TONGLU RISING SUN SHOES CO., LTD v. NATURAL NINE (USA) CO., LTD. et al

Filing 74

OPINION. Signed by Judge Stanley R. Chesler on 12/20/16. (DD, )

NOT FOR PUBLICATION
UNITED STATES DISTRICT COURT
DISTRICT OF NEW JERSEY
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TONGLU RISING SUN SHOES CO.,
LTD.,
Plaintiff,
v.

Civil Action No. 14-1634 (SRC)(CLW)

OPINION

NATURAL NINE (USA) CO., LTD., YI
XIAN JIANG a.k.a. JOHN, and ZHAO
HUI HUANG, et al.
Defendants.

CHESLER, District Judge
This matter comes before the Court upon the motion for summary judgment by Plaintiff
Tonglu Rising Sun Shoes Co., Ltd. (“Tonglu”) [Docket Entry 60] and the cross-motion for
summary judgment by Defendants Natural Nine (USA) Co., Ltd. (“Natural Nine”), Yi Xian
Jiang (“Jiang”), and Zhao Hui Huang (“Huang”) [Docket Entry 68]. 1 The parties have opposed
one another’s motions [Docket Entries 68 & 70]. The Court has considered the parties’
submissions and held oral argument on October 13, 2016 [Docket Entry 71]. For the reasons set
forth below, the Court will grant in part and deny in part Plaintiff’s motion for summary
judgment and will grant in part and deny in part Defendants’ cross-motion for summary
judgment.

1

Defendants’ initial motion for summary judgment [Docket Entry 54] was terminated.
1

I.

BACKGROUND

This case arises out of a dispute between Tonglu, a company based in China, and Natural
Nine, a company based in Edison, New Jersey. (Compl. ¶¶ 2, 6). In the spring of 2013, Tonglu
decided to purchase Natural Nine and the parties entered into a Sale and Purchase Agreement.
(Compl. ¶6). This case revolves around the following provision in that agreement 2:
Party B [Natural Nine] warrants that the company purchased by Party A [Tonglu Rising
Sun Shoes] is free of debt, both internally and externally. Mr. Yi Xian Jiang [the owner
of Natural Nine] will be responsible for all debts from NATURAL NINE’s (U.S.A.)
previous business operations. Party B [Natural Nine] holds Party A [Tonglu Rising Sun
Shoes] free and harmless of this debt.
(Jiang Cert., Ex. A. art II ¶ 1).
Tonglu claims that it relied on Natural Nine’s statement that it was free of debt when it
agreed to purchase Natural Nine. (Compl. ¶10). Later, however, Tonglu learned that Natural
Nine actually had a significant amount of debt. (Compl. ¶ 8). Natural Nine owed its owners
more than $500,000, and also had a loan from Cathay Bank secured by a mortgage on the
owners’ home, a line of credit of $60,000 in two banks, credit card obligations, a note payable to
an individual named Shen Guang, and other debts. (Pl.’s Statement of Material Facts, Docket
Entry 60-2, at ¶¶ 39-55 [hereinafter PSMF]; Pl.’s Mov. Br. at 7-9; Fan Dep. 15:17-27:21, 29:1630:21). Tonglu argues that in total, Natural Nine’s debt added up to over $1,000,000. (Pl.’s Rep.
Br. at 5, 8). 3 Thus, Plaintiff brings suit against Defendants for breach of contract, fraudulent
inducement, and unjust enrichment. (Compl. ¶¶ 13-23).

2

The agreement was initially drafted in Chinese, but was translated into English and signed by
both parties. (Pl.’s Statement of Material Facts, Docket Entry 60-2, at ¶¶ 179-180 [hereinafter
PSMF]; Def.’s Cross-Mov. and Opp. Br. at 5).
3
Plaintiff also argues that as soon as Tonglu agreed to purchase Natural Nine, Defendants began
to operate a store called Jimmy Plush Toy, and they hid their assets and inventory in that
company. (PSMF, Docket Entry 60-2, at ¶¶ 18-35; Pl.’s Mov. Br. at 4-7).
2

Defendants Natural Nine, and its owners, Jiang and Huang, counterclaim against Tonglu
and bring a Third-Party Complaint against officers of Tonglu, Xiaosha Zhao (“Zhao”) and Jason
Tong (“Tong”). First, Defendants argue that Plaintiff and Third-Party Defendants never paid the
agreed-upon purchase price. (Countercl. and Third-Party Compl. ¶¶ 5-7, 29). Defendants argue
that if Plaintiff made any payment, it paid into a PNC bank account that was controlled by Tong,
and thus Plaintiff did not actually pay the Defendants. (Def.’s Cross-Mov. and Opp. Br. at 3,
10). Next, Defendants claim that Plaintiff breached its employment agreement with Huang.
(Countercl. and Third-Party Compl. ¶35). Defendants argue that Tong signed the employment
contract, promising to employ Huang at Natural Nine for three years after the purchase, but then
Plaintiff abandoned the business venture. (Countercl. and Third-Party Compl. ¶35). Defendants
bring counterclaims for breach of contract, fraud, violation of the New Jersey Consumer Fraud
Act, breach of covenant of good faith and fair dealing, and conversion. (Countercl. and ThirdParty Compl. ¶¶ 50-84).
Now, Plaintiff moves for summary judgment on its Complaint and on Defendants’
counterclaims. Defendants cross-move on the same. 4

4

Plaintiff argues that its statement of material facts is uncontested because Defendants fail to file
a proper statement under Local Civil Rule 56.1(a). (Pl.’s Rep. Br. at 1-2). According to Local
Rule 56.1, the opponent of a summary judgment motion is to submit a responsive statement of
material facts that addresses each paragraph of the movant’s statement, indicates each material
fact it disputes, and cites to affidavits or other documents submitted in connection with the
motion. L. Civ. R. 56.1(a). “[A]ny material fact not disputed shall be deemed undisputed for the
purposes of the summary judgment motion.” Id. Plaintiff is correct that Defendants fail to
properly comply with Rule 56.1 because Defendants’ statement of material facts does not
respond to Plaintiff’s. Additionally, in Defendants’ statement of material facts, Defendants fail
to properly cite to the record; Defendants do not indicate the page number or paragraph number
that supports each of their statements and often do not even indicate which exhibit they are
referencing. Because Defendants fail to provide a responsive statement of material facts that
properly cites to the record in accordance with L. Civ. R. 56.1(a), the Court is entitled to deem
all properly supported facts in Plaintiff’s statement to be undisputed for purposes of the motion.
3

II.

SUMMARY JUDGMENT STANDARD

Summary judgment is appropriate under Fed. R. Civ. P. 56(c) when the moving party
demonstrates that there is no genuine issue of material fact and the evidence establishes the
moving party’s entitlement to judgment as a matter of law. Celotex Corp. v. Catrett, 477 U.S.
317, 322-23 (1986). A factual dispute is genuine if a reasonable jury could return a verdict for
the non-movant, and it is material if, under the substantive law, it would affect the outcome of
the suit. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). “In considering a motion
for summary judgment, a district court may not make credibility determinations or engage in any
weighing of the evidence; instead, the non-moving party’s evidence ‘is to be believed and all
justifiable inferences are to be drawn in his favor.’” Marino v. Indus. Crating Co., 358 F.3d 241,
247 (3d Cir. 2004) (quoting Anderson, 477 U.S. at 255).
In this case, both Plaintiff and Defendant have moved for summary judgment. The
showing required of Plaintiff and Defendant to establish that there is no genuine issue of material
fact differs based on which party bears the burden of proof at trial. “When the moving party has
the burden of proof at trial, that party must show affirmatively the absence of a genuine issue of
material fact: it must show that, on all the essential elements of its case on which it bears the
burden of proof at trial, no reasonable jury could find for the non-moving party.” In re
Bressman, 327 F.3d 229, 238 (3d Cir. 2003) (quoting United States v. Four Parcels of Real
Prop., 941 F.2d 1428, 1438 (11th Cir. 1991)). “[W]ith respect to an issue on which the
nonmoving party bears the burden of proof . . . the burden on the moving party may be

See Cajeira v. Skrunda Navigation, No. 09-4905, 2011 WL 5080301, at *1 (D.N.J. Oct. 26,
2011) (citing Handron v. Sebelius, 669 F.Supp.2d 490, 492 (D.N.J.2009)). Nevertheless, this
Court has considered all of the evidence in the record, and with respect to Plaintiff’s motion for
summary judgment, treats all facts and inferences in the light most favorable to the Defendants.
4

discharged by ‘showing’—that is, pointing out to the district court—that there is an absence of
evidence to support the nonmoving party’s case.” Celotex, 477 U.S. at 325.
Once the moving party has satisfied its initial burden, the party opposing the motion must
establish that a genuine issue as to a material fact exists. Jersey Cent. Power & Light Co. v.
Lacey Twp., 772 F.2d 1103, 1109 (3d Cir. 1985). The party opposing the motion for summary
judgment cannot rest on mere allegations and instead must present actual evidence that creates a
genuine issue as to a material fact for trial. Anderson, 477 U.S. at 248; Siegel Transfer, Inc. v.
Carrier Express, Inc., 54 F.3d 1125, 1130-31 (3d Cir. 1995). “[U]nsupported allegations . . . and
pleadings are insufficient to repel summary judgment.” Schoch v. First Fid. Bancorporation,
912 F.2d 654, 657 (3d Cir. 1990); see also Fed. R. Civ. P. 56(e) (requiring the nonmoving party
to “set out specific facts showing a genuine issue for trial”). “A nonmoving party has created a
genuine issue of material fact if it has provided sufficient evidence to allow a jury to find in its
favor at trial.” Gleason v. Norwest Mortg., Inc., 243 F.3d 130, 138 (3d Cir. 2001). If the
nonmoving party has failed “to make a showing sufficient to establish the existence of an
element essential to that party’s case, and on which that party will bear the burden of proof at
trial, . . . there can be ‘no genuine issue of material fact,’ since a complete failure of proof
concerning an essential element of the nonmoving party’s case necessarily renders all other facts
immaterial.” Katz v. Aetna Cas. & Sur. Co., 972 F.2d 53, 55 (3d Cir. 1992) (quoting Celotex,
477 U.S. at 322-23).
III.

ANALYSIS
a. PLAINTIFF’S FRAUDULENT INDUCEMENT CLAIM

Each party moves for summary judgment on Plaintiff’s fraudulent inducement claim. If a
party enters a contract after it was fraudulently induced to do so, the defrauded party has a choice
5

of rescinding or affirming the contract. Daibo v. Kirsch, 316 N.J. Super. 580, 588 (App. Div.
1998) (citing Merchants Indem. Corp. v. Eggleston, 37 N.J. 114, 130-31 (1962)). Importantly,
“the defrauded party must thus elect which course he wishes to follow. He cannot pursue both.”
Eggleston, 37 N.J. at 130-31. If he chooses to affirm the contract, he keeps the consideration that
he received and has a claim for money damages. Id. If he seeks rescission, he must return the
consideration he received: “the measure of damages is the consideration paid and the moneys
naturally expended on account of the purchase before the fraud was discovered.” Id.; Kvedar v.
Shapiro, 98 N.J.L. 225, 228 (1922). The aim of rescission is to return the parties to the status
quo ante and to stop the party who made the misrepresentation from benefitting. Bonnco Petrol,
Inc. v. Epstein, 115 N.J. 599, 612 (1989). Rescission is an equitable remedy that “voids the
contract ab initio, meaning that it is considered ‘null from the beginning’ and treated as if it does
not exist for any purpose.” First Am. Title Ins. Co. v. Lawson, 177 N.J. 125, 136-37 (2003).
Here, Tonglu seeks rescission. (Pl.’s Mov. Br. at 33) (stating that “the plaintiff has elected to
rescind the contract based upon the fraud.”).
In support of its fraudulent inducement claim, Tonglu cites the elements of common law
fraud. (Pl.’s Mov. Br. at 30-31). But, when a plaintiff seeks only equitable remedies, such as
rescission, the plaintiff needs to prove equitable fraud, which is a lesser burden than proving
legal fraud. See Jewish Ctr. of Sussex Cty. v. Whale, 86 N.J. 619, 625 (1981) (“[W]hatever
would be fraudulent at law will be so in equity; but the equitable doctrine goes farther and
includes instances of fraudulent misrepresentations which do not exist in the law.”) (internal
citation omitted). Unlike a plaintiff claiming legal fraud, a plaintiff claiming equitable fraud
does not need to prove the defendant’s scienter in making the misrepresentation: “knowledge of
its falsity and an intention to obtain an undue advantage therefrom” are irrelevant. Daibo, 316
6

