Inc. v. Fleet Nat’! Bank, 2005 U.S. Dist. LEXIS 33810,
*
15
(D.N.J. Dec. 19, 2005)(citing Saltiel v. GSI Consultants, Inc., 170 N.J. 297, 314 (2002))).
Plaintiffs make three arguments in response: (1) the Third Circuit does not readily apply
the economic loss doctrine outside the context of product liability cases to services
contracts; (2) district courts in this Circuit have not applied economic loss doctrine to
fraud claims, conversion claims, or claims for breach of fiduciary duty; and (3) the
tortious conduct alleged in the Complaint is extrinsic to the contract at issue. (Pls. Opp’n
Br., at 22-25). The Court will address the applicability of economic loss doctrine to each
of Plaintiffs’ separate claims separately since federal and New Jersey courts have dealt
differently with the various tort claims at issue as they overlap with contract claims.
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A. Conversion Claim (Count II)
In Plaintiffs’ Complaint, they allege that: (1) Roof Group “has failed to pay and
refuses to pay S&S $6,730.05 for unpaid wages and expenses pursuant to the parties’
agreement through the December 22, 2010 termination date”; (2) the Roof Group
Defendants “have refused to issue and remit to Plaintiffs the membership interest in Roof
Group and participation in gross revenues of RSLA”; and (3) since S&S exclusively has
the right, title and interest in “membership interests, unpaid wages and expenses, and
profit participation,” Roof Group and the Roof Group Defendants have converted said
interests and wrongfully misappropriated funds owed to S&S. (Compl., ¶J 57-6 1).
Defendants make three arguments in favor of dismissing Plaintiffs’ conversion
claim. First, they assert that Roof Group never issued membership interests to S&S since
Plaintiffs had no property right in said interests under the Agreement. (Defs. Br., at 9).
Specifically, they claim, since the Agreement only provided Plaintiffs with the right to
receive such membership interests following the first twelve-month period in which
RSLA generated at least $6 million in revenues, and since Defendants terminated the
Agreement less than twelve months into RSLA’s existence, “any right S&S may have
had to receive a members interest did not yet vest.”
().
Second, they argue that
Plaintiffs carmot state a claim for conversion based on their monetary claims since they
cannot show that the money in question was identifiable as their property, that they were
obligated to segregate such money for Plaintiffs’ benefit, or that Defendants exercised
control or dominion over any monies belonging to Plaintiffs. (Id., at 9-10). Third,
Defendants contend that Plaintiffs’ conversion claim should be barred by the economic
loss doctrine since “Plaintiffs do not identify any independent duty owed to them by
15
Defendants outside the contractual relationship nor do they identify any damages
independent of the alleged breach of the Term Sheet.”
(14, at 23).
The Court agrees with Defendants that Plaintiffs have failed to state a claim for
conversion of the membership interests, the unpaid wages and expenses, and the profit
participation anticipated by the terms of the Agreement. Courts have differed
dramatically on the issue of whether a conversion claim may be brought alongside a
breach of contract claim under the economic loss doctrine, and since the Court finds that
Plaintiffs have failed to allege a conversion claim on other grounds, it need not address
the applicability of said doctrine to Plaintiffs’ conversion claim here.
Under New Jersey law, “[c]onversion is essentially the wrongful exercise of
dominion and control over the property of another in a manner inconsistent with the other
person’s rights in that property.” Peloro v. United States, 488 F.3d 163, 173-74 (3d Cir.
2007)(quoting McAdam v. Dean Witter Reynolds, Inc., 896 F.2d 750, 771 (3d Cir.
