COFUND II LLC v. HITACHI CAPITAL AMERICA CORP.
Filing
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OPINION. Signed by Judge Susan D. Wigenton on 11/7/2016. (JB, )
NOT FOR PUBLICATION
UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF NEW JERSEY
Civil Action No. 16-cv-1790-SDW-LDW
COFUND II LLC,
Plaintiff,
v.
OPINION
HITACHI CAPITAL AMERICA CORP.,
Defendant.
November 7, 2016
WIGENTON, District Judge.
Before this Court is Defendant Hitachi Capital America Corp.’s (“Defendant”) Motion to
Dismiss or Stay Plaintiff CoFund II LLC’s (“Plaintiff”) Complaint under the first-filed rule,
pursuant to Federal Rule of Civil Procedure 12(b)(6). Jurisdiction is proper pursuant to 28 U.S.C.
§ 1332. Venue is proper pursuant to 28 U.S.C. § 1391. This opinion is issued without oral
argument pursuant to Federal Rule of Civil Procedure 78.
For the reasons stated herein, Defendant’s Motion is DENIED.
I.
BACKGROUND
Plaintiff CoFund II LLC is a New Jersey company based in Fairfield, New Jersey. (Compl.
¶ 1.) Defendant Hitachi Capital America Corp., is a “Delaware corporation with its principal place
of business in the State of Connecticut.” (Id. ¶ 3.) Plaintiff entered an agreement with Defendant’s
Business Finance Division on December 19, 2014 (the “Intercreditor Agreement”), by which
Plaintiff and Defendant “agreed on the relative priority of each party’s security interest in the
collateral covered by their respective agreements with [non-party Forest Capital LLC (“Forest”)].”
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(Id. ¶ 16; see also Insua Cert. Ex. F (“Intercreditor Agreement”)). 1 Under the Intercreditor
Agreement, Plaintiff and Defendant agreed, inter alia, that:
The lien or security interest of any kind that [Plaintiff] may now have or hold in the
future with respect to the CoFund Priority Collateral shall be superior to any lien
or security interest that [Defendant] may now have or hereafter acquire in the
CoFund Priority Collateral until [Plaintiff] terminates its UCC financing Statement
[sic]. 2
(Intercreditor Agreement § 2.B.) In addition, Section 4.D. of the Intercreditor Agreement provides,
in relevant part:
If, notwithstanding the foregoing provisions of this Section 4, any party receives
Collateral (including Proceeds) with respect to which it is an Inferior Creditor and
there is unpaid Borrower indebtedness due to the Superior Creditor with respect to
such Collateral, the Inferior Creditor receiving such Collateral shall be deemed to
have received such Collateral (including Proceeds) for the use and benefit of the
Superior Creditor and shall hold in trust and shall immediately turn it over to the
Superior Creditor to be applied upon the indebtedness of [Forest]. . . .
[Defendant] shall hold all funds representing CoFund Priority Collateral in trust for
[Plaintiff].
(Id. § 4.D.) Moreover, in addition to these requirements, a subsequent agreement between Forest,
Defendant, and non-party Manufacturers and Traders Trust Company (“M&T”), the “Blocked
Account Agreement,” required certain funds from Forest’s clients to be deposited into a blocked
account. (Compl. ¶ 19.) M&T would then transfer all funds in the blocked account to Defendant’s
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Before entering the Intercreditor Agreement, Plaintiff entered an agreement with non-party Forest by
which Plaintiff purchased “participations in factoring transactions that Forest made with its clients.”
(Compl. ¶¶ 8-10.) Under Plaintiff’s agreement with Forest, Plaintiff was granted a security interest in the
collateral relating to each factoring transaction. (Id. ¶ 10.) In addition, before Defendant entered the
Intercreditor Agreement with Plaintiff, Defendant entered its own agreement with non-party Forest, by
which Defendant would lend money to Forest. (Id. ¶ 12.) Under Defendant’s agreement with Forest,
Defendant was granted a security interest in certain collateral, as defined by that agreement, but was given
notice that the collateral may be subject to “permitted encumbrances.” (Id. ¶ 14.)
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The Intercreditor Agreement defined “CoFund Priority Collateral” as “only those amounts received by
[Forest] which represent CoFund’s Pro Rata interest in a Transaction as well as CoFund’s Pro Rata interest
in the tangible and intangible assets and property securing the obligations relating to each Transaction.”
(Intercreditor Agreement § 1.A.)
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Bank of America account. (Id. ¶ 20.) Yet, through the blocked account, Defendant received, and
has not turned over to Plaintiff, CoFund Priority Collateral and funds Plaintiff is entitled to under
its Agreement with Forest. (Id. ¶ 21.) As a result, Plaintiff contends Defendant is liable for breach
of the Intercreditor Agreement, breach of fiduciary duty, tortious interference, conversion, and
unjust enrichment. (Id. ¶¶ 23-38.)
On June 24, 2016, Defendant filed its Motion now before this Court. (Dkt. No. 11.)
According to Defendant, this Court should dismiss or, in the alternative, stay Plaintiff’s claims
under the first-filed rule because several of non-party Forest’s creditors filed an involuntary
petition for relief under Chapter 7 of the Bankruptcy Code in the United States Bankruptcy Court
for the District of Maryland, on March 24, 2016 (neither Plaintiff nor Defendant were parties to
the involuntary petition). (See Insua Cert. Ex. L.) The Chapter 7 proceeding was converted to a
voluntary Chapter 11 bankruptcy proceeding on May 5, 2016. (See Insua Cert. Ex. P.) Forest’s
initial filings in the bankruptcy proceeding neither made a claim regarding the blocked account
nor mentioned the Intercreditor Agreement. (See Insua Cert. Ex. L; Zucker Decl. Ex. E.)
However, Defendant did submit a document asserting that Forest owed Defendant a duty of
defense or indemnity related to Plaintiff’s claims in this matter. (Zucker Decl. Ex. D.)
Plaintiff subsequently filed its brief in opposition to Defendant’s Motion in this matter on
July 5, 2016. (Dkt. No. 14.) Defendant filed its brief in reply on July 12, 2016. (Dkt. No. 15.) In
its brief in reply, Defendant added to its argument the fact that Forest filed an adversary proceeding
in the United States Bankruptcy Court for the District of Maryland on July 5, 2016. 3 (Def.’s Br.
Reply at 3.) Plaintiff responded in a permitted sur-reply on July 19, 2016. (Dkt. No. 19.)
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In the adversary proceeding, Forest “seeks an order determining the extent, validity and priority of any
liens, ownership interests or claims that attach to [Forest’s] assets.” (See Insua Supplemental Cert. Ex. U.)
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II.
LEGAL STANDARD
In considering a motion to dismiss under Federal Rule of Civil Procedure 12(b)(6), a court
must “accept all factual allegations as true, construe the complaint in the light most favorable to
the plaintiff, and determine whether, under any reasonable reading of the complaint, the plaintiff
may be entitled to relief.” Phillips v. Cty. of Allegheny, 515 F.3d 224, 231 (3d Cir. 2008) (quoting
Pinker v. Roche Holdings Ltd., 292 F.3d 361, 374 n.7 (3d Cir. 2002)) (internal quotation marks
omitted). However, “the tenet that a court must accept as true all of the allegations contained in a
complaint is inapplicable to legal conclusions. Threadbare recitals of the elements of a cause of
action, supported by mere conclusory statements, do not suffice.” Ashcroft v. Iqbal, 556 U.S. 662,
678 (2009). Iqbal held, “to survive a motion to dismiss, a complaint must contain sufficient factual
matter . . . ‘to state a claim to relief that is plausible on its face[]’ . . . . The plausibility standard is
not akin to a ‘probability requirement,’ but it asks for more than a sheer possibility that a defendant
has acted unlawfully.” Id. at 678 (citations omitted).
In Fowler v. UPMC Shadyside, the Third Circuit devised “a two-part analysis.” 578 F.3d
203, 210 (3d Cir. 2009). First, the court must separate the complaint’s factual allegations from its
legal conclusions. Id. at 210-11. Having done that, the court must take only the factual allegations
as true and determine whether the plaintiff has alleged a “plausible claim for relief.” Id. (quoting
Iqbal, 566 U.S. at 679).
III.
DISCUSSION
Under the first-filed rule, a district court has ‘“the power’ to enjoin the subsequent
prosecution of proceedings involving the same parties and the same issues already before another
district court.” E.E.O.C. v. Univ. of Pennsylvania, 850 F.2d 969, 971 (3d Cir. 1988) (quoting
Triangle Conduit & Cable Co. v. National Elec. Products Corp., 125 F.2d 1008, 1009 (3d Cir.
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1942), cert. denied, 316 U.S. 676 (1942)). According to Defendant, this Court must dismiss or, in
the alternative, stay Plaintiff’s claims under the first-filed rule because the bankruptcy proceeding
is addressing the same subject matter as this action: “the priority and distribution of certain of
Forest’s assets.” (Pl.’s Br. Supp. Mot. Dismiss (“Pl.’s Br. Supp.”) at 10.) In addition, Defendant
contends dismissal under the first-filed rule is necessary because Defendant’s agreement with
Forest requires Forest to indemnify Defendant against any damages related to that agreement.
(Pl.’s Br. Supp. at 10-11.) Finally, Defendant argues that although Forest’s initial filings in the
bankruptcy proceeding neither made a claim regarding the blocked account nor mentioned the
Intercreditor Agreement, Forest’s filing of an adversary proceeding on July 7, 2016, shows that
the bankruptcy proceeding and this matter are “truly duplicative.” (Pl.’s Br. Reply at 7.) Despite
these contentions, this Court finds that the first-filed rule is inapplicable in this instance.
“To be considered parallel proceedings [under the first-filed rule,] ‘[t]he one must be
materially on all fours with the other . . . . [T]he issues ‘“must have such an identity that a
determination in one action leaves little or nothing to be determined in the other.’”’ Grider v.
Keystone Health Plan Cent., Inc., 500 F.3d 322, 330 (3d Cir. 2007) (quoting Smith v. S.E.C., 129
F.3d 356, 361 (6th Cir.1997)). However, “wooden application of the rule” is not required and
district courts have “discretion to retain jurisdiction given appropriate circumstances justifying
departure from the first-filed rule.” E.E.O.C., 850 F.2d at 972. Indeed, “[t]he letter and spirit of
the first-filed rule . . . are grounded on equitable principles.” Id. at 977 (first citing Columbia Plaza
Corp. v. Security Nat. Bank, 525 F.2d 620, 621 (D.C. Cir. 1975); then citing Kerotest Mfg. Co. v.
C–O–Two Co., 342 U.S. 180, 183–84 (1952)).
The first-filed rule is inapplicable in this instance because, although the subject matter of
this case (whether Defendant is liable to Plaintiff for breach of the Intercreditor Agreement and
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under common law) is loosely related to the subject matter of the bankruptcy proceeding (the
reorganization or liquidation of Forