SWIFT v. PANDEY et al
OPINION. Signed by Judge Jose L. Linares on 4/7/2014. (nr, )
NOT FOR PUBLICATION
UNITED STATES DiSTRICT COURT
DISTRICT OF NEW JERSEY
Civil Action No. 13-649 (JLL)
RAMESH PANDEY, et a!.,
LINARES, District Judge.
This matter comes before the Court by way of a motion to dismiss the Second Amended
Complaint filed by the Pandey Defendants’ pursuant to Rule 12(b)(6) of the Federal Rules of
Civil Procedure [Docket Entry No. 58]. 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 is granted. Plaintiffs Second
Amended Complaint is hereby dismissed, in its entirety, with prejudice.
The Pandey Defendants include Ramesh Pandey, Bhuwan Pandey and Abhulasha Pandey.
Afier granting Plaintiff with an extension of time in which to oppose Defendants’ motion, this
Court entered an Order on February 19, 2014 Order stating in no uncertain terms that Plaintiffs
opposition brief was due—at the latest—by March 3, 2014. The Court received Plaintiffs
opposition brief on March 12, 2014. As such, Defendants’ motion could be construed as
unopposed. In the interest of fairness, however, and in light of Plaintiffs pro se status, the Court
has considered Plaintiffs untimely opposition brief in rendering its decision.
Plaintiff’s Second Amended Complaint was filed on December 13, 2013. This Court’s
jurisdiction is premised on 28 U.S.C.
§ 1332. According to the Second Amended Complaint,
Plaintiff, Robert Swift (“Swift”)—a Colorado resident—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 on August 24, 2011. (Sec. Am. Compi. ¶
5). Plaintiff is also a former member of Xechem’s board of directors and a substantial investor in
¶J 5, 11). Among those assets of Xechem allegedly purchased by Plaintiff were
“any causes of action against Ramesh Pandey and members of his family, if any” and “any
causes of action related to the actions or failure to act by the directors and officers of [Xechem]
and any related insurance claims.” (Id., ¶ 5).
Defendant Ramesh Pandey (“Ramesh”}—a New Jersey resident—was the Founder, Chief
Executive Officer, President, Treasurer, Chairman and Director of Xechem from 1994 until July
¶ 13). Defendant Bhuwan Pandey (“Bhuwan”)—a New Jersey resident—was Vice
President of International Operations for Xechem from 2002 until May 2007. (Id.,
Defendant Abhilasha Pandey (“Abhilasha”)—also a New Jersey resident—was the Sarbanes
Oxley Compliance Manager for Xechem from June 2006 through 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 $7. I million convertible bond
offering that Plaintiff Swift had helped the company raise in April 2007. (Id.,
¶J 11, 19).
Pursuant to the convertible bond offering agreement, the $7.1 million could not be used to pay
past debts; the Second Amended Complaint alleges that Ramesh knew this. (Id.,
¶ 12). It is
The Court accepts the following facts asserted in Plaintiff’s Second Amended Complaint as true
solely for purposes of this motion.
further alleged that Ramesh used part of the $4.3 million to build himself a new office. (Id.,
18, 19). Upon discovery of same, the Board withdrew Ramesh’s authority to sign checks for
more than $5,000 without prior Board approval. (Id.,
At the May 29, 2007 board meeting,
Ramesh was expressly advised that he could not write any check for more than $5,000 without a
Board member’s approval, that he was to obtain new signature cards, and that until the new
signature cards were filed, he could write checks only for normal payroll, rent and other
Despite the Board’s directive, Ramesh continued writing
checks—for more than $5,000, and without a Board member’s approval—to friends and family,
some of whom are included as co-defendants in this action, totaling $605,639.87. (Id., ¶J 18, 2740). The majority of these checks (totaling approximately $405,602.16) were written within oneto-two days of the May
legitimate Xechem business expenses. (Id.,
23). Not all of these checks were in payment of
Ramesh was subsequently removed as Chief Executive Officer, President and Treasurer
of Xechem by the Board of Directors on July 5, 2007. (Id.,
Xechem filed for Chapter 11 protection. (Id.,
24). On November 10, 2008,
In light of the foregoing, Plaintiff’s Second Amended Complaint asserts ten (10) causes
of action that fall into the following four categories: (1) breach of fiduciary duty as against
Ramesh, Bhuwan and Abhilasha, (2) ultra vires as against Ramesh, (3) breach of duty of loyalty
as against Ramesh, Bhuwan and Abhilasha, and (4) unjust enrichment as against Ramesh,
Bhuwan and Abhilasha. The Pandey Defendants now move to dismiss all claims asserted in the
Second Amended Complaint pursuant to Federal Rule of Civil Procedure 12(b)(6).
‘Although Plaintiff’s opposition brief makes reference to a claim of civil conspiracy, no such
claim appears in the Second Amended Complaint. This Court previously dismissed, without
prejudice, the civil conspiracy claim asserted as Count Nineteen in Plaintiff’s Amended
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 Ati. Corp.
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.”
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. Cnly. 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.
Defendants present a variety of arguments in support of their motion to dismiss. The
Court will address each argument, in turn.
Subject Matter Jurisdiction Over Bhuwan and Abhilasha
First, Defendants argue that the Court lacks subject matter jurisdiction over Defendants
Bhuwan and Abhilasha inasmuch as: (1) this Court’s subject matter jurisdiction is premised on
Complaint. See November 13, 2013 Opinion and Order. This Court’s November 13, 2013
Opinion and Order made clear that “Plaintiff may file a Second Amended Complaint that cures
the pleading deficiencies in.
[Count] Nineteen on or before December 13, 2013. Plaintiff’s
failure to do so will result in dismissal of such claims with prejudice.” See id. Having failed to
file an amended civil conspiracy claim on or before December 13, 2013, the civil conspiracy
claim asserted in Plaintiff’s Amended Complaint is now dismissed with prejudice.
§ 1332—cliversity of citizenship, (2) diversity jurisdiction requires an amount in
controversy in excess of $75,000, exclusive of interest and costs, 28 U.S.C.
§ 1332(a), and (3)
Plaintiff does not seek damages in excess of $75,000 as against either Defendant Bhuwan or
Abhilasha. In particular, Defendants argue that because Plaintiff seeks to hold Bhuwan liable for
compensatory damages in the amount of $7,752.13 and Abhilasha liable for compensatory
damages in the amount of $14,617, then the Court lacks subject matter jurisdiction over those
claims asserted by Plaintiff against Bhuwan and Abhilasha. In support of their position, the
Pandey Defendants maintain that: (1) although Plaintiff seeks to recover interest on the
compensatory damages claims, interest does not count towards the amount-in-controversy
threshold, (2) Plaintiff does not seek to hold Bhuwan andlor Abhilasha jointly and severally
liable for damages incurred as a result of Ramesh’s alleged actions; and (3) although Plaintiff
seeks, in addition to compensatory damages, certain punitive damages as against Bhuwan and
Abhilasha, such claims should not be aggregated with his claim for compensatory damages
because they are “patently frivolous and without foundation.” (Def. Br. at 8-9). In addition,
Defendants maintain that even if the Court were inclined to exercise supplemental jurisdiction
over claims asserted against Bhuwan and/or Abhilasha—pursuant to Federal Rule of Civil
Procedure 20 or otherwise—the Court lacks supplemental jurisdiction over such claims because
“exercising supplemental jurisdiction over such claims would be inconsistent with the
jurisdictional requirements of section 1332.” See 28 U.S.C.
Defendants’ argument in this regard is premised entirely on the notion that Plaintiff’s
claim for punitive damages as against Bhuwan and/or Abhilasha is patently frivolous and
without foundation. In other words, Defendants’ argument—claiming that Plaintiff has failed to
meet the amount-in-controversy requirement as to said Defendants—presupposes the exclusion
of Plaintiff’s claim for punitive damages vis-à-vis said Defendants.
“Claims for punitive damages may be aggregated with claims for compensatory damages
unless the former are ‘patently frivolous and without foundation.’ Punitive damage claims are
per se ‘patently frivolous and without foundation’ if they are unavailable as a matter of state
substantive law.” Golden ex rel. Golden v. Golden, 382 F.3d 348, 355 (3d Cir. 2004), abrogated
on other grounds by Marshall v. Marshall, 547 U.S. 293, 311—12 (2006). Although Defendants’
argument is well taken, Defendants do not address the circumstances under which punitive
damages may be recovered under the substantive law of New Jersey or Delaware. See, e.g.,
Packard, 994 F.2d at 1046 (“We turn then to the question of whether punitive damages may be
recovered in Pennsylvania against a trustee. If they cannot, then this case must be dismissed for
want ofjurisdiction.”). For example, although Defendants argue generally that “Swift’s pleading
contains no allegations establishing the requisite aggravated intent necessary to sustain a claim
for punitive damages,” Defendants cite to no binding legal authority in support of this position.
Certainly, Defendants cite to no binding legal authority addressing what is required in order to
recover punitive damages under New Jersey or Delaware law in the breach of fiduciary duty
context. See, e.g., Berrol cx rd. Estate oJBerrol v. AIG, No. 07-1565, 2007 WL 3349763, at *4
(D.N.J. Nov. 7, 2007) (“Under New Jersey law, the recovery of punitive damages [in the
insurance context] requires more than bad faith refusal to pay.”). The Court is thus not in a
position to determine whether Plaintiff’s claim for punitive damages vis-à-vis Bhuwan and/or
Abhilasha is patently frivolous and/or without foundation. See Golden, 382 F.3d at 355
It is not the Court’s role to fill in the gaps in the parties’ arguments.
(“Punitive damage claims are per se ‘patently frivolous and without foundation’ if they are
unavailable as a matter of state substantive law.”). Defendants’ argument is therefore rejected.
Absent the exclusion of Plaintiff’s claim for punitive damages, Plaintiff has satisfied the
amount-in-controversy requirement vis-à-vis Defendants Bhuwan and Abhilasha. See generally
id. (“If appropriately made, therefore, a request for punitive damages will generally satisfy the
amount in controversy requirement because it cannot be stated to a legal certainty that the value
of the plaintiff’s claim is below the statutory minimum.”). Defendants’ motion to dismiss claims
asserted against Bhuwan and Abhilasha for lack of subject matter jurisdiction is therefore denied.
Ultra Vires—Count Two
Count Two of Plaintiff’s Second Amended Complaint alleges that: (a) “Xechem does not
have the power or capacity to transfer substantial assets without Board of Director approval,” (b)
“Ramesh transferred 28% of Xechem’s cash or $605,639 to friends and family without obtaining
Board approval,” (c) “Ramesh repaid some past debts with money from the convertible bond
offering,” and (d) that Ramesh’s transfer of assets without Board approval and payment of past
debts with money from the convertible bond offering constitute ultra vires acts. (Sec. Am.
¶J 54-57). Defendants move to dismiss this count on two grounds: (1) Plaintiff has
failed to allege facts establishing that the alleged transfer of funds exceeded Xechem’s powers
under its articles of incorporation, and (2) Plaintiff has failed to allege facts establishing that he
has standing to bring an ultra vires claim—i.e., he has failed to allege sufficient facts establishing
that he is Xechem’s legal representative—as opposed to merely an assignee of certain of its
Even assuming, arguendo, that Plaintiff has standing to pursue an ultra vires claim on
behalf of Xechem, the Court finds that dismissal of this claim is proper given that Plaintiff has
once again failed to allege any facts which would allow the Court to draw the reasonable
inference that Ramesh’s alleged payment of checks totaling $605,639.87 to various
individuals—the majority of whom appear to be employees of Xechem—exceeded Xechem’s
powers—or the powers conferred on the Board—as provided in Xechem’s governing documents.
As stated in the Court’s prior Opinion, the Appellate Division has held that “[ijf a board
exceeds its powers as provided in its governing documents, then the board’s action is ultra
vires.” Crnty. Access Unlimited v. Rockdliffe, No. L-3487-07, 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)).
Black’s Law Dictionary defines “governing
document” as “[a] document that defines or organizes an organization, or grants or establishes its
authority and governance.
An organization’s governing documents may include a charter,
articles of incorporation or association, a constitution, bylaws and rules.” Black’s Law
The Second Amended Complaint makes no reference to
Xechem’s governing document(s).
Nor does the Second Amended Complaint allege that
Xechem, or its Board of Directors, lacked authority to write checks for over $5,000 without prior
approval pursuant to, inter alia, Xechem’s articles of incorporation. To the contrary, Plaintiff’s
Second Amended Complaint concedes that prior to the May 29, 2007 meeting, Ramesh, in fact,
had the authority to write checks for over $5,000 without prior Board approval. See Sec. Am.
20 (“The Board withdrew Ramesh’s authority to sign checks for more than $5,000
without Board approval.”). Plaintiff’s Second Amended Complaint also concedes that some—if
6 N.J.S,A. 14A:3-2. The parties do not dispute that New Jersey law applies to this claim.
generally Am. Cyanamid Co. v. Fermenta Animal Health, 54 F.3d 177, 180 (3d Cir. 1995).
not all—of the payments at issue made by Ramesh after the May 29, 2007 meeting may have
been “legitimate Xechem business expenses.” (Sec. Am. Compi.,
¶f 41, 42).
“In its true sense the phrase ultra vires describes action which is beyond the purpose or
power of the corporation.” McDermott v. Bear Film Co., 219 Cal. App. 2d 607, 610, 33 Cal.
Rptr. 486, 489 (Cal. App. 1963). Based on the facts pled, the Court cannot draw the reasonable
inference that Ramesh’s actions—in writing checks for over $5,000 without Board approval—
were beyond Xechem’ s powers, as enumerated in its articles in incorporation, given Plaintiff’s
concession that Ramesh previously had such authority. At most, Plaintiff alleges that the Board
of Directors passed a resolution at the May 29, 2007 meeting which withdrew Ramesh’s
authority to write checks for over $5,000 and that Ramesh continued to do so. That Ramesh may
have performed his duties as Founder, Chief Executive Officer, President, Treasurer, Chairman
and/or Director of Xechem in an unauthorized manner does not—without more—render his
actions, or the related transactions, as outside the object for which Xechem was created. This is
7 e.g., Seabrook Island Property Owners Ass ‘n v. Peizer, 356 S .E.2d 411, 414 (S.C. App.
1987) (“A corporation may exercise only those powers which are granted to it by law, by its
charter or articles of incorporation, and by any bylaws made pursuant thereto; acts beyond the
scope of the powers so granted are ultra vires.”); Twisp Mi & Smelting Co. v. Chelan Mm. Co.,
133 P.2d 300, 312 (Wash. 1943) (“The term ‘ultra vires’, in so far as it applies to corporate
transactions, is used to describe corporate transactions which are outside the objects for which
the corporation was created, as defined in the law of its organization, and therefore beyond the
power conferred on the corporation by the legislature.”); Savannah Ice Co. v. Canal-Louisiana
Bank & Trust Co., 79 S.E. 45, 46 (Ga. Ct. App. 1913) (“An ultra vires act of a corporation is one
in excess of charter power.”).
See, e.g., Nat ‘1 Lock Co. v. Hogland, 101 F.2d 576, 581 (7th Cir. 1938) (“A Board of Directors
cannot increase or decrease corporate powers; and no action of a Board of Directors which the
corporation has the power to perform through its directors can be ultra vires of the corporation
merely because the board previously has declared by resolution that such action will not be
particularly so given the absence of any facts suggesting that any of the payments at issue were
not for legitimate Xechem business expenses. (Sec. Am. Compi., 41).
In light of the foregoing, Plaintiff has failed to plead a facially plausible claim of ultra
vires under New Jersey law. See Rockcliffe, 2012 WL 1431267, at *3 n. 4. Because the Court
has already given Plaintiff an opportunity to cure the pleading deficiencies in this claim, Count
Two of Plaintiff’s Second Amended Complaint is hereby dismissed with prejudice.
Unjust Enrichment—Counts Four, Seven and Ten
Counts Four, Seven and Ten 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 such claims suffer from the same defect identified by the Court in its prior
Opinion—namely, such claims are in substance tort claims and New Jersey does not recognize
unjust enrichment as an independent tort cause of action.