1990)(citing Mueller v. Tech. Devices Corp., 8 N.J. 201 (N.J. 1951))). When nontangible property such as money wages or profit participation are the subject of a
conversion claim, “New Jersey courts require that a plaintiff show something more than a
contractual obligation on the part of a defendant to pay the plaintiff to establish
conversion.” Scholes Elec. & Communs. v. Fraser, 2006 U.S. Dist. LEXIS 39287, at
*
13 (D.N.J. June 14, 2006)(citing Advanced Enterprises Recycling, Inc. v. Bercaw, 869
A.2d 468, 472 (App. Div. 2005)). Further, the plaintiff must show that the money in
question was identifiable as plaintiffs property or that the defendant was obligated to
j; Communications Programming
segregate such money for the plaintiffs benefit.
v. Summit Mfg., 1998 U.S. Dist. LEXIS 9006, at
16
*
5 (D.N.J. June 16, 1998)(holding that
a plaintiff had not established a conversion claim where commissions due under a
contract were not shown to be money converted that belonged to him); Hirsch v. Phily, 4
N.J. 408 (N.J. 1950)(holding that a plaintiff had set forth a prima facie case of conversion
where defendant diverted proceeds from accounts receivable which were specifically
assigned to plaintiff for its own use). Plaintiffs here have not pled that the wages and
anticipated participation in profit were diverted by Defendants exclusively for their use,
nor have they alleged that said money was more than a mere debt that they were due
under the contractual agreement. The Court also finds that, absent any pled facts
regarding a mutual agreement by the parties aside from the Term Sheet clearly stating the
triggering event for the vesting of the membership interests at issue, Plaintiffs have failed
to plead that they had vested rights in said interests prior to the “first twelve (12) month
period that the Restaurant generate[d] gross revenues of $6 million or more (the ‘Vesting
Event’). After gross of 6 million.” (Defs. Mot. to Dismiss, Ex. A, “Term Sheet”).
Therefore, Plaintiff’s conversion claim is dismissed without prejudice for failure to state
a claim upon which relief may be granted.
B. Fraud Claim (Count III)
In Plaintiffs’ Complaint, they allege that the Roof Defendants made false
statements to induce them to enter into the Agreement, and that their reliance on said
statements harmed them due to the costs of moving their family to Los Angeles and
Plaintiff Stacy Feli’ s resignation from a lucrative position as an executive to work for
Roof Group. (Compi., ¶J 65-68). Specifically, as stated infra, Plaintiffs claim that,
during meetings which occurred in Miami and New York: (1) Defendants Freeney, West
and Millar told Plaintiffs that they would have full control over the management and
17
operation of RSLA (,
¶ 24); (2) Freeney, West and Millar told Plaintiffs that RSLA
was fully funded with all capital necessary for its construction based on Freeney’ s
financial resources from his contract with the Indianapolis Colts in 2007 (Id.,
¶ 26-27);
and (3) Defendants West, Millar and Weinberg told Plaintiffs that Millar could ensure
adequate capital for the enterprise, and representing that Millar was a millionaire with a
private airplane and multiple private Caribbean island homes when he was not a wealthy
individual, had not invested in Roof Group and did not own the airplane or the homes
(Id., ¶J 12, 28-30).
Defendants argue that Plaintiffs fail to allege sufficient facts supporting their
claim that Defendants made material misrepresentations, with scienter, upon which they
reasonably relied, and that said reliance caused them damages. (Defs. Br., at 11). In
particular, they make six arguments contesting the sufficiency of Plaintiffs’ claims as
stated in their Complaint: (1) Plaintiffs do not specify with sufficient particularity the
false statements made by Defendants, making general allegations without time
references, dates or the actual content of the representations as required under Fed. R.
Civ. P. 9(b); (2) Plaintiffs claims fail under the Fed. R. Civ. P. 12(b)(6) standard because
the plain language of the Agreement contradicts the alleged statements regarding S&S’ s
full operational control; (3) due to the plain language of the Agreement and its
contradiction of the alleged false statements, Plaintiffs cannot sufficiently plead that they
reasonably relied on the false statements; (4) Plaintiffs did not state a causal connection
between the alleged misrepresentations and any damages suffered as the statements
concerning Roof Group’s capital structure and the financial resources of Defendants
Millar and Freeney in no way affected any losses Plaintiffs allegedly suffered as a result
18
of the contract breach; (5) Plaintiffs fail to sufficiently allege scienter since, beyond
generally stating that Defendants “knowingly” made false statements, they allege no
additional facts indicating intentional misrepresentation made with intent to deceive; and
(6) Plaintiffs fraud claims should be dismissed as barred under the economic loss
doctrine. (Defs. Br., at 12-15, 22-23).
To establish a claim for common law fraud under New Jersey law, five elements
must be met: “a material misrepresentation by the defendant of a presently existing fact
or past fact; knowledge or belief by the defendant of its falsity; an intent that the plaintiff
rely on the statement; reasonable reliance by the plaintiff; and resulting damages to the
plaintiff.” Marino v. Marino, 200 N.J. 315, 341 (2009)(citing Liberty Mut. Ins. Co. v.
Land, 186 N.J. 163, 175 (2006)). Generally, while fraud claims intrinsic to the contract
are generally barred by the economic loss doctrine, “fraud claims that are extrinsic to the
underlying contract, and consequently not barred under the economic loss doctrine, are
claims for fraudulent inducement.” Touristic Enterprises Co. v. Trane, Inc., 2009 U.s.
Dist. LEXIS 106145, at *6 (D.N.J. Nov. 13, 2009); see also D&D Assocs. Inc. v. Bd. Of
Educ. Of N. Plaintfield, 2007 U.S. Dist. LEXIS 93867, at
*
27 (D.N.J. Dec. 21,
2007)(holding that fraudulent inducement claims are not barred by economic loss
doctrine); Payne v. Fujifilm U.S.A., Inc., 2007 U.S. Dist. LEXIS 94765, at
*
I (D.N.J.
Dec. 28, 2007). Courts in this district have concluded that the existence of a breach of
contract claim does not preclude a plaintiff from bringing a fraud claim arising out of the
same facts. See Lo Bosco v. Kure Engineering Ltd., 891 F. Supp. 1020 (D.N.J. 1995)
(party permitted to sue purported joint venture partner for both fraud and breach of
contract). Therefore, since the facts alleged in Plaintiffs’ Complaint occurred prior to the
19
contract being signed, the Court construes those facts as supporting fraudulent
inducement claims and finds the economic loss doctrine inapplicable to them. Thus,
Plaintiffs’ fraud claims will be subject to the pleading requirements of Fed. R. Civ. P.
9(b) and may be dismissed based on the sufficiency of the facts alleged under that
heightened standard.
The Court agrees that Plaintiffs’ Complaint fails to sufficiently allege fraud
claims against the Roof Defendants. First, the Court finds that Plaintiffs allegations
regarding false statements about Plaintiffs’ full control over the management and
operation of RSLA to be undermined by the plain language of the Agreement which
states that “The Company [Roof LLCI shall own and operate a restaurant known as
‘RSLA’
S&S.
.
.
.
.
.
.
Company shall enter into a Management Services agreement.
.
.
with...
to manage and operate the Restaurant. Sal and Stacey must be included.”
(Defs. Mot. to Dismiss, Ex. A, “Term Sheet”). Since the Agreement clearly stating
Roof’s ownership and operation and indicating S&S’s “inclusion”—as opposed to Roof’s
“preclusion”—was signed subsequent to Defendants’ alleged statements, the Court finds
that the circumstances constituting the fraud are not stated with particularity under Fed.
R. Civ. P. 9(b). While Plaintiffs may generally allege malice, intent, knowledge or other
scienter requirements as to the fraudulent statement made, if said statement concerned
Plaintiffs’ exclusive control and the agreement they signed plainly stated that they would
not have such control, then Plaintiffs need to support their inducement claims with some
facts indicating how they were compelled to sign an Agreement which did not indicate on
its face that such control would be exclusive.
20
Second, Plaintiffs’ claims regarding the fraudulent statements made about Mr.
Freeney and Mr. Millar’s financial resources are stated in the absence of any clear
resulting harm to Plaintiffs. At no point in the Complaint do Plaintiffs allege that the
resources of the enterprise were hindered by either Mr. Freeney or Mr. Millar’s inability
to support said enterprise or to follow through with their respective obligations prior to
the alleged breach. Plaintiffs in no way indicate that the falsity of said statements even
contributed to the breach since their account of the breach centers on the KBKG
Defendants and Defendant Weinberg having induced Roof Group into said breach,
making no reference at all in their account of the breach to financial strains experienced
by any of the named Defendants. Stating that said Defendants lied about financial
resources available to the enterprise, without more, is not sufficient to establish a claim
for fraud or fraudulent inducement since, even accepting Plaintiffs’ alleged facts as true,
those statements did not contribute to the harm suffered by Plaintiffs when Defendants
terminated the Agreement.
Finally, only the first two of the three statements alleged to be false in Plaintiff’s
Complaint are specified as to the time, place and manner of their utterance; the statement
about Millar’s adequate capitalization of the new company is generally alleged to have
occurred “[pjrior to the execution of the agreement.” (Compl., ¶ 29). The context and
the circumstances of its utterance are absent from the Complaint, and while the Court
accepts as true for the purposes of this Motion the fact that Millar was not a wealthy
individual, it is not clear from the limited facts alleged that that fact alone makes untrue
his inability to secure a $7,000,000 line of credit for the enterprise.
21
For these reasons, therefore, the Court finds that Plaintiffs’ fraud claim is
deficiently pled under the heightened pleading requirements of Rule 9(b), and it is
dismissed without prejudice.
C. Breach of Fiduciary Duty Claim (Count IV)
In Plaintiffs’ Complaint, they allege that, “{bjy reason of their positions as
officers and managers, the Roof Defendants owed Plaintiffs a fiduciary duty to issue the
membership interest to Roof Group and pay to Plaintiffs the profit participation in the
gross revenues of RSLA. The Roof Defendants breached their fiduciary duty to Plaintiffs
by failing to issue the membership interest in Roof Group and pay the profit
participation.” (Compl., ¶J 7 1-72). Plaintiffs assert that their membership interest had
vested by suggesting that the term “vest,” while not explicitly defined in the Agreement,
“means that the Interests which were required to be issued on May 13, 2010 would be
subject to forfeiture in the event S&S voluntarily terminated the Agreement before the
Vesting Event.” (Pis. Opp’n Br., at 13). Plaintiffs concede that no fiduciary relationship
exists with Defendant Weinberg and consents to dismissal as to Ms. Weinberg.
(, at
12).
The Roof Defendants make two arguments for dismissal of Plaintiffs’ breach of
fiduciary duty claim: (1) none of the Defendants had a fiduciary relationship with
Plaintiffs; and (2) a fiduciary cannot breach his or her duties by causing his or her
principal to breach a contract based on the “manager’s privilege.” (Defs. Br., at 16).
First, Defendants claim that Plaintiffs’ Complaint has not sufficiently pled that they were
or are in fact members of Roof Group since they only had a conditional right to receive a
membership interest in Roof Group after the first twelve-month period that the Restaurant
22
generated gross revenues of $6 million dollars or more. Since that Vesting Event did not
occur, Plaintiffs do not have membership interests in the limited liability company that
would trigger the existence of a fiduciary relationship.
(i at 17). Second, Defendants
contend that, under California law, the “manager’s privilege” insulates corporate agents
from individual liability in suits arising from a company’s decision to breach a contract.
(i at 18)(citing Halvorsen v. Aramark Uniform Services, Inc., 65 Cal. App.
th
4
1383,
1392-1396 (Cal. App. Ct. 1998)). Plaintiffs reject the application of the “manager’s
privilege” to this case, claiming that a predominant motive test should be applied in
assessing the principal’s breach of contract here as a result of: (1) the manager’s
predominant motive being to benefit the principal, Roof Group; and (2) the Agreement
between the Parties was not at will, and the “manager’s privilege” only applies to at-will
agreements. (Pls. Opp’n Br., at 14-15). Plaintiffs thus conclude that the Complaint’s
allegations of motive “prevent the application of the manager’s privilege on a motion to
dismiss.” (Id., at 15).
Under both California and New Jersey law, the elements of a breach of fiduciary
duty claim are: (1) the existence of a fiduciary relationship between the parties; (2) the
breach of the duty imposed by that relationship; and (3) damages or harm to the plaintiff
caused by said breach. See McKelvey v. Pierce, 173 N.J. 26, 800 A.2d 840, 859-60
(2002); City of Atascadero v. Merill Lynch, Pierce, Fenner & Smith, Inc., 68 Cal. App.
th
4
483, 80 Cal. Rptr. 2d 329 (1998). As stated ftfta in our analysis of Plaintiffs’
conversion claim, the Court finds that, absent any pled facts beyond the plain terms of the
Agreement regarding a mutual agreement by the parties concerning the triggering event
for the vesting of the membership interests at issue, Plaintiffs have failed to plead that
23
they had vested rights in said interests prior to the “first twelve (12) month period that the
Restaurant generate[d] gross revenues of $6 million or more (the ‘Vesting Event’). After
gross of 6 million.” (Defs. Mot. to Dismiss, Ex. A, “Term Sheet”). While Plaintiffs
present an alternative interpretation of the term “vest” in their Opposition Brief, nothing
in the Complaint itself supports the existence of a fiduciary relationship in existence at
the time of the breach. Therefore, because Plaintiffs have failed to sufficiently plead the
existence of a fiduciary relationship, the Court need not consider the application of the
“manager’s privilege” to the facts of this case.
E. Accountin2 (Count V)
Plaintiffs claim that, since “S&S is a member of Roof Group,” it is “entitled to an
accounting for all receipts and disbursements of Roof Group.” (Compi., 75).
¶
Defendants do not address Plaintiffs’ request for an accounting in their Motion to
Dismiss. “An accounting in equity cannot be demanded as a matter of right or of course.
The exercise of equitable jurisdiction to compel an account rests upon three grounds
—
first, the existence of a fiduciary of trust relation; second, the complicated nature or
character of the account; and third, the need of discovery.” Borough of Kenilworth v.
Graceland Memorial Park Ass’n, 124 N.J. Eq. 35, 37, 199 A. 716 (N.J. Ch. Ct. 1938).
Plaintiffs’ accounting claim is thus premised on the existence of a fiduciary relationship
between Plaintiffs and Defendants. Since the Court has already found jfta that Plaintiffs
have failed to sufficiently plead the existence of a fiduciary relationship with Roof Group
and the Roof Group Defendants, the Court finds that the equities favor denial of Plaintiffs
account claim at this time.
F. Tortious Interference with Contract Claim (Count VI)
24
In Plaintiffs’ Complaint, they allege that Defendants Weinberg, KBKG, Kniss and
Hagan (the “KBKG Defendants”) knew about the Agreement between Plaintiffs and
Roof Group by virtue of Plaintiffs’ employment by Roof Group and work in connection
with RSLA, but nevertheless “intentionally induced, procured and participated the breach
by Roof Group of the Agreement,” and, further, that “Roof Group would not have
breached the agreement with Plaintiff S&S but for the activities of Weinberg and the
KBKG Defendants.” (Compl., ¶J 79-84). Specifically, Plaintiffs allege that,
immediately after Roof Group retained KBKG, Weinberg and the KBKG Defendants
“repeatedly made false and defamatory statements to Freeney and West about the nature
and quality of services rendered by S&S” and “repeatedly interfered with S&S’s duties to
attempt to prevent S&S from fulfilling its obligation under the Agreement.” (Id.,
¶J 37-
38). Ms. Weinberg is also alleged to have “falsely blamed S&S for her own mistakes
including failures to pay invoices on time as well as pay employees their proper wages.”
(Id., ¶ 39). Plaintiffs claim that Weinberg and the KBKG Defendants tried to force S&S
out of its position by “causing Roof Group to demand that Plaintiffs agree to an
amendment of the Agreement which would drastically reduce the agreed upon Base Fee
and contingent compensation from RSLA and other locations, and to change other terms
of the Agreement.” (Id.,
¶ 40). Further, on November 2, 2010, Weinberg, Kniss, West
and Hagen are alleged to have flown to Indianapolis, Indiana to meet in secret with Mr.
Freeney, and that during that meeting, convinced Mr. Freeney to terminate S&S in the
event Plaintiffs did not amend the Agreement.
¶ 41). When Plaintiffs offered to
amend the Agreement after weeks of negotiation, Defendants rejected their offer, and
Plaintiffs assert that it was KBKG that convinced Roof Group to breach the Agreement
25
by subsequently terminating S&S without cause in a December 22, 2010 letter from Roof
Group’s counsel. (Id., ¶j 41-44).
