MIZRAHI v. CHECKOLITE INTERNATIONAL, INC. et al

Filing 101

OPINION. Signed by Judge Jose L. Linares on 1/10/2017. (seb)

NOT FOR PUBLICATION
UNITED STATES DISTRICT COURT
DISTRICT OF NEW JERSEY

EDDY TURKIEH MIZRAHI,
Plaintiff,

:
:

CIVIL ACTION NO. 14-7987 (JLL)
OPINION

v.
CHECKOLITE INTERNATIONAL, INC.,
eta!.,
Defendants.

LINARES, District Judge

The plaintiff asserts the following relevant claims against the defendant Israeli
Discount Bank (hereinafter, “1DB”), and the defendants Enchante Lites, LLC and
Enchante Accessories (collectively hereinafter, “the Enchante Defendants”): one claim
for New Jersey Unifonn Fraudulent Transfer Act (hereinafter, “NJUFTA”) violations
(designated by the plaintiff as the “Ninth Count”); one claim for conspiracy to commit
NJUFTA violations (designated by the plaintiff as the “Tenth Count”); and one claim for
common-law fraud (designated by the plaintiff as the “Eleventh Count”). (See dkt. 82 at
1924.)1

The Court will refer to documents by the docket entry numbers and the page numbers
imposed by the Electronic Case Filing System.

1DB moves pursuant to Federal Rule of Civil Procedure (“Rule”) 12(b)(6) to
dismiss the Ninth Count, the Tenth Count, and the Eleventh Count. (See dkt. 84; dkt. $5
through dkt. $ 5-6; dkt. 94.) The Enchante Defendants separately move pursuant to Rule
12(b)(6) to dismiss the same claims. (See dkt. 8$; dkt. $9; dkt. 89-1; dkt. 98.) The
plaintiff opposes the two motions. (çç dkt. 93; dkt. 93-1; dkt. 96.)
This Court will resolve the two motions upon a review of the papers and without
conducting oral argument. See L.Civ.R. 78.1(b). This Court presumes that the parties
are familiar with the factual context and the procedural history of this action, particularly
because this Court has previously issued an Opinion resolving other motion practice in
this action. (See dkt. 24; dkt. 25.) For the following reasons:
• both motions are denied; and
• all of the claims asserted in this action are referred to the United States
Bankruptcy Court for the District of New Jersey (hereinafter, “Bankruptcy Court”).
BACKGROUND

The following rendition of the facts is derived from this Court’s previous Opinion
in this case, from the plaintiffs third amended complaint, from the uncontested facts
asserted by the parties, and from the docket for a proceeding for bankruptcy relief filed
by the defendant Checkolite International, Inc. (hereinafter, “Checkolite”) in Bankruptcy
Court. (See dkt. 24; dkt. $2.) See In re Checkolite International, Inc., Bankr. D.N.J. No.
15-24827.

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I.

Sales Representative Agreement
Checkolite manufactured lamps and lighting fixtures, and then sold those products

to retailers to sell. The defendants Leon Bibi, Lawrence Bibi, and Reuben Bibi2 owned
Checkolite, and they served as Checkolite’s officers.
Checkolite agreed in January 2010 to hire the plaintiff, who is a Mexican citizen,
to be its exclusive sales representative in Mexico. The terms of their agreement provided
that the plaintiff would receive commissions, and that the plaintiff was to promote and
expand Checkolite’s accounts in Mexico.
II.

(Scc dkt. 24 at 1—2.)

Factoring Agreement
In July 2010, Checkolite and 1DB entered into a factoring agreement, under which

1DB would advance money to Checkolite at various intervals. In return, Checkolite
granted 1DB a continuing priority security interest and a general lien on Checkolite’s
receivables and other assets.
III.

A Dispute Arises
In February 2013, Leon Bibi infonTled the plaintiff that a major client was to be

removed from the plaintiffs exclusive territory, and he refused to pay the plaintiff the
conrniissions that were owed at that point. However, Leon Bibi asked the plaintiff to
refrain from initiating legal proceedings to collect this debt provided that the plaintiff
would be paid $5,000 a week until the debt was fulfilled, and the plaintiff agreed. When

2

The parties also spell the first name of this defendant as “Rueben.” However, it
appears that the correct spelling is Reuben.

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the plaintiff stopped receiving those weekly installments in June 2013, he attempted to
institute an arbitration proceeding against Checkolite to recover the remaining
commission balance of approximately $154,000.
IV.

Checkolite Defaults under the Factoring Agreement

At about the same time when the plaintiff stopped receiving his weekly payments

from Checkolite, Checkolite defaulted on its indebtedness under the factoring agreement
with 1DB in an amount approaching $3 million. Checkolite then surrendered its assets to
1DB on July 11, 2013. On that same day, the Enchante Defendants purchased those
assets from 1DB for only $1,350,000. Reuben Bibi is employed by the Enchante
Defendants.
The plaintiff alleges that the aforementioned transactions were part of a scheme to
facilitate the immediate and fraudulent transfer of Checkolite’s assets and business
records to the Enchante Defendants, in order to render Checkolite insolvent and to
deprive the plaintiff of the commissions that were owed to him. In addition, the plaintiff
alleges that Checkolite’s assets were sold for an amount that was less than their fair
market value, and that 1DB purposely did not seek other bidders for those assets in order
to assure that the Enchante Defendants would receive them for the benefit of Reuben
Bibi.
V.

Legal Proceedings

The plaintiff brought this instant action in December 2014. However, Checkolite
filed a petition in Bankruptcy Court for bankruptcy relief in August 2015. Checkolite
lists the plaintiff as one of its creditors in the bankruptcy proceeding, and admits therein

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that the plaintiff is owed approximately $154,000.
LEGAL STANDARDS
I.

Rule 12(b)(6)

It is not necessary for the Court to restate the standard for resolving a motion made
pursuant to Rule 1 2(b)(6) to dismiss a claim, because that standard has been already
enunciated. See Mariotti v. Marioth Bldg. Prods., Inc., 714 F.3d 761, 764—65 (3d Cir.
2013) (setting forth the standard; citing Bell Ati. Corp. v. Twombly, 550 U.S. 544
(2007)); Fowler v. UPMC Shadyside, 578 F.3d 203, 209—12 (3d Cir. 2009) (setting forth
the standard; citing Twombly and Ashcroft v. Iqbal, 556 U.S. 662 (2009)).
II.

NJUFTA

The NJUFTA states in relevant part:
A transfer made or obligation incurred by a debtor is
fraudulent as to a creditor, whether the creditor’s claim arose
before or after the transfer was made or the obligation was
incurred, if the debtor made the transfer or incurred the
obligation:
a. With actual intent to hinder, delay, or defraud
any creditor of the debtor; or
b. Without receiving a reasonably equivalent
value in exchange for the transfer or obligation, and the
debtor:
(1) Was engaged or was about to engage in
a business or a transaction for which the
remaining assets of the debtor were unreasonably
small in relation to the business or transaction; or
(2) Intended to incur, or believed or
reasonably should have believed that the debtor

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would incur, debts beyond the debtor’s ability to
pay as they become due.
N.J.S.A. 25:2-25.
DISCUSSION
I.

Ninth Count, Tenth Count, and Eleventh Count

The plaintiff alleges in the Ninth Count and the Tenth Count, in relevant part, that
1DB and the Enchante Defendants violated the NJUFTA by taking part in a scheme to
render Checkolite insolvent by fraudulently transferring Checkolite’s assets. He alleges
that the goal of the scheme was, among other things, to deprive the plaintiff of his
commissions. The plaintiff also alleges that an additional goal of the scheme was to
assure that Checkolite’s assets would be transferred to Reuben Bibi’s new employers,
which were the Enchante Defendants, in order to benefit Reuben Bibi.
1DB argues in support of its motion to dismiss that it cannot be held liable under
the NJUFTA because it is not a “debtor” covered by that statute, and that Checkolite is
the only debtor. 1DB further argues that the plaintiff has failed to allege a claim under the
NJUFTA with the requisite particularity. (See dkt. 85-6.) The Enchante Defendants, in a
brief that is essentially one page in length, adopts 1DB’ s arguments and raises nothing
further for the Court to consider. (See dkt. 89.)
The plaintiff argues in opposition that the NJUFTA has a broad reach that
encompasses the conduct of the parties that are not the debtors, such as 1DB and the
Enchante Defendants in this case. The plaintiff further argues that it has presented its

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allegations of fraud with the requisite particularity to survive a motion to dismiss. (ç
dkt. 93; dkt. 96.)
This Court rejects the arguments raised by 1DB and the Enchante Defendants.
First, it is well-settled law that liability can attach under the NJUFTA to a party that is not
the debtor.

Banco Popular v. Gandi, 184 N.J. 161, 177—78 (2005) (holding that a

plaintiff may assert a claim under the NJUFTA against a non-debtor defendant who is
alleged to have conspired or to have aided in facilitating a fraudulent transfer, and
holding that the statute itself does not preclude such a related cause of action); see also
Cevdet Aksut Ve Ogullari Koll. Sti v. Cavusoglu, No. 14-3362, 2015 WL 4317750, at *6
(D.N.J. July 14, 2015) (stating the same). Therefore, 1DB in its position as a lender and
the Enchante Defendants in their positions as the beneficiaries of the asset transfer can
still be held liable for allegedly participating in a scheme to violate the NJUFTA. See
Debiasa v. Donnelly, No. 16-552, 2016 WL 4620370, at *34 (D.N.J. Sept. 6, 2016)
(holding that viable claims existed under the NIUFTA against a non-debtor defendant
accused of allegedly assisting a debtor to conduct a fraudulent transfer); United Ass’n,
Local Union No. 322 Pension Fund v. Schmidt, No. 10-1815, 2011 WL 766057, at *89
(D.N.J. Feb. 24, 2011) (holding that a claim under the NJUFTA against a non-debtor
defendant survived, because the plaintiff plausibly alleged that there was an instance of
constructive fraud when the debtor’s assets were transferred at less than fair market value
to an insider).

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Second, the plaintiff asserts claims of fraud under the NJUFTA that are stated with
sufficient particularity to advance beyond the stage of a motion to dismiss. Specifically,
the plaintiff alleges that 1DB facilitated the transfer of Checkolite’s assets at less than fair
market value in July 20 13, in order to assist Checkolite in avoiding payment of its debt to
the plaintiff and to ensure that only the Enchante Defendants would receive those assets
for the benefit of Reuben Bibi. See Fed.R.Civ.P. 9(b); see also In re Rockefeller Ctr.
Props., Inc. Secs. Litig., 311 F.3d 198, 216 (3d Cir. 2002) (stating that the purpose behind
Rule 9(b) is to provide the accused defendants with the proper notice of the claims
asserted against them). Whether these allegations would survive a motion for summary
judgment must await further discovery. Therefore, the parts of the motions by 1DB and
by the Enchante Defendants that seek dismissal of the Ninth Count and the Tenth Count
are denied.
1DB also seeks dismissal of the Eleventh Count, with the Enchante Defendants
once again adopting the arguments of 1DB. However, the Eleventh Count sets forth
allegations in support of a claim for common-law fraud that mirror those set forth in the
Ninth Count and in the Tenth Count. As a result, the Eleventh Count insofar as it is
asserted against 1DB and the Enchante Defendants must necessarily survive as well.

Sc

Fed.R.Civ.P. 9(b); Banco Popular, 184 N.J. at 177 (holding that “[t]o the extent that the
facts undergirding a[nj [NJ]UFTA claim also establish other recognized causes of action,
for example.

.

.

common-law fraud, a creditor may pursue that claim as well”).

Therefore, the parts of the motions filed by 1DB and the Enchante Defendants that seek
dismissal of the Eleventh Count are denied.

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II.

Referring All Claims to the Bankruptcy Court

The plaintiff’s claims that are asserted against Checkolite in this Court are
currently stayed due to Checkolite’s Bankruptcy Court proceeding. (See dkt. 33.) The

plaintiff’s $154,000 debt is listed as an unsecured nonpriority claim therein, and the
instant District Court action is listed in the statement of financial affairs in the bankruptcy
petition. See In re Checkolite International, Inc., dkt. 1 at 12, Schedule F; id., dkt. 1 at
17, Statement of Financial Affairs. In addition, Reuben Bibi is listed on the bankruptcy
petition as an officer and the 50% shareholder of Checkolite. See In re Checkolite
International, Inc., dkt. 1 at 22. Furthermore, the bankruptcy claims register includes the
plaintiff, and the plaintiff filed his proof of claim in November 2016 while the motions to
dismiss filed by 1DB and the Enchante Defendants were pending in the instant District
Court action. See In re Checkolite, Claims Register at 3.
This Court’s review of the Bankruptcy Court’s docket for the Checkolite
bankruptcy proceeding reveals that it is being actively litigated. Furthermore, the claims
being asserted before this Court concerning the alleged fraudulent conduct underlying the
transfer of Checkolite’s assets are hopelessly intertwined with the issues concerning
Checkolite’s insolvency that are being addressed by the Bankruptcy Court. Thus, in
order to ensure consistent results and an efficient resolution, this Court will refer all of
the claims asserted here to the Bankruptcy Court. See 28 U.S.C.

§

157(a) (stating that

any cases arising in or related to a matter under Title 11 must be referred to a bankruptcy
court); S.P. Richards Co. v. Arora, No. 13-7768, 2014 U.S. Dist. LEXIS 173537, at *l_3

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(D.N.J. Dec. 15, 2014) (referring sua sponte all pending claims to Bankruptcy Court,
including the claims asserted against a defendant who was not a petitioner in Bankruptcy
Court);Arnbalov. 683ORoute9 Grp., LLC,No. 12-1173,2013 WL 85149, at *1_2
(D.N.J. Jan. 7, 2013) (referring sua sponte all pending claims to Bankruptcy Court,
including the claims asserted against the defendants who were not petitioners in
Bankruptcy Court). This type of referral to Bankruptcy Court is particularly appropriate
because the plaintiffs allegations concerning the fraudulent transfer of assets from the
party seeking bankruptcy relief, i.e., Checkolite, may have a significant impact on the
administration of the bankruptcy estate. See Savoy Senior bus, Corp. v. TRBC
Ministries, LLC, 401 B.R. 589, 596—98 (S.D.N.Y. 2009) (referring the claims asserted
against the defendants who were not bankruptcy petitioners, because the plaintiffs alleged
fraud on the Bankruptcy Court and on themselves as participants in a related bankruptcy
proceeding)

.

The extent of the Bankruptcy Court’s jurisdiction over the instant claims will
depend upon whether these claims concern: (1) a core proceeding; or (2) a non-core
proceeding, which is a proceeding that is otherwise related to an ongoing bankruptcy
matter. See 28 U.S.C.

§

157(b)(2)—(4); see also 28 U.S.C.

§

157(b)(1) (stating that a

bankruptcy court may enter an order and a judgment in a core proceeding); 28 U.S.C.

A referral to the Bankruptcy Court is also permitted pursuant to the Standing Order
of Reference by the United States District Court for the District of New Jersey, dated July 23,
1984.

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§

157(c)(1) (stating that a bankruptcy court may only submit proposed findings of fact and
conclusions of law to the district court in a non-core proceeding, and a final order or
judgment will then be entered by the district court after considering those findings and
conclusions); see also In re Mullarkey, 536 F.3d 215, 220—2 1 (3d Cir. 2008) (discussing
the jurisdiction of a bankruptcy court).
Upon this Court’s referral, the Bankruptcy Court itself will determine the extent of
that jurisdiction. See 28 U.S.C.

§

157(b)(3) (stating that the bankruptcy court determines

whether a matter is a core proceeding or a related-to proceeding); Certain Underwriters at
Lloyd’s of London v. Otlowski, No. 08-3998, 2009 WL 234957, at *2 (D.N.J. Jan. 29,
2009) (stating that “Section 157(b)(3) calls for the bankruptcy judge to make the initial
decision on whether a case is a core proceeding, and its language is not ambiguous”).
CONCLUSION
The separate motions filed by 1DB and the Enchante Defendants to dismiss the
Ninth Count, the Tenth Count, and the Eleventh Count are denied. Furthermore, all of
the claims in this action are referred to the Bankruptcy Court.
This Court will enter an appropriate order.

LINAS
United States District Judge

Dated: January

[

,2017

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