SWIFT v. PANDEY et al
Filing
53
OPINION. Signed by Judge Jose L. Linares on 11/13/2013. (nr, )
NOT FOR PUBLICATION
UNITED STATES DISTRICT COURT
DISTRICT OF NEW JERSEY
ROBERT SWIFT,
Civil Action No. 13-649 (JLL)
Plaintiff,
OPINION
v.
RAMESH PANDEY, et al.,
Defendants.
LINARES, District Judge.
This matter comes before the Court by way of a motion to dismiss the Amended
Complaint filed by the Pandey Defendants1 pursuant to Rule 12(b)(6) of the Federal Rules of
Civil Procedure [Docket Entry No. 46]. The Court has considered the submissions made in
support of and in opposition to the instant motion. No oral argument was heard. See Fed. R.
Civ. P. 78. For the reasons that follow, Defendants’ motion to dismiss is granted. Counts Six
and Eight are deemed withdrawn. Counts Five, Ten and Fourteen are dismissed with prejudice.
All remaining counts—Counts One, Two, Three, Four, Seven, Nine, Eleven, Twelve, Thirteen,
Fifteen, Sixteen, Seventeen, Eighteen2 and Nineteen—are dismissed without prejudice. Plaintiff
1
The Pandey Defendants include Ramesh Pandey, Bhuwan Pandey and Abhulasha Pandey.
As explained more fully below, although Defendant Renuka Misra has not filed a motion to
dismiss the Amended Complaint, the claims asserted against her largely mirror the claims
asserted against the Pandey Defendants and thus the pleading deficiencies discussed herein apply
equally to the claims asserted against her. Because the Court raises these issues sua sponte as to
Defendant Renuka, the Court dismisses the claims asserted against her without prejudice.
However, this Court’s holding as to the viability of a standalone claim of disgorgement serves as
law of the case; thus, Plaintiff may not re-assert the claim of disgorgement (Count Eighteen)
against Defendant Renuka in any future iterations of the complaint.
2
1
may file a Second Amended Complaint that cures the pleading deficiencies in Counts One, Two,
Three, Four, Seven, Nine, Eleven, Twelve, Thirteen, Fifteen, Sixteen, Seventeen and Nineteen
on or before December 13, 2013.3
BACKGROUND4
Plaintiff’s Amended Complaint was filed on August 5, 2013. This Court’s jurisdiction is
premised on 28 U.S.C. § 1332. According to the Amended Complaint, Plaintiff, Robert Swift
(“Swift”), at an unspecified time, purchased all right, title and interest in and to any and all assets
of Xechem International, Inc. and Xechem, Inc. (collectively “Xechem”) at a Chapter 7 auction
in Bankruptcy Court. (Am. Compl. ¶ 4).5 Defendant Ramesh Pandey (“Ramesh”) was the
Founder, Chief Executive Officer, President, Treasurer, Chairman and Director of Xechem from
1994 until July 2007. (Id., ¶ 15). On May 29, 2007, at a meeting of the Company’s Board of
Directors, the Board discovered that Ramesh had spent nearly $4.3 million of the $6.3 million
convertible bond offering that Plaintiff Swift had helped the company raise in April 2007. (Id.,
¶¶ 11, 16). The Board subsequently withdrew Ramesh’s authority to sign checks for more than
$5,000 without Board approval. (Id., ¶ 17). Despite the Board’s directive, Ramesh continued
writing checks to friends and family—some of whom are included as co-defendants in this
action—totaling $605,639.87. (Id., ¶ 18).
Plaintiff may not add any additional causes of action without adhering to Federal Rule of Civil
Procedure 15(a).
3
The Court accepts the following facts asserted in Plaintiff’s Amended Complaint as true solely
for purposes of this motion.
4
5
Defendants do not challenge Plaintiff’s standing to bring this action.
2
Ramesh was subsequently removed as Chief Executive Officer, President and Treasurer
of Xechem by the Board of Directors on July 5, 2007. (Id., ¶ 19). On November 10, 2008,
Xechem filed for Chapter 11 protection. (Id., ¶ 20).
In light of the foregoing, Plaintiff’s Amended Complaint asserts nineteen causes of action
that fall into the following seven categories: (1) breach of fiduciary duty as against Ramesh,
Bhuwan, Abhilasha, and Renuka, (2) ultra vires as against Ramesh, (3) breach of duty of loyalty
as against Ramesh, Bhuwan, Abhilasha, and Renuka, (4) unjust enrichment as against Ramesh,
Bhuwan, Abhilasha, and Renuka, (5) disgorgement of unlawful profits as against Ramesh,
Bhuwan, Abhilasha, and Renuka, (6) fraudulent concealment as against all Defendants, and (7)
civil conspiracy as against all Defendants. Defendants Ramesh Pandey, Bhuwan Pandey and
Abhulasha Pandey now move to dismiss all claims asserted in the Amended Complaint pursuant
to Federal Rule of Civil Procedure 12(b)(6).
It should be noted that it is not entirely clear to the Court, based on the electronic docket,
whether service of process was ever properly effectuated on Defendant Renuka Misra
(“Renuka”). Nor is there any indication that Defendant Renuka has filed a responsive pleading
as to the original complaint or as to the Amended Complaint. Because the claims asserted
against Defendant Renuka in the Amended Complaint largely mirror the claims asserted against
the Pandey Defendants, and because the deficiencies discussed below thus apply equally to all
claims asserted against Defendant Renuka, in the interest of judicial economy, and based on the
Court’s inherent authority to manage its docket, the Court dismisses such claims without
prejudice for failure meet the Rule 8(a) pleading standard and will allow Plaintiff to re-plead
such claims in the context of filing a Second Amended Complaint.
Plaintiff will not be
prejudiced by this approach inasmuch as the Court’s dismissal of claims asserted against Renuka
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is without prejudice and leave to amend such claims is expressly granted.6 In the meantime,
Plaintiff is directed to file proof of service as to Defendant Renuka in accordance with Rule 4 of
the Federal Rules of Civil Procedure.
LEGAL STANDARD
For a complaint to survive dismissal, it “must contain sufficient factual matter, accepted
as true, to ‘state a claim to relief that is plausible on its face.’ ” Ashcroft v. Iqbal, 556 U.S. 662,
678 (2009) (citing Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007)). “Threadbare recitals
of the elements of a cause of action, supported by mere conclusory statements, do not suffice.”
Id.
In determining the sufficiency of a complaint, the Court must accept all well-pleaded
factual allegations in the complaint as true and draw all reasonable inferences in favor of the
non-moving party. See Phillips v. Cnty. of Allegheny, 515 F.3d 224, 234 (3d Cir. 2008). But,
“the tenet that a court must accept as true all of the allegations contained in a complaint is
inapplicable to legal conclusions.” Iqbal, 556 U.S. at 678. Thus, legal conclusions draped in the
guise of factual allegations may not benefit from the presumption of truthfulness. Id.
DISCUSSION
Before turning to Defendants’ arguments, the Court notes that Plaintiff has agreed to
withdraw Counts Six (fraudulent concealment as against all Defendants), and Eight (breach of
Plaintiff may not, however, reassert a claim of disgorgement as against Defendant Renuka
inasmuch as the Court concludes, below, that disgorgement is an equitable remedy, not a cause
of action. This holding is now law of the case.
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duty of loyalty as against Bhuwan Pandey).
Thus, Counts Six and Eight of the Amended
Complaint are hereby deemed withdrawn and shall be stricken from the Amended Complaint.
The Court also notes some deficiencies in Plaintiff’s opposition brief. First, the pages in
Plaintiff’s brief are not numbered, and the brief itself fails to contain a table of contents or a table
of authorities, both of which are required by Local Civil Rule 7.2(b).
Second, Plaintiff’s opposition brief contains a recitation of the relevant facts with no
citations to the Amended Complaint. In determining the sufficiency of a complaint, the Court
must, inter alia, accept all well-pleaded factual allegations contained in the complaint as true and
then determine whether said allegations contain sufficient factual matter to state a claim to relief
that is plausible on its face. See Phillips, 515 F.3d at 234; Iqbal, 556 U.S. at 678. Moreover, a
complaint cannot be amended (or supplemented) by way of an opposition brief. See
Pennsylvania ex rel. v. Zimmerman v. Pepsico, 836 F.2d 173 (3d Cir.1988) (“It is axiomatic that
the complaint may not be amended by the briefs in opposition to a motion to dismiss.”) (citation
omitted). It appears to the Court that Plaintiff’s opposition brief contains facts that are not
expressly set forth in the Amended Complaint. Because the factual background section of
Plaintiff’s opposition brief contains no citation to the Amended Complaint, the Court has no way
of knowing for sure whether each and every factual allegation contained therein is also present in
the Amended Complaint, and, if so, where. In any event, the Court has done its best to assess the
instant motion to dismiss based on the facts pled in the Amended Complaint. Should Plaintiff
choose to file a Second Amended Complaint, Plaintiff is hereby directed to include all relevant
facts in the complaint itself and, to the extent Plaintiff purports to summarize such facts in any
future filings, Plaintiff shall provide citations to the complaint so that the Court can more readily
5
assess whether said complaint contains a claim to relief that is plausible “on its face.” Iqbal, 556
U.S. at 678.
Finally, the Court notes that Plaintiff’s opposition brief is practically devoid of any
citations to legal authority. While the Court is mindful of Plaintiff’s pro se status, it is not the
Court’s responsibility to engage in its own legal research in order to find legal authority to
support Plaintiff’s arguments—nor would it be proper for the Court to do so. Again, the Court
has done its best, under the circumstances, to assess Defendants’ legal arguments, along with the
arguments raised by Plaintiff in opposition, despite Plaintiff’s failure to cite to any legal
authority in support of same.
Plaintiff shall take note of the foregoing deficiencies in his submission and shall be
guided accordingly in any future filings with this Court.
Defendants present a variety of arguments in support of their motion to dismiss. The
Court will address each argument, in turn.
1.
Disgorgement—Counts Five, Ten and Fourteen
Defendants move to dismiss Plaintiffs’ claims of disgorgement on the basis that
disgorgement is a remedy, not a cause of action. Plaintiff essentially concedes that disgorgement
is not a standalone claim when he argues that Ramesh Pandey knowingly and voluntarily
accepted and retained the benefit of $69,665.35, that retention of said money would be unjust
and that, as a result, Plaintiff is entitled to the remedy of disgorgement. (Pl. Opp’n Br. at 6-7).
The Third Circuit has explained that “disgorgement is an equitable remedy designed to deprive a
wrongdoer of his unjust enrichment and to deter others from violating securities laws.” S.E.C. v.
Hughes Capital Corp., 124 F.3d 449, 455 (3d Cir. 1997) (quoting S.E.C. v. First City Fin. Corp.,
6
890 F.2d 1215, 1230 (D.C. Cir. 1989)); Commodity Futures Trading Comm’n v. Am. Metals
Exch. Corp., 991 F.2d 71, 76 (3d Cir. 1993) (“Disgorgement does not penalize, but merely
deprives wrongdoers of ill-gotten gains.”) (citation omitted). The New Jersey Supreme Court
has likewise construed disgorgement as an appropriate remedy in cases involving claims of
unjust enrichment. See Cnty. of Essex v. First Union Nat’l Bank, 186 N.J. 46, 49 (2006) (“The
primary issues in this appeal are whether claims for unjust enrichment/disgorgement survive
when there is a valid contract, and if so, when an employee of a commercial bank bribes a public
official to obtain underwriting privileges on three bond issues, whether the bank must disgorge
that part of the fee paid to innocent third parties. We hold that under the circumstances presented,
disgorgement is an appropriate remedy”). Plaintiff cites to no binding legal authority suggesting
otherwise.
In light of the foregoing, the Court agrees that Counts 5, 10, and 14 of the Amended
Complaint—all of which assert standalone claims for disgorgement—must be dismissed with
prejudice inasmuch as disgorgement is an equitable remedy—not a cause of action—that is, in
any event, subsumed within Plaintiff’s claims of unjust enrichment.7
Defendants’ motion to
dismiss Plaintiff’s claims of disgorgement (Counts 5, 10 and 14) is therefore granted.8
The Court’s dismissal in this regard does not preclude Plaintiff from seeking disgorgement as a
form of relief in conjunction with his unjust enrichment claims. See, e.g., S.E.C. v. Hughes
Capital Corp., 124 F.3d 449, 455 (3d Cir. 1997) (“Disgorgement is an equitable remedy
designed to deprive a wrongdoer of his unjust enrichment and to deter others from violating
securities laws.”).
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Count Eighteen is likewise dismissed without prejudice, sua sponte, for the same reasons.
7
2.
Ultra Vires—Count Two
Count Two of Plaintiff’s Amended Complaint alleges that: (a) “a transfer of substantial
assets of the Company required the approval of the board of directors,” (b) “Ramesh transferred
$605,539.15 of the Company’s assets to friends and family without obtaining Board approval,”
and, as a result, (c) “the purported transfer of the assets was an ultra vires act and was void and
ineffective.” (Am. Compl., ¶¶ 41-43). Defendant Ramesh moves to dismiss this count on several
grounds, including, but not limited to, the fact that Plaintiff, as assignee of Xechem’s rights,
lacks standing to invoke the New Jersey ultra vires statute, N.J.S.A. 14A:3-2.
In opposing dismissal of this count of the Amended Complaint, Plaintiff does not dispute
that such count is brought pursuant to N.J.S.A. 14A:3-2 (“Ultra vires transactions”).9 N.J.S.A.
14A:3-2 provides, in pertinent part:
No act of a corporation and no conveyance or transfer of real or
personal property to or by a corporation shall be invalid by reason
of the fact that the corporation was without capacity or power to do
such act or to make or receive such conveyance or transfer, but
such lack of capacity or power may be asserted:
(a) In a proceeding by a shareholder against the corporation to
enjoin the doing of any act or acts or the transfer of real or
personal property by or to the corporation. If the unauthorized
acts or transfer sought to be enjoined are being, or are to be,
performed or made pursuant to any contract to which the
corporation is a party, the court may, if all of the parties to the
contract are parties to the proceeding and if it deems the same
to be equitable, set aside and enjoin the performance of such
contract, and in so doing may allow to the corporation or to the
other parties to the contract, as the case may be, compensation
for the loss or damage sustained by either of them which may
result from the action of the court in setting aside and enjoining
the performance of such contract, but anticipated profits to be
Nor do the parties dispute that New Jersey law governs Plaintiff’s claims. See Am. Cyanamid
Co. v. Fermenta Animal Health, 54 F.3d 177, 180 (3d Cir. 1995) (“The district court exercised its
diversity jurisdiction. This means that the law to be applied is that of the forum state-New
Jersey.”).
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derived from the performance of the contract shall not be
awarded by the court as a loss or damage sustained.
(b) In a proceeding by the corporation, whether acting directly or
through a receiver, trustee, or other legal representative, or
through shareholders in a representative suit, against the
incumbent or former officers or directors of the corporation.
(c) In a proceeding by the Attorney General, as provided in this
act, to dissolve the corporation, or in a proceeding by the
Attorney General to enjoin the corporation from the transaction
of unauthorized business.
N.J.S.A. 14A:3-2.
In support of its motion to dismiss, Defendant argues that the Amended Complaint
contains no factual allegations suggesting that the payments allegedly made by Ramesh exceeded
the powers given to Xechem in its articles of incorporation. In support of this requirement,
Defendant cites to 7A William M. Fletcher, Cyclopedia of the Law of Corporations § 3400 for
the following proposition: “When properly used, the words ‘ultra vires,’ as applied to the act of a
corporation, mean simply an act that is beyond the powers conferred upon the corporation by its
charter, as distinguished from an act that is authorized by its charter.” The Appellate Division
has confirmed that “[i]f a board exceeds its powers as provided in its governing documents, then
the board’s action is ultra vires.” Cmty. Access Unlimited v. Rockcliffe, 2012 WL 1431267, at *3
n. 4 (N.J. Super. App. Div. April 26, 2012) (citing Verna v. Links at Valleybrook Neighborhood
Ass’n, 371 N.J. Super. 77, 91–92 (App. Div. 2004)). To the extent Plaintiff’s claim for ultra
vires is premised on the fact that Ramesh, acting on behalf of the Board, exceeded his powers in
making the challenged payments to himself and the co-defendants (by failing to obtain prior
Board approval), the Court agrees that Plaintiff’s Amended Complaint fails to contain any facts
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suggesting that the payments allegedly made by Ramesh exceeded the powers given to Xechem
in its governing documents.
Next, Defendant argues that Plaintiff lacks standing to invoke this statute inasmuch as he
is merely assignee of the rights of Xechem, not its “legal representative” within the meaning of
the statute. Plaintiff maintains, however, that by virtue of his purchase of all right, title and
interest in the assets of Xechem International, Inc. and Xechem, Inc. at the Chapter 7 auction, he
became the “legal representative” for the legal claims of Xechem International, Inc. Thus, he
argues that “the Ultra Vires claim is a legal proceeding by Xechem International, Inc. against
defendant Ramesh Pandey.” (Pl. Opp’n Br. at 6). Having carefully considered the parties’
arguments, the Court concludes that because the Amended Complaint does not allege that
Plaintiff is a shareholder of Xechem, or that the case is brought by the Attorney General or by
Xechem directly, Plaintiff’s claim pursuant to N.J.S.A. 14A:3-2 can only proceed if the
Amended Complaint contains facts establishing that this case is brought by a receiver, trustee, or
other legal representative of Xechem. Although Plaintiff argues, in his opposition brief, that he
is Xechem’s legal representative, the Amended Complaint does not allege any facts to support
this conclusion; rather, the Amended Complaint alleges merely that Plaintiff purchased all of
Xechem’s assets. Moreover, Plaintiff cites to no binding legal authority in support of the theory
that his purchase at the Chapter 7 auction renders him a legal representative of Xechem
International, Inc. and/or Xechem, Inc.
In light of the foregoing, Plaintiff has failed to state a claim pursuant to N.J.S.A. 14A:3-2
that is plausible on its face. Defendant Ramesh’s motion to dismiss this claim is granted; Count
Two of Plaintiff’s Amended Complaint is dismissed without prejudice.
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3.
Unjust Enrichment—Counts Four, Nine, Thirteen
Counts Four, Nine and Thirteen contain claims of unjust enrichment as against Ramesh,
Bhuwan and Abhilasha Pandey. Defendants move to dismiss all claims of unjust enrichment on
the basis that the Amended Complaint fails to contain any facts plausibly establishing how or
why Defendants’ retention of the challenged Xechem payments allegedly made to them were
unjust. (Def. Br. at 19). In particular, Defendants maintain that “the mere allegation that these
payments were not authorized by Xechem’s board, or that they violated Xechem’s agreement
with its bond holders, is not sufficient to establish that the payments did not otherwise satisfy
legitimate company debts or that Xechem derived no value from them.” (Id.).