N.J. Super. at 588 (App. Div. 1998). Rather, a plaintiff seeking rescission of a contract based on
fraud in the inducement, must show by clear and convincing evidence: (1) a material
misrepresentation of a presently existing or past fact; (2) the maker’s intent that the other party
rely on it; and (3) detrimental and reasonable reliance by the other party. Jewish Ctr. of Sussex
Cty., 86 N.J. at 626 n.1; Daibo, 316 N.J. Super. at 588. Here, Plaintiff shows all three elements
with clear and convincing evidence.
i. MATERIAL MISREPRESENTATION OF A PRESENTLY EXISTING FACT
With respect to the first element, Defendants made a material misrepresentation of
presently existing fact because they signed a contract, which stated that: “Party B [Natural Nine]
warrants that the company purchased by Party A [Tonglu Rising Sun Shoes] is free of debt, both
internally and externally,” when Natural Nine was not free of debt. According to Plaintiff,
Defendants’ debt added up to $1,000,000, comprising of a loan from Natural Nine’s owners of
over $500,000, a loan from Cathay Bank secured by a mortgage on Jiang’s and Huang’s
residence, a line of credit of $60,000 in two banks, credit card obligations, a note payable to
Shen Guang, and more. (PSMF, at ¶¶ 39-55; Mov. Br. at 7-9; Fan Dep. 15:17-27:21, 29:1630:21; Pl.’s Rep. Br. at 5, 8). The company’s financial condition was clearly material to Tonglu
because Tonglu was interested in purchasing Natural Nine. Thus, Plaintiff shows that
Defendants materially misrepresented a presently existing fact.
Defendants argue that the relevant contract provision is not a misrepresentation because
when it is read in context, it implies that Natural Nine will be free of debt once closing takes
place, not that Natural Nine was free of debt at the time of contracting. (Def.’s Cross-Mov. and
Opp. Br. at 11). Defendants point the court to the full paragraph in the contract, which states:
Party B [Natural Nine] warrants that the company purchased by Party A [Tonglu Rising
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Sun Shoes] is free of debt, both internally and externally. Mr. Yi Xian Jiang will be
responsible for all debts from NATURAL NINE’s (U.S.A.) previous business operations.
Party B [Natural Nine] holds Party A [Tonglu Rising Sun Shoes] free and harmless of
this debt.
(Jiang Cert., Ex. A. art II ¶ 1). Defendants argue that the language of the provision indicates that
Defendants intended to pay off any debt by the time the deal closed, and therefore it was not a
misrepresentation. (Def.’s Cross-Mov. and Opp. Br. at 11). 5
The Court does not find Defendants’ argument persuasive. The contract states that “the
company purchased by Party A [Tonglu Rising Sun Shoes] is free of debt” in the present tense.
The fact that there are additional assurances in three separate sentences only emphasizes that
Natural Nine represented that Tonglu would not acquire a company that was full of debt. Thus,
this Court finds clear and convincing evidence that Defendants misrepresented a material fact.
ii. MAKER’S INTENT THAT THE OTHER PARTY RELY ON THE
MISREPRESENTATION
Next, Plaintiff satisfies its burden of showing the second element that Defendants made
the misrepresentation so that Plaintiff would enter into the purchase agreement. The fact that
Defendants included this statement and additional assurances in the writing of the contract itself
shows that that it was a binding statement on the parties, and Defendants intended Plaintiff to
rely on it. Defendants do not present any evidence or arguments to the contrary.

5

At Oral Argument, Defendants also argued that their statement in the contract was not a
representation because they used the term “warrant” rather than “represent.” (Oral Arg., Oct. 13,
2016). But, according to the plain meaning of the contract, “Party B [Natural Nine] warrants that
the company purchased by Party A [Tonglu Rising Sun Shoes] is free of debt” introduces a
statement of the presently existing fact that Natural Nine is debt-free. The word “warrant” does
not change that this was a representation made by Natural Nine that induced Tonglu to enter the
agreement.
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iii. DETRIMENTAL AND REASONABLE RELIANCE
Finally, Plaintiff is able to show that it detrimentally and reasonably relied on Natural
Nine’s statement. Plaintiff relied to his detriment because Plaintiff spent money and incurred
costs to take over a business in the United States, when it was not the business venture it
anticipated. (Compl. ¶10; Pl.’s Mov. Br. at 32). Plaintiff’s reliance was also reasonable because
it was entitled to accept Natural Nine’s representation that it was free of debt.
Under New Jersey law, a party’s reliance is generally reasonable even if it accepts the
other party’s representations as true without further inquiry. In re House of Drugs, Inc., 251
B.R. 206, 211 (Bankr. D.N.J. 2000) (explaining that a party to an arm’s length transaction does
not generally have an affirmative duty of inquiry.). Therefore, “[o]ne who engages in fraud [. . .]
may not urge that one’s victim should have been more circumspect or astute.” Jewish Ctr. of
Sussex, 86 N.J. at 626 n.1 (citing Pioneer Nat’l Title Ins. Co. v. Lucas, 155 N.J. Super. 332, 342
(App. Div.)). “[I]f a party to whom representations are made nevertheless chooses to investigate
the relevant state of facts for [it]self, [it] will be charged with knowledge of whatever [it] could
have discovered by a reasonable investigation.” Dare Investments, LLC v. Chicago Title Ins.
Co., No. 10-6088, 2011 WL 2600594, at *7 (D.N.J. June 29, 2011) (citing DSK Enters., Inc. v.
United Jersey Bank, 189 N.J.Super. 242, 251 (App.Div.1983)); see also Berman v. Gurwicz, 189
N.J.Super. 89, 102-03 (Ch. Div. 1981) (holding that reliance on a misrepresentation was not
reasonable when plaintiffs were represented by counsel who “made or should have made an
independent investigation of the facts.”).
Defendants argue that it was not reasonable for Plaintiff to rely on the statement’s literal
meaning, because every business has some debt. (Def.’s Cross-Mov. and Opp. Br. at 12). They
argue that every business must incur expenses and pay taxes and thus, some debt is obvious.
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(Def.’s Cross-Mov. and Opp. Br. at 12). Defendants cite a California case, Seeger v. Odell, for
the idea that a party to a contract cannot “put faith in representations which are preposterous, or
which are shown by facts within his observation to be so patently and obviously false that he
must have closed his eyes to avoid discovery of the truth.” 18 Cal. 2d 409, 415 (1941).
Defendants claim that because Plaintiff was aware of Natural Nine’s sales tax liability, payroll,
and payments of some loans and suppliers, Plaintiff should have known that Natural Nine was
not completely debt-free. (Def.’s Cross-Mov. and Opp. Br. at 12-13).
Defendants’ argument fails, however, because Plaintiff had no affirmative duty to
investigate whether the company was free of debt and was entitled to accept Natural Nine’s
representations. Defendants admit that neither party was represented by counsel when the
contract was entered into, and thus no counsel was expected to investigate either. (Def.’s CrossMov. and Opp. Br., at 3) (“There were no attorneys involved in the transaction at the time when
the Contract was entered.”). There is no record of Plaintiff ever inspecting Natural Nine’s books
and records before signing the contract to confirm that Natural Nine was debt-free. (Oral Arg.,
Oct. 13, 2016). Even if Plaintiff should have known that the company needed to pay for some
expenses and taxes, Plaintiff had no reason to know that the company had such large loans to pay
back.
The non-binding California case that Defendants cite does not even support their own
position. There, the Supreme Court of California stated that “[t]he fact that an investigation
would have revealed the falsity of the misrepresentation will not alone bar [. . .] recovery . . .”
Seeger, 18 Cal. 2d at 414-15. Ultimately, the court found that even if plaintiffs’ failure to
investigate the representation was negligent, “the misrepresentation is not such that its falsity
must have been so obvious to the plaintiffs as to preclude any justifiable reliance thereon by
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them.” Id. at 415. Thus, according to the California standard that Defendants cite, even if
Plaintiff was negligent in not investigating Defendants’ representation that it was debt-free,
Plaintiff’s reliance could have still been justifiable. Moreover, according to the relevant New
Jersey standard, Plaintiff’s reliance was reasonable because it was entitled to rely on Natural
Nine’s representation, and Defendants cannot now claim that Plaintiff should have been more
circumspect or astute. In turn, Defendants’ argument fails and Plaintiff successfully shows that it
relied reasonably and detrimentally on Natural Nine’s representation.
iv. RIGHT TO RESCISSION
In conclusion, because Plaintiff shows equitable fraud in the inducement by clear and
convincing evidence and Defendants fail to present any actual evidence that creates a genuine
issue of material fact for trial, Plaintiff is entitled to a rescission of the contract on summary
judgment. Plaintiff asks for equitable relief to put it in the same position as it was in before
entering the contract. 6 (Oral Arg., Oct. 13, 2016; Pl.’s Mov. Br. at 32). However, this Court
concludes that there are still substantial questions of fact regarding the calculation of the
equitable relief. Thus, this Court will not resolve what exactly the equitable relief should be on
summary judgment.
b. PLAINTIFF’S BREACH OF CONTRACT CLAIM
In the Complaint, Plaintiff alleges that Defendants breached the contract by failing to turn