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
valid, unrescinded contract governs the rights of the parties.” Van Orman v. Am. Ins. Co.,
F.2d 301, 310 (3d Cir. 1982).
parties do not dispute that New Jersey law applies to Plaintiff’s claims of unjust
enrichment. See generally A,n. Cyanamid Co. v. Fermenta Animal Health, 54 F.3d 177, 180
The Court has carefully reviewed Counts Four, Seven and Ten of the Second Amended
Complaint. The crux of each of the foregoing counts is that Ramesh misappropriated Xechem’s
funds by writing unauthorized checks and that it would be inequitable to allow Ramesh, Bhuwan
and/or Abhilasha to retain such funds. The Court finds that Plaintiff has once again failed to
state a facially plausible claim of unjust enrichment as against any of the Defendants for the two
reasons already discussed in the Court’s prior Opinion. First, the Court finds that the conduct
underlying Plaintiff’s unjust enrichment claims sounds in tort.’
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 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 Defendants under a quasi-contractual
relationship with the expectation of remuneration. Rather, he asserts that each of the Defendants
misappropriated Xechem’s assets, for which Xechem clearly did not anticipate or expect
See, e.g., Sec. Am. Compl.,
64 (“Ramesh breached his duty of loyalty to
Xechem when he misappropriated $605,539.15 of Xechem’s money to give to his friends
96 (“Bhuwan breached his duty of loyalty to Xechem when he misappropriated
Court previously dismissed Plaintiff’s tort claims, with prejudice, on the basis that pre
judgment tort claims cannot be assigned under New Jersey law. See Integrated Solutions,
Serv. Support Specialties, Inc., 124 F.3d 487, 490 (3d Cir. 1997).
$7,752.13 of Xechem money”);
¶ 121 (“Abhilasha breached her duty of loyalty to Xechem when
she misappropriated $14,617 of Xechem money”).
Second, even assuming that the conduct underlying Plaintiff’s unjust enrichment claims
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. This is particularly
so given Plaintiff’s concession that some—if not all—of the checks at issue may have been
written to cover legitimate Xechem business expenses. See Sec. Am. Compi.,
Defendants’ motion to dismiss this claim is therefore 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 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, Plaintiffs 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.”). Because
Plaintiff has already been given an opportunity to cure the pleading deficiencies in his unjust
enrichment claims, such claims are now dismissed with prejudice.
Breach of Fiduciary Duty and Duty of Loyalty Claims—Counts One, Three, Five,
Six, Eight and Nine
Counts One, Three, Five, Six, Eight and Nine allege, in pertinent part, that Defendants
Ramesh, Bhuwan and Abhilasha respectively breached their fiduciary duties of loyalty to
Xechem. In particular, Counts One, Five and Eight (captioned “Breach of Fiduciary Duty”)
allege that Defendants breached their respective fiduciary duties of loyalty to Xechem by
engaging in self-dealing. Counts Three, Six and Nine (captioned “Breach of Duty of Loyalty”)
allege that Defendants breached their respective duties of loyalty to Xechem by misappropriating
The Court agrees with Defendants that the foregoing claims are in some ways
redundant. Suffice it to say that Plaintiff alleges that each of the Defendants breached their
respective fiduciary duties of loyalty to Xechem by: (1) engaging in self-dealing, and (2)
misappropriating Xechem’s funds.
In seeking dismissal of the foregoing claims, Defendants
urge the Court to apply the substantive law of the state of Delaware—not New Jersey. Plainti
Second Amended Complaint indicates, instead, that New Jersey law should apply to such claims.
The Court agrees, as a general matter, that the possible laws to be applied are Delaware
(Xechem’s state of incorporation) and New Jersey (Xechem’s principal place of business
the state in which Defendants are allegedly domiciled).’
Plaintiff’s Second Amended Complaint, filed in related Civil Action No. 13-650—-which
also pending before the Court—indicates that Xechem is incorporated in the State of Delaware.
See Civil Action No. 13-650, Docket Entry No. 28, 43.
‘ Sec. Am. Compl., ¶6-9.
Generally speaking, since this Court exercises its diversity jurisdiction over this action,
the law to be applied is that of the forum state—New Jersey.
See Am. Cyanamid Co. v.
Fermenta Animal Health, 54 F.3d 177, 180 (3d Cir. 1995). If a choice of law dispute arises, a
federal court sitting in diversity applies the choice of law principles of the forum state. See
Klaxon Co. v. Stentor Elec. Mfg. Co., 313 U.S. 487, 496—97, 61 S.Ct. 1020, 85 L.Ed. 1477
(1941); Warriner v. Stanton, 475 F.3d 497, 499—500 (3d Cir. 2007). In P. V. v. Camp Jaycee, the
New Jersey Supreme Court held that the “most substantial relationship” test enunciated in the
Restatement (Second) of Conflict of Laws
§ 188 applies to choice of law disputes arising under
both contract and tort law. 197 N.J. 132, 136 (2008). New Jersey’s “most significant
relationship” test consists of two prongs. First, a court must examine the substance of the
potentially applicable laws in order to determine if an actual conflict exists. Id. at 143 (citing
Lebegern v. Forman, 471 F.3d 424, 430 (3d Cir. 2006)).
If there is no actual conflict, the
analysis ends and the court applies the law of the forum state. See In re Ford Motor Co., 110
F.3d 954, 965 (3d Cir. 1997); Rowe v. Hoffman—La Roche, Inc., 189 N.J. 615, 621, 917 A.2d
767 (2007). However, if a conflict is found, the court must then determine which state has the
“most significant relationship” to the claim at issue, as analyzed under the Restatement (Second)
of Conflict of Laws. Camp Jaycee, 197 N.J. at 136. This test is applied “on an issue-by-issu
basis” and “is qualitative, not quantitative.” Id. at 143.
Turning now to the first prong of New Jersey’s “most significant relationship” test, the
Court agrees with Defendant that there is an actual conflict because the statute of limitations
bringing tort claims in New Jersey is six years from the date of accrual, see N.J. S .A.
In particular, the statute provides:
§ 2A: 14-1, ‘3
whereas Delaware imposes a three-year statute of limitations for breach of fiduciary duty claims,
see 10 Del.C.
§ 8l06.’ Based on the facts pled, the Court construes Plaintiff’s breach of
fiduciary duty claims as accruing at some point in 2007. (Sec. Am. Compi.,
¶ 24).’ Thus, the
apparent conflict between New Jersey’s six year statute of limitations and Delaware’s three year
Every action at law for trespass to real property, for any tortious
injury to real or personal property, for taking, detaining, or
converting personal property, for replevin of goods or chattels, for
any tortious injury to the rights of another not stated in sections
2A:14-2 and 2A:14-3 of this Title, or for recovery upon a
contractual claim or liability, express or implied, not under seal, or
upon an account other than one which concerns the trade or
merchandise between merchant and merchant, their factors, agents
and servants, shall be commenced within 6 years next after the
cause of any such action shall have accrued.
In particular, the Delaware statute provides:
No action to recover damages for trespass, no action to regain
possession of personal chattels, no action to recover damages for
the detention of personal chattels, no action to recover a debt not
evidenced by a record or by an instrument under seal, no action
based on a detailed statement of the mutual demands in the nature
of debit and credit between parties arising out of contractual or
fiduciary relations, no action based on a promise, no action based
on a statute, and no action to recover damages caused by an injury
unaccompanied with force or resulting indirectly from the act of
the defendant shall be brought after the expiration of 3 years from
the accruing of the cause of such action; subject, however, to the
provisions of 8108-8110, 8119 and 8127 of this title.
See generally Fike v. Ruger, 754 A.2d 254, 260 (Del. Ch. 1999) (“A cause of action accrues
the moment of the wrongful act, even if the plaintiff is ignorant of the wrong.”); Tevis v. Tevis,
79 N.J. 422, 431 (1979) (stating that a cause of action in tort usually accrues “at the time of
commission of the wrong and the suffering of injury”). As discussed in greater detail below,
Plaintiff provides no compelling legal argument or binding legal authority suggesting that
fiduciary duty claims accrued at a later date.
statute of limitations would be material in the adjudication of Plaintiffs breach of fiduciary duty
claims inasmuch as such claims would be time-barred if Delaware law is found to apply.’
Before reaching the second prong of New Jersey’s “most significant relationship” test,
the Court notes that “[u]nder New Jersey’s choice-of-law rules, the law of the state of
incorporation governs internal corporate affairs.” Fagin v. Gilmartin, 432 F.3d 276, 282 (3d Cir.
2005) (citing Brotherton v. Celotex Corp., 202 N.J. Super. 148 (Law Div. 1985)); see also North
Am. Steel Connection, Inc. v. Watson Metal Products Corp., 515 Fed. Appx. 176, 182 n. 14 (3d
Cir. 2013) (“Although New Jersey law governs NASCO’s claims generally, Delaware law
governs the internal affairs of a Delaware entity.”). More specifically, “under the internal affairs
doctrine, anyone controlling a Delaware corporation is subject to Delaware law on fiduciary
obligations to the corporation and other relevant stakeholders.” In re Teleglobe Commc’ns Corp.,
493 F.3d 345, 386 (3d Cir. 2007) (citing In re Topps Co. S’holders Litig., 924 A.2d 951, 960
(Del. Ch. 2007) (explaining that the law of fiduciary obligations is one of the most important
ways a state regulates a corporation’s internal affairs) and Restatement (Second) of Conflict of
§ 306 (1971)). Xechem is a Delaware corporation. See Civil Action No. 13-650, Docket
Entry No. 28,
¶ 43. Plaintiffs claims of breach of fiduciary duty and breach of duty of loyalty
are all premised on the notion that each of the Defendants owed a fiduciary duty to Xechem by
virtue of their respective roles within the company and that they each breached their respective
duties by misappropriating Xechem’s money and by engaging in other forms of self-dealing,
resulting in financial injury to Xechem. This Court finds that such allegations—of duties owed
by Ramesh, Bhuwan and Abhilasha to Xechem by virtue of their roles as director and officers of
the company—fall squarely within the scope of “internal affairs” as contemplated by the internal
Plaintiffs Complaint was filed in January 2013.
affairs doctrine. See generally Edgar v. MITE Corp., 457 U.S. 624, 645 (1982) (“The internal
affairs doctrine is a conflict of laws principle which recognizes that only one State should have
the authority to regulate a corporation’s internal affairs—matters peculiar to the relationships
among or between the corporation and its current officers, directors, and shareholders—because
otherwise a corporation could be faced with conflicting demands.”). To the extent Plaintiff
attempts to argue that the claims at issue are distinguishable from those alleged in the Intarome
case, or do not otherwise fall within the internal corporate affairs doctrine because the claims
are not brought by Xechem’s shareholders, the Court finds Plaintiffs argument to be
unconvincing. Although Plaintiff correctly notes that this action is not brought as a shareholders
derivative action, Xechem—through Plaintiff—is suing its own former director and officers for:
(1) allegedly engaging in self-dealing while acting in their capacity as officers of the company,
and (2) for allegedly misappropriating the company’s money, also while acting in their capacity
as officers of the company. It would be difficult to conceive of a situation that could be any
more “peculiar to the relationships among or between the corporation and its current
directors, and shareholders” than the fact pattern alleged by Plaintiff in the Second Amended
Complaint. Edgar, 457 U.S. at 645. Thus, pursuant to the internal corporate affairs doctrine,
Court begins its prong two analysis with the presumption that Delaware law governs claims
relating to Xechem’s internal corporate affairs.’ See Fagin, 432 F.3d at 282.