To state a claim for unjust enrichment under New Jersey law, a Plaintiff must establish
that the “defendant received a benefit and that retention of that benefit without payment would
be unjust” and that Plaintiff “expected remuneration from the defendant at the time it performed
or conferred a benefit on defendant and that the failure of remuneration enriched defendant
beyond its contractual rights.” VRG Corp. v. GKN Realty Corp., 135 N.J. 539, 554 (1994).
Moreover, under New Jersey law, “recovery under unjust enrichment may not be had when a
valid, unrescinded contract governs the rights of the parties.” Van Orman v. Am. Ins. Co., 680
F.2d 301, 310 (3d Cir. 1982).
Count Four alleges that “Ramesh was unjustly enriched when he received Company
funds without approval of the Board of Directors” and that “it would be inequitable for Ramesh
to retain the benefit of the Company’s money, as that transfer of money was contra to his duties
as an officer and director of the Company and therefore it would be morally and ethically wrong
for Ramesh to benefit by his illegal acts.” (Am. Compl., ¶¶ 50-54). Count Nine alleges that
Bhuwan was unjustly enriched when he received $7,752.13 from the Company, and that “it
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would be inequitable for Bhuwan to retain the benefit of the Company’s money, as that transfer
of money was contra to his duties as an officer of the Company and therefore it would be morally
and ethically wrong for Bhuwan to benefit by his illegal acts.” (Am. Compl., ¶¶ 73-79). Count
Thirteen alleges that Defendant Abhilasha was unjustly enriched when she received $14,617
from the Company and that it would be inequitable for Abhilasha to retain the benefit of the
Company’s money, as that transfer of money was contra to her duties as an officer of the
Company and therefore “it would be morally and ethically wrong for Abhilasha to benefit by her
illegal acts.” (Am. Compl., ¶¶ 95-101). Count Seventeen alleges that Defendant Renuka was
unjustly enriched when she received $151,875 from the Company and that it would be
inequitable for Renuka to retain such money because the underlying transfer was contra to her
duties as an officer of the Company and therefore it would be morally and ethically wrong for
Renuka to benefit by her illegal acts. (Am. Compl., ¶¶ 116-122).
The Court finds that Plaintiff has failed to state a facially plausible claim of unjust
enrichment as against any of the Defendants for two reasons. First, the Court finds that the
conduct underlying Plaintiff’s unjust enrichment claims sounds in tort.10
New Jersey does not
recognize unjust enrichment as an independent tort cause of action. See Castro v. NYT
Television, 370 N.J. Super. 282, 299 (App. Div. 2004) (explaining that “the role of unjust
enrichment in the law of torts is limited for the most part to its use as a justification for other
torts such as fraud or conversion.”); Steamfitters Local Union No. 420 Welfare Fund v. Philip
Morris, Inc., 171 F.3d 912, 936 (3d Cir. 1999) (“In the tort setting, an unjust enrichment claim is
essentially another way of stating a traditional tort claim (i.e., if defendant is permitted to keep
The Court previously dismissed Plaintiff’s tort claims, with prejudice, on the basis that prejudgment tort claims cannot be assigned under New Jersey law. See Integrated Solutions, Inc. v.
Serv. Support Specialties, Inc., 124 F.3d 487, 490 (3d Cir. 1997).
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the benefit of his tortious conduct, he will be unjustly enriched).”). Plaintiff has not alleged that
he—or Xechem—performed or otherwise conferred a benefit on any of the Pandey Defendants
under a quasi-contractual relationship with the expectation of remuneration. Rather, Plaintiff
asserts that each of the Defendants misappropriated the Company’s assets, for which the
Company clearly did not anticipate or expect remuneration.
See, e.g., Am. Compl., ¶ 47
(“Ramesh breached his [duty of] loyalty to the Company when he misappropriated $69,655.07 of
the Company’s money for his benefit.”); ¶ 70 (“Bhuwan breached his duty of loyalty to the
Company when he aided and abetted Ramesh in the misappropriation [of] Company assets to
give his friends and family.”); ¶ 92 (“Abhilasha breached her [duty of] loyalty to the Company
when she aided and abetted Ramesh in the misappropriation [of] Company assets to give to his
friends and family.”).
Second, even assuming that the conduct underlying Plaintiff’s unjust enrichment claim
does not actually sound in tort, Plaintiff fails to allege that he—or even Xechem—expected
remuneration from any of the Defendants at the time that the challenged payments were made to
them by Ramesh, or that any of the Defendants failed to provide such remuneration in exchange.
See VRG Corp., 135 N.J. at 554 (explaining that the “unjust enrichment doctrine requires that
plaintiff show that it expected remuneration from the defendant at the time it performed or
conferred a benefit on defendant”). Whether it would be “morally” or “ethically” wrong for the
Defendants to have benefited from the challenged payments is irrelevant to the issue of whether
any of the Defendants were actually enriched beyond their contractual rights.
Defendants’s motion to dismiss this claim is granted. See, e.g., Nelson v. Xacta 3000 Inc.,
No. 08–5426, 2009 WL 4119176, at *7 (D.N.J. Nov. 24, 2009) (dismissing unjust enrichment
claim after finding that “New Jersey law does not recognize unjust enrichment as an independent
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tort cause of action”); Warma Witter Kreisler, Inc. v. Samsung Elecs., Am., Inc., No. 08–5380,
2009 WL 4730187, at *7 (D.N.J. Dec. 3, 2009) (dismissing unjust enrichment claim and noting
that “Plaintiff does not claim that it failed to receive the printer for which it conferred a benefit
on the Defendant; rather, Plaintiff's theory of recovery is based on the assertion that it was misled
by Samsung as to the fitness of the printer and that as a result of Samsung's tortious conduct,
Plaintiff is allowed to recover damages. Such allegations sound in tort.”). To the extent the
pleading deficiencies in Plaintiff’s unjust enrichment claims can be cured by way of amendment,
such claims are dismissed without prejudice.11
4.
Breach of Fiduciary Duty—Counts One, Seven and Eleven
Counts One, Seven and Eleven allege breach of fiduciary duty claims as against
Defendants Ramesh, Bhuwan and Abhilasha.
In particular, Count One alleges that, as an
employee of the Company, Ramesh breached his duty of loyalty to the Company when he
misappropriated $609,539.15 of Company money to give to his friends and family. (Am.
Compl., ¶ 46). Count Seven alleges that, as an Officer of the Company, Bhuwan owed a
fiduciary duty to the Company and that he breached said duty by not disclosing to the Board of
Directors that he received corporate assets, and by not disclosing that Ramesh transferred
Company assets to friends and family. (Id., ¶ 66). Count Eleven alleges that, as an Officer of the
Company, Abhilasha breached her fiduciary duty by: not disclosing to the Board that she
received a check for $14,617; by not disclosing that Ramesh wrote $605,539.15 in checks to
friends and family; and by aiding and abetting Ramesh by giving him substantial assistance in
transferring $605,539.15 in checks to friends and family. (Id., ¶ 87). Similarly, Count Fifteen
11
Count Seventeen is sua sponte dismissed without prejudice for the same reasons.
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alleges that, as an officer of the Company, Renuka breached her fiduciary duty to the Company
by not disclosing to the Board that she received a check for $151,875, and by not disclosing that
Ramesh wrote $605,539.15 in checks to friends and family. (Id., ¶ 109).
The Pandey Defendants move to dismiss all fiduciary duty claims on several grounds. In
opposition to Defendants arguments, Plaintiff argues that the checks signed by Ramesh were not
for “normal payroll, rent or other recurring items;” rather, “the checks were to pay what are
characterized as loans that friends and family members of Ramesh Pandey had made to the
Xechem International, Inc., and characterized in SEC filings as Related Parties Transactions, and
the payment of loans with the Convertible Debt money was contra to the Use of Proceeds for the
Convertible Debt money raised in April 2007, and therefore a breach of his fiduciary duty.” (Pl.
Opp’n Br. at 5). Similarly, Plaintiff goes on to argue that Defendants Bhuwan, Abhilasha and
Renuka received payment for alleged loans they had previously made, respectively, to Xechem
International, Inc., and were aware that such payments came from the Convertible Debt Offering
in April 2007, which expressly prohibited the use of said funds to pay off past debts. (Pl. Opp’n
Br. at 7-8).
In order to state a claim for breach of fiduciary duty under New Jersey law, Plaintiffs
must allege: (1) a fiduciary relationship comprised of “two persons when one person is under a
duty to act for or give advice for the benefit of another on matters within the scope of their
relationship,” and (2) a “violation of that trust.” F.G. v. MacDonell, 150 N.J. 550, 563–65
(1997). Defendants do not dispute that, as a general matter, “officers are fiduciaries of the
corporations they serve.” See In re United Artists Theatre Co., 315 F.3d 217, 230 n. 14 (3d Cir.
2003); Riddle v. Mary A. Riddle Co., 140 N.J. Eq. 315, 318 (Ch. Div. 1947). Nor can it be
15
reasonably disputed that “directors of the corporation . . . are bound to act for its best interests.”
Riddle, 140 N.J. Eq. at 318.
As to the first prong, to the extent Defendants raise factual issues concerning the timing
of Defendants’ employment with Xechem, and whether any alleged fiduciary duties were
actually in effect at the time the challenged payments were made, such issues go to the merits of
Plaintiff’s claims and are not properly addressed on a motion to dismiss.12
As to the second prong, however, the Court notes that Plaintiff has attempted—by way of
his opposition brief—to supplement his fiduciary duty claims with facts that are not set forth in
the Amended Complaint. For instance, Plaintiff’s statement that the challenged payments/checks
signed by Ramesh were not for “normal payroll, rent or other recurring items,” but rather were
used to pay off alleged “loans” that co-defendants had previously made to the Xechem, is not set
forth in the Amended Complaint. (Pl. Opp’n Br. at 5). As previously stated, a complaint cannot
be amended (or supplemented) by way of an opposition brief.13
Such factual allegations
concerning the nature of the challenged payments made by Ramesh to himself and co-defendants
are not properly before this Court and cannot be considered in assessing whether Plaintiff has
succeeded in stating a breach of fiduciary duty claim that is plausible on its face.
At most, the Amended Complaint alleges that Defendant Ramesh made payments to codefendants that he had no authority to make.14 Even assuming the existence of a fiduciary
The standard on a motion to dismiss is not whether Plaintiff’s claim(s) will ultimately succeed
or even the probability of their success; rather, in order to state a claim for purposes of Rule
12(b)(6), Plaintiff must simply allege “enough fact to raise a reasonable expectation that
discovery will reveal evidence” in support of such claim(s). Twombly, 550 U.S. at 556.
12
See Zimmerman, 836 F.2d at 181 (“It is axiomatic that the complaint may not be amended by
the briefs in opposition to a motion to dismiss.”) (citation omitted).
13
It should be noted, however, that the parties dispute whether the prohibition on Ramesh’s
spending was actually in effect at the time the challenged payments were made. In particular,
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relationship between Xechem and each of the Defendants, absent factual content concerning the
circumstances surrounding the challenged payments—including but not limited to the alleged
loans made by Ramesh’s co-defendants to Xechem—the Court cannot draw the reasonable
inference that such payments were not legitimate business expenditures. In fact, Plaintiff’s
opposition brief concedes that it is “unclear if the debts that were paid by Ramesh Pandey to his
friends, family and himself were in fact legitimate debts of Xechem International, Inc.” (Pl.
Opp’n Br. at 6). Certainly, absent any facts establishing that the challenged payments were for
non-legitimate business purposes, the Court cannot reasonably infer that a violation of trust
occurred for purposes of stating a breach of fiduciary duty claim under New Jersey law. See
MacDonell, 150 N.J. at 565 (“Establishing a fiduciary duty essentially requires proof that a
parishioner trusted and sought counseling from the pastor. A violation of that trust constitutes a
breach of the duty.”). Defendants’ motion to dismiss the breach of fiduciary claims is granted;
such claims are dismissed without prejudice.15
Defendants maintain that pursuant to the Board’s resolution, such prohibition on Ramesh’s
spending contained the following caveat: “to be implemented as soon as proper signature cards
can be generated.” (Def. Br. at 6). Although Plaintiff’s Amended Complaints makes no clear
reference to the “to be implemented” provision, Plaintiff’s opposition brief concedes the
existence of this condition on the Board’s prohibition. (Pl. Opp’n Br. at 3). Although the Court
cannot rule on issues of fact on a motion to dismiss, given Plaintiff’s concession that the Board’s
prohibition contained a condition precedent, to the extent Plaintiff chooses to amend his claims,
he shall include facts to provide proper context for the Board’s prohibition on Ramesh’s
spending, including but not limited to facts concerning any condition precedent to such
prohibition, and facts indicating whether any such conditions were or were not met at the time
the challenged payments were made. Absent such factual content, the Court cannot draw the
reasonable inference that Ramesh had no authority to make the challenged payments.
15
Count Fifteen is sua sponte dismissed without prejudice for the same reasons.
17
5.
Breach of Duty of Loyalty—Counts Three and Twelve
Counts 3 and 12 allege claims of breach of the duty of loyalty as against Defendants
Ramesh and Abhilasha. Plaintiff’s breach of the duty of loyalty claims are premised on the same
theory underlying his breach of fiduciary duty claims—namely, that Defendants each breached
their respective duties of loyalty to the Company by misappropriating Company funds (or aiding
and abetting in said misappropriation). See Am. Compl., ¶¶ 46-47, 91-92 113-114.
“Common law . . . imposes on a director a duty of loyalty to the corporation served.”
Matter of Seidman, 37 F.3d 911, 933 (3d Cir. 1994). “The duty of loyalty includes a duty to
avoid conflicts of interest.” Id. (citing Pepper v. Litton, 308 U.S. 295, 306, 310–11 (1939)).
New Jersey law, in particular, requires that “the conduct of the business of the corporation must
be exercised by the directors honestly and in good faith, for what the directors, in their best
judgment, deem to be for the best interest of the corporation.” Riddle, 140 N.J. Eq. at 318.
Even assuming the existence of a fiduciary relationship between Xechem and
Defendants, Plaintiff’s conclusory allegations of misappropriation of Company funds—without
any facts to provide proper context—fail to nudge Plaintiff’s claims of breach of duty of loyalty
across the line from conceivable to plausible. In particular, the Court reiterates that Plaintiff’s
allegations that the checks signed by Ramesh and paid to the various defendants were not for
“normal payroll, rent or other recurring items” are not set forth in the Amended Complaint. See
Pl. Opp’n Br. at 5.
Nor is the factual allegation that “the checks were to pay what are
characterized as loans that friends and family members of Ramesh Pandey had made to the
Xechem International, Inc.” contained in the operative complaint. See id. Absent this type of
factual content to substantiate conclusory allegations of self-dealing, Plaintiff has failed to state a
18
claim for breach of duty of loyalty that is plausible on its face. Defendants’ motion to dismiss
Counts Three and Twelve is granted; such claims are dismissed without prejudice.16
6.
Civil Conspiracy—Count Nineteen
Count Nineteen alleges that “in committing the acts of wrongdoing alleged herein, all
defendants acted pursuant to a common scheme to conceal and misappropriate assets from the
Company,” and that “all defendants were aware of the common scheme and took steps in
furtherance of such scheme.” (Am. Compl., ¶¶ 127-130).
Under New Jersey law, civil conspiracy is “a combination of two or more persons acting
in concert to commit an unlawful act, or to commit a lawful act by unlawful means, the principal
element of which is an agreement between the parties to inflict a wrong against or injury upon
another, and an overt act that results in damage.” Morgan v. Union Cnty. Bd. of Chosen
Freeholders, 268 N.J. Super. 337, 364 (App. Div. 1993) (citations and quotations omitted); see
also Banco Popular N.A. v. Gandi, 184 N.J. 161, 177 (2005). The “gist of the claim is not the
unlawful agreement, ‘but the underlying wrong which, absent the conspiracy, would give a right
of action.’ ” Morgan, 268 N.J. Super. at 364 (citations omitted). Thus, civil conspiracy is a
dependent claim which must be alleged alongside a substantive claim. See, e.g., Eli Lilly and Co.
v. Roussel Corp., 23 F. Supp. 2d 460, 497 (D.N.J. 1998). Moreover, a plaintiff cannot state a
claim for civil conspiracy by making “conclusory allegations of concerted action,” without
including allegations of fact regarding defendants’ joint action. Abbot v. Latshaw, 164 F.3d 141,
148 (3d Cir. 1998).
Thus, in order to survive a Rule 12(b)(6) motion to dismiss, a civil
conspiracy claim must allege “at least some facts which could, if proven, permit a reasonable
16
Count Sixteen is sua sponte dismissed without prejudice for the same reasons.
19
inference of a conspiracy to be drawn.” Durham v. City and Cnty. of Erie, 171 Fed. Appx. 412,
415 (3d Cir. 2006). A plaintiff can meet this requirement when their complaint “sets forth a valid
legal theory and it adequately states the conduct, time, place, and persons responsible.” Lynn v.
Christner, 184 Fed. Appx. 180, 185 (3d Cir. 2006).
Plaintiff’s Amended Complaint contains only a recitation of the elements of a conspiracyrelated claim without reference to any supporting facts which would allow the Court to draw the
reasonable inference that each of the Defendants in this action specifically engaged in the
underlying unlawful acts by virtue of an agreement. To be clear, putting aside the deficiencies
in substantive claims asserted against each of the Defendants, individually, Plaintiff has failed to
state a facially plausible claim of civil conspiracy because the Amended Complaint fails to
contain, inter alia, facts establishing the existence of any type of agreement between the
Defendants to inflict an injury on the Plaintiff. See, e.g., Morgan, 268 N.J. Super. at 364.
Defendants’ motion to dismiss Count Nineteen is granted; Count Nineteen of the Amended
Complaint is dismissed without prejudice.
CONCLUSION
Based on the reasons set forth above, Defendants’ motion to dismiss [Docket Entry No.
46] is granted. Counts Six and Eight are deemed withdrawn. Counts Five, Ten and Fourteen
are dismissed with prejudice. All remaining counts—Counts One, Two, Three, Four, Seven,
Nine, Eleven, Twelve, Thirteen, Fifteen, Sixteen, Seventeen, Eighteen17 and Nineteen—are
dismissed without prejudice.
Plaintiff may file a Second Amended Complaint that cures the
pleading deficiencies in Counts One, Two, Three, Four, Seven, Nine, Eleven, Twelve, Thirteen,
17
See supra note 2.
20
Fifteen, Sixteen, Seventeen and Nineteen on or before December 13, 2013.18 Plaintiff’s failure
to do so will result in dismissal of such claims with prejudice.
An appropriate Order accompanies this Opinion.
Date: November 13, 2013
s/ Jose L. Linares
Jose L. Linares
United States District Judge
Plaintiff may not add any additional causes of action without adhering to Federal Rule of Civil
Procedure 15(a).
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18
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