Defendants argue that Plaintiffs’ tortious interference with contract claim should
be dismissed for three reasons: (1) Plaintiffs do not allege with specificity any acts from
which the Court could conclude that Ms. Weinberg or the KBKG Defendants interfered
with the Agreement; (2) the Complaint fails to allege that Defendants engaged in contact
that was wrongful or malicious, aside from the alleged interference; and (3) Defendants’
actions are protected by the “manager’s privilege.” (Defs. Br., at 20).
Under New Jersey law, there are five elements of a claim for tortious interference
with a contractual relationship: (1) plaintiffs’ existing or reasonable expectation of
economic benefit or advantage; (2) a defendant’s knowledge of the plaintiffis
expectancy; (3) wrongful and intentional interference with that expectancy by the
defendant; (4) a reasonable probability that the plaintiff would have received the
anticipated economic advantage absent such interference; and (5) damages resulting from
the defendant’s interference. DeJoy v. Comcast Cable Communs., 941 F. Supp. 468,
476-77 (D.N.J. l996)(citing Pitak v. Bell Atlantic Network Svcs., Inc., 928 F. Supp.
1354, 1369 (D.N.J. 1996))(other citations omitted).
Accepting the facts of Plaintiffs’ Complaint as true, the Court finds that Plaintiffs
have sufficiently alleged a claim for tortious interference with Plaintiffs’ Agreement with
Roof Group. Defendants do not contest that an existing contractual relationship existed
between Roof Group and Plaintiffs, and the Complaint makes sufficient factual
allegations regarding Ms. Weinberg and KBKG’s awareness of Roof Group’s Agreement
with Plaintiffs. Specifically, Plaintiffs allege that Ms. Weinberg, as Mr. Freeney’s
26
financial advisor, directly represented to Plaintiffs information regarding Defendant
Millar, his financial condition and involvement in Roof Group leading up to Plaintiffs’
signing of the Agreement. (Compi., ¶J 28). Ms. Weinberg is also alleged to have
caused Roof Group to retain the services of KBKG as accountants for RSLA, and both
Ms. Weinberg and the KBKG Defendants are alleged to have made false statements to
Mr. Freeney and Mr. West about the services rendered by S&S. (j, ¶ 34-37). It may
be plausibly inferred from the facts alleged that such interference with Plaintiffs’
prospective benefits under the Agreement was purposeful and that Plaintiffs would have
received the anticipated benefits of the Agreement absent such interference. Thus, at this
stage, the Court finds Plaintiffs’ tortious interference with contractual relations claim
sufficiently pled. Since the Court finds that the application of the “manager’s privilege”
to Plaintiffs’ claim is a fact-sensitive question best left for the jury, and since Defendants
cite no case law applying said privilege under New Jersey law to tortious interference
with contract claims, it need not consider Defendants’ arguments regarding its application
at this stage of the pleadings. See Olivet v. Frischling, 104 Cal. App. 3d 831, 840-41,
164 Cal. Rptr. 87 (Cal. Ct. App. 1980)(finding that the “manager’s privilege” may apply
to protect a manager in advising his principal to breach a contract with a third party, but
finding no justification in the inducement of a breach for the purposes of competition or
gaining personal benefit, a fact-specific question); Rodin Properties-Shore Mall, N.y. v.
Cushman & Wakefield of Pennsylvania, Inc., 49 F. Supp. 2d 728, 738 (D.N.J. l999)(not
addressing the applicability of the “manager’s privilege” under New Jersey law, but
rather addressing the issue of managerial protection from liability in a tortious
interference with contract claim when their principal is itself a party to the contract).
27
Finally, the Court does not find the economic loss doctrine applicable to Plaintiffs’ claims
of tortious interference with contractual relations as against Defendant Weinberg and the
KBKG Defendants as they are not parties to the contract at issue and are not named as
such in Plaintiffs’ breach of contract claim. Accordingly, the Court finds Plaintiffs’
tortious interference with contractual relations sufficiently pled, and denies Defendants’
Motion to Dismiss said claim.
IV. CONCLUSION
For the foregoing reasons, Defendants’ Motion to Dismiss Plaintiffs’ Complaint is
GRANTED in part and DENIED in part. An appropriate Order accompanies this
Opinion.
DATED: March,1, 2012
States District Judge
28
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