Intarorne Fragrance & Flavor Corp. v. Zarkades, Civ. No. 07-873, 2009 WL 931036, *
(D.N.J. March 30, 2009).
“The internal affairs doctrine, however, is not without exception. As stated in 302(2)
Restatement, ‘[tjhe local law of the state of incorporation will be applied to determine
issues, except in the unusual case where, with respect to the particular issue, some other
a more significant relationship to the occurrence and the parties, in which event the
local law of
the other state will be applied.’ “Intarome Fragrance & Flavor Corp. v. Zarkades,
Civ. No. 07873, 2009 WL 931036, at *14 (D.N.J. March 30, 2009). Thus, the Court will proceed
choice of law analysis to determine if New Jersey, nevertheless, has a more
The second step of the most significant relationship test is to weigh the factors
enumerated in the section of the Restatement that corresponds to particular cause of action, in
§ 309 of the Restatement (Second) of Conflict of Laws (1971). Section 309 provides:
The local law of the state of incorporation will be applied to
determine the existence and extent of a director’s or officer’s
liability to the corporation, its creditors and shareholders, except
where, with respect to the particular issue, some other state has a
more significant relationship under the principles stated in § 6 to
the parties and the transaction, in which event the local law of the
other state will be applied.
Restatement (Second) of Conflict of Laws
§ 309 (1971). Section 6 of the Restatement (Second)
of Conflict of Laws, in turn, provides:
(1) A court, subject to constitutional restrictions, will follow a
statutory directive of its own state on choice of law.
(2) When there is no such directive, the factors relevant to the
choice of the applicable rule of law include
(a) the needs of the interstate and international systems,
(b) the relevant policies of the forum,
(c) the relevant policies of other interested states and the
relative interests of those states in the determination of the
(d) the protection ofjustified expectations,
(e) the basic policies underlying the particular field of law,
(f) certainty, predictability and uniformity of result, and
(g) ease in the determination and application of the law to
Restatement (Second) of Conflict of Laws
§ 6 (1971). Absent a statutory directive from the
forum state, the Court looks to the considerations set forth in subsection two of 6. “Reduced
their essence, the section 6 principles are: “(1) the interests of interstate comity; (2) the interests
relationship to the parties and/or transactions in question. See generally Restatement
Conflict of Laws § 302 cmt. b (1971) (“The principles stated in 6 underlie all rules
of choice of
law and are used in evaluating the significance of a relationship, with respect to
issue, to the potentially interested states, the occurrence and the parties.”).
of the parties; (3) the interests underlying the field of tort law; (4) the interests of judicial
administration; and (5) the competing interests of the states.” Camp Jaycee, 197 N.J. at 147.
Turning now to the
§ 6 factors, the first consideration—the interest of interstate comity—
seeks “to further harmonious relations between states and to facilitate commercial intercourse
between them.” Restatement (Second) of Conflict of Laws
§ 6 cmt. d. In other words, “[i]t
considers ‘whether application of a competing state’s law would frustrate the policies of other
Camp Jaycee, 197 N.J. at 152 (citation omitted). In Delaware, “the purpose
of an award of damages in a tort action is just and full compensation, with the focus on the
plaintiffs injury and loss.” DeAngeiis v. Harrison, 628 A.2d 77, 81 (Del. 1993) (citing Jardel
Co., Inc. v, Hughes, 523 A.2d 518 (Del. 1987)). In Delaware, the “public policy underlying
statutes of limitation in general [is] to compel timely pursuit of claims and to avoid the
adjudication of stale claims.” State ex rel. Brady v. Pettinaro Enters., 870 A.2d 513, 532 (Del.
In New Jersey, as the Third Circuit has consistently identified, the policies
underlying tort consist “primarily of compensation and deterrence.” Warriner v. Stanton, 475
F.3d 497, 501 (3d Cir. 1007) (quoting Schum v. Bailey, 578 F.2d 493, 496 (3d Cir. 1978)
(internal quotations omitted)). The policies underlying New Jersey’s statutes of limitations are
“induce litigants to pursue their claims diligently so that answering parties will have
opportunity to defend” and “to spare the courts from litigation of stale claims.” Galligan v.
Westfield Centre Serv., Inc., 82 N.J. 188, 192 (1980) (citations omitted). Thus, the Court
that New Jersey and Delaware have similar policies regarding their statutes of limitations
general tort laws, such that application of Delaware law would not frustrate the policy
The second factor—the interests of the parties—is “a factor of extreme importance in the
field of contracts,” but generally “plays little or no part in a choice-of-law question in the field of
torts.” Eu v. Fit, 160 N.J. 108, 123 (1999) (citing Restatement (Second) of Conflict of Laws
145 (1971) comment b). “That is so because persons who cause unintentional injury ‘usually act
without giving thought to the law that may be applied to determine the legal consequences of this
The third factor—the interests underlying the field of tort law—largely overlaps with the
first factor. As discussed above, the Court has concluded that the public policies underlying
Delaware’s and New Jersey’s tort laws and statutes of limitations are similar. For this reason,
the Court finds that the third factor does not serve to change the presumptive choice of law under
the internal affairs doctrine.
The fourth factor—the interests of judicial administration—requires the court to consider
“issues such as practicality and ease of application.” Camp Jaycee, 197 N.J. at 154. Here,
application of New Jersey law would be slightly easier than the application of Delaware law, but
this factor, without more, is not sufficient to outweigh the internal affairs doctrine.
The New Jersey Supreme Court has described the last factor—the competing interests of
the states—as “the most significant factor in the tort field.” Fit, 160 N.J. at 125. This factor
requires courts to consider:
whether application of a competing state’s law under the
circumstances of the case “will advance the policies that the law
was intended to promote.” The “law” can be either the decisional
or statutory law of a state. The focus of this inquiry should be on
“what [policies] the legislature or court intended to protect by
having that law apply to wholly domestic concerns, and then,
whether those concerns will be furthered by applying that law to
the multi-state situation.” This is another way of saying that “[i]f a
state’s contacts [with the transaction] are not related to the policies
underlying its law, then that state does not possess an interest in
having its law apply. Consequently, the qualitative, not the
quantitative, nature of a state’s contacts ultimately determines
whether its law should apply.”
Pfizer, Inc. v. Employers Ins, of Wausau, 154 N.J. 187, 198 (1998). The Court
Defendants that Plaintiffs allegations of self-dealing and misappropriation of Xechem’s
are, by their very nature, inextricably intertwined with the internal affairs of Xeche
Plaintiffs own words, Defendants’ alleged misconduct violated the explicit directi
Xechem’s Board of Directors and the terms of the convertible bond offering agreem
¶ 19, 22). Plaintiff does not allege any substantive facts tying Defendants’ alleged
misconduct in this regard with the State of New Jersey.
Colorado. (Sec. Am. Compl.,
Plaintiff, himself, is a citizen of
¶ 3). The only real connection to the State of New Jersey is that
Defendants are alleged to be domiciled in New Jersey and that Xechem employed Defend
its corporate offices in New Jersey. (Sec. Am. Compi.,
¶ 2). “The domicile, residence, place of
incorporation, and place of business of a defendant corporation are relevant, althou
dispositive, considerations in a choice-of-law determination.” Fit, 160 N.J. at 133.
“unlike more conventional torts, a breach of fiduciary duty by an officer or directo
r based on
actions causing the corporation to incur additional debt is not manifested throug
physical conduct or harm. As such, the corporation sustains an injury in the state
and wherever it has offices.” In re Innovation Fuels, Inc., No. 13-1004, 2013
WL 3835827, at
*6 (Bankr. D.N.J. 2013). Absent any specific facts establi
shing a significant connection to New
Jersey, the Court does not find that the weight of the fourth and/or fifth
arguably sway in favor of New Jersey—are sufficient to justify departure
from the presumption
of the internal affairs doctrine.
Thus, the Court concludes that Plaintiff’s breach of fiduciary duty and breach of duty of
loyalty claims are governed by the law of the state of Xechem’s incorporation—Dela
See, e.g., North Am. Steel Connection, Inc., 515 Fed. Appx. at 182 n. 14.
(3d Cir. 2013)
(“Although New Jersey law governs NASCO’s claims generally, Delaware law
internal affairs of a Delaware entity.”).
Defendants move to dismiss Counts One, Three, Five, Six, Eight and Nine as timebarred. Each of the foregoing counts allege that Defendants Ramesh, Bhuwan and Abhila
breached their respective fiduciary duties of loyalty to Xechem by engaging in self-dealing
misappropriating its money.
As stated above, Delaware imposes a three-year statute of
limitations for breach of fiduciary duty claims. See 10 Del.C.
§ 8106; Fike v. Ruger,
254, 260 (Del. Ch. 1999) (“Under Delaware law, a three-year statute of limitations
claims for breach of contract or breach of fiduciary duty.”). “A cause of action accrue
s at the
moment of the wrongful act, even if the plaintiff is ignorant of the wrong.” Fike, 754
A.2d at 26261 (citation omitted). Plaintiffs fiduciary duty claims, first asserted in January 2013,
matters occurring in 2007. Such claims are therefore time-barred unless some basis
exists to toll
the running of that statute. Id. Plaintiff”bears the burden of proving that tolling is
Generally speaking, “the limitations period is tolled until such time that person
ordinary intelligence and prudence would have facts sufficient to put them on inquiry
pursued, would lead to the discovery of the injury.” Fike, 754 A.2d at 261.
Plaintiff makes no
specific factual allegations—or legal arguments—suggesting that any of
attempted to fraudulently conceal their alleged misconduct. To the contrar
y, a common sense
reading of the Second Amended Complaint allows the Court to draw the reasonable inferen
that Xechem was aware of Ramesh’s alleged misappropriation and self-dealing—from which
Bhuwan and Abhilasha’s alleged liability flows—as of the date on which he was remov
office as CEO, President and Treasurer of the Xechem—July 5, 2007. (Sec. Am. Compi
See generally Jqbal, 556 U.S. at 663. Plaintiff has given the Court no basis on which to
“The theory of equitable tolling will stop the running of the limitations period ‘for claims
of wrongful self-dealing, even in the absence of actual fraudulent concealment, where a
reasonably relies on the competence and good faith of a fiduciary.’ “Fike, 754 A. 2d 261.
even equitable tolling “will only last until they knew or had reason to know
of the facts
constituting the alleged wrong. Id. As discussed above, the facts alleged in the Second
Complaint allow the Court to draw the reasonable inference that Xechem knew
of the facts
constituting Ramesh’s alleged misconduct by the date on which he was remov
ed from office as
CEO, President and Treasurer of Xechem. Plaintiff has given the Court absolutely
no basis on
which to find otherwise.