6

Defendants argue that Plaintiff is barred from equitable relief because Plaintiff has “unclean
hands” and exhibited bad faith. (Def.’s Cross-Mov. and Opp. Br. at 15-23). According to
Defendants, Plaintiff never actually intended to run the business and Plaintiff only agreed buy
the business to fabricate that it was conducting business in the United States so that its officers
could obtain permanent residency in the United States. (Def.’s Cross-Mov. and Opp. Br. at 1523). Plaintiff’s motivations are unproven and irrelevant, considering that Defendants materially
misrepresented the financial condition of their business to induce Plaintiff into purchasing the
business.
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over their customer and asset information, provide assistance to Tonglu’s personnel to obtain
U.S. documents, conduct an inventory check, and prepare legal documents. (Compl. ¶ 11).
These obligations were all specifically included in the Sale and Purchase Agreement. (Compl. ¶
11). But, since Plaintiff has elected to rescind the contract, it cannot bring a breach of contract
claim. Therefore, this Court grants summary judgment for Defendants on Plaintiff’s breach of
contract claim and denies Plaintiff’s motion for summary judgment on the same claim. This
Court enters judgment in favor of Defendants on Plaintiff’s breach of contract claim.
c. PLAINTIFF’S UNJUST ENRICHMENT CLAIM
Plaintiff claims that Defendants were unjustly enriched after they fraudulently induced
Plaintiff to enter into the Sale and Purchase Agreement. (Compl. ¶ 21). Plaintiff’s unjust
enrichment claim is, however, duplicative because Plaintiff has elected a recessionary remedy for
its fraudulent inducement claim. This Court therefore grants summary judgment for Defendants
on Plaintiff’s unjust enrichment claim and denies Plaintiff’s summary judgment motion on the
same. The Court enters judgment on Plaintiff’s unjust enrichment claim in favor of Defendants.
d. DEFENDANTS’ BREACH OF CONTRACT COUNTERCLAIM
The Court next considers the cross-motions for summary judgment on Defendants’
counterclaims. First, Defendants counterclaim that Plaintiff breached the contract. Defendants
have two theories for their breach of contract counterclaim. Defendants’ first claim is that by not
paying the agreed-upon purchase price for the business, Plaintiff breached the contract.
(Countercl. and Third-Party Compl. ¶¶ 5-7, 29). Defendants argue that if Plaintiff made any
payments, it paid into an account controlled by Tong, and thus it did not actually pay
Defendants. (Def.’s Cross-Mov. and Opp. Br. at 10). But, because the contract has been
rescinded, Plaintiff’s compliance with the terms of payment in the contract is irrelevant.
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Therefore, this Court denies Defendants’ motion for summary judgment on the breach of
contract counterclaim and grants Plaintiff’s motion for summary judgment on the same
counterclaim.
Defendants’ second argument is that Plaintiff breached the contract by not complying
with Huang’s employment agreement. (Countercl. and Third-Party Compl. ¶¶ 35-36). In the
Sale and Purchase Agreement, the parties agreed that Natural Nine would employ Huang after
the purchase of the company. (Jiang Cert., Ex. A. art I ¶ 4, art II ¶ 8). Defendants argue that
Tong also signed an independent document that served as Huang’s employment agreement.
(Countercl. and Third-Party Compl. ¶35). This Court finds, however, that because Plaintiff was
fraudulently induced into entering the Sale and Purchase Agreement, it was fraudulently induced
into entering the resulting employment agreement. Therefore, despite Defendants’ arguments,
this Court enters judgment in Plaintiff’s favor on Defendants’ breach of contract counterclaim.
e. DEFENDANTS’ FRAUD, BREACH OF COVENANT OF GOOD FAITH AND FAIR
DEALING, AND CONVERSION COUNTERCLAIMS
Defendants next bring counterclaims for fraud, violating the New Jersey Consumer Fraud
Act, breach of the covenant of good faith and fair dealing, and conversion. Defendants base all
of these counterclaims on the fact that Plaintiff began running Natural Nine, but then abandoned
the business. (Countercl. and Third-Party Compl. ¶¶ 55-64). Defendants, however, cannot argue
that Plaintiff wrongfully abandoned the business because Defendants fraudulently induced
Plaintiff to enter into the agreement in the first place. Thus, this Court grants Plaintiff’s motion
for summary judgment on Defendants’ counterclaims and denies Defendants’ cross-motion on its

13

counterclaims. This Court enters judgment on Defendants’ counterclaims in favor of Tonglu. 7
IV.

CONCLUSION
For the foregoing reasons, the Court will grant in part and deny in part Plaintiff’s motion

for summary judgment and grant in part and deny in part Defendants’ cross-motion for summary
judgment. An appropriate Order will be filed herewith.

s/ Stanley R. Chesler
STANLEY R. CHESLER
United States District Judge
Dated: December 20, 2016

7

In Defendants’ cross-motion for summary judgment, they request that the Court enter a default
judgment against Tong for an amount specified in their motion because of Tong’s failure to
respond or otherwise plea and the clerk’s previous entry of default. (Def.’s Cross-Mov. and
Opp. Br. at 2). Nevertheless, Tonglu’s original motion for summary judgment did not discuss
Tong’s liability or the entry of default. A cross-motion must be “related to the subject matter of
the original motion.” L. Civ. R. 7.1(h). Therefore, this Court does not address Defendants’
request within their cross-motion. Additionally, Plaintiff, in its reply brief, asks the Court to set
aside the entry of default against Tong for “good cause” because Tong was served while
appearing for a deposition. (Pl.’s Rep. Br. at 21). The Court does not consider this new
argument raised in a reply brief for the first time because the opponent had no opportunity to
address the new argument. Worrall v. City of Atl. City, No. 11-3750, 2014 WL 980575, at *5
(D.N.J. Mar. 13, 2014) (quoting D'Alessandro v. Bugler Tobacco Co., No. 05-5051, 2007 WL
130798, at *2 (D.N.J. Jan. 12, 2007)).
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