To be clear, Plaintiff has come forward with no legal argument or legal authority even
suggesting that the statute of limitations should be tolled in this case. In fact, Plainti
ff does not
To the extent any aspect of Plaintiffs opposition brief should be construed as sugges
the statute of limitations pertaining to his fiduciary duty claims should be tolled
until the date on
which he purchased all right, title and interest in any and all assets of Xechem—Au
2011—the Court sees no legal basis for tolling the statute of limitations in that
manner. To the
contrary, Plaintiff concedes that he stands in Xechem’s shoes in bringing this
action. In other
words, there is no question that plaintiff, as assignee of Xechem’s rights and
redress for the damages allegedly sustained by Xechem. See, e.g., Sec. Am.
(“Xechem has been injured by loss of the economic benefit. .
. .“); 61 (“Ramesh damaged
Xechem as a result of his acts”); 66 (“The Company has been harmed and
damages by Ramesh’s breach of that duty of loyalty.”); 90; 97; 115; 122. A
reading of the Second Amended Complaint allows the Court to draw the reason
even raise an equitable tolling argument. As the Court clearly stated in its prior Opinio
“[w]hile the Court is mindful of Plaintiff’s pro se status, it is not the Court’s responsibility
engage in its own legal research in order to find legal authority to suppor
arguments—nor would it be proper for the Court to do so. Again, the Court has done
under the circumstances, to assess Defendants’ legal arguments, along with the argum
by Plaintiff in opposition, despite Plaintiffs failure to cite to any legal authority in suppor
same.” November 13, 2013 Op. at 6. The Court has also made every effort to liberal
Plaintiffs pro se submissions. That being said, the Court cannot formulate and/or
rule on legal
arguments that Plaintiff, himselt has not made.
As such, for the reasons set forth above, the Court finds that Plaintiffs breach of
fiduciary duty and breach of fiduciary duty of loyalty claims are time-barred.
motion to dismiss Counts One, Three, Five, Six, Eight and Nine is granted. Counts
Five, Six, Eight and Nine of Plaintiffs Second Amended Complaint are hereby
that Xechem was aware of Ramesh’s alleged misappropriation and self-dealing-—
Bhuwan and Abhilasha’s alleged liability flows—as of the date on which he
was removed from
office as CEO, President and Treasurer of the Xechem—July 5, 2007. (Sec. Am.
Compl., ¶ 24).
See generally Iqbal, 556 U.S. at 663-664 (“Determining whether a complaint
states a plausible
claim is context-specific, requiring the reviewing court to draw on its experie
nce and common
sense.”). Plaintiff has given the Court no reasonable basis on which to find otherw
To the contrary, it is Plaintiffs position that New Jersey’s six-year statute
of limitations should
apply to Plaintiffs breach of fiduciary duty claims.
Even assuming, arguendo, that New Jersey law were to apply to Plaintiffs
breach of fiduciary
duty claims, such claims would still be dismissed with prejudice inasmuch
as New Jersey courts
have consistently held, as a matter of public policy, that tort claims cannot
be assigned before
judgment. See Integrated Solutions, Inc. v. Serv. Support Specialties, Inc.,
124 F.3d 487, 490 (3d
Cir. 1997) (citing Village ofRidgewood v. Shell Oil Co., 289 N.J. Super.
181, 673 A.2d 300,
307—08 (1996)); Costanzo v. Costanzo, 248 N.J. Super. 116, 121 (Law Div.19
91) (“[Tin New
Jersey, as a matter of public policy, a tort claim cannot be assigned.”); see,
e.g., In re O’Dowd,
233 F.3d 197, 201 (3d Cir. 2000) (“A true purchase of the omitted claims would
have been void
For the reasons set forth above, Defendants’ motion to dismiss Plaintiff’s Second
Amended Complaint is granted. Plaintiff’s Second Amended Complaint is dismissed, in its
entirety, with prejudice. This case is hereby closed.
An appropriate Order accompanies this Opinion.
Date: April 7, 2014
s/Jose L. Linares
Jose L. Linares
United States District Judge
under the New Jersey common law prohibition against assigning prejudgment tort claims.”).
Plaintiff does not dispute that a prejudgment tort claim cannot be assigned under New Jersey
law; rather, Plaintiff maintains that a breach of fiduciary duty claim “is not necessarily a tort
claim.” (P1. Opp’n Br. at 6). Plaintiff cites to absolutely no legal authority in support of this
position. In any event, the Appellate Division has specifically recognized claims for breach of
the duty of loyalty and breach of fiduciary duty, in the corporate context, as torts. See Wolfson v.
Bonello, 270 N.J. Super. 274, 291 n. 12 (App. Div. 1994) (“The alleged torts committed by
Bonello included breach of the duty of loyalty, breach of fiduciary duty, waste of corporate
assets, misappropriation of corporate opportunity and conversion.”); In re Innovation Fuels, Inc.,
2013 WL 3835827, at *6 (recognizing that breach of fiduciary duty in corporate context is a
tort); see generally In re Estate ofLash, 169 N.J. 20, 27 (2001) (“Breach of fiduciary duty is a
tort.”). Plaintiff does not dispute that he asserts his claims of breach of duty of loyalty and
breach of fiduciary duty on behalf of—or as assignee of rights belonging to—Xechem. In light
of the foregoing, Plaintiff has failed to state a claim of breach of duty of loyalty and/or breach of
fiduciary duty that is plausible on its face. See, e.g., Conopco, Inc. v. McCreadie, 826 F.
855, 867 (D.N.J. 1993) (“It is clear that under New Jersey law, choses in action arising out of tort
are not assignable prior to judgment. Because Conopco asserts its claims of professional
negligence and malpractice only as an assignee, those tort claims must fail as a matter of law.”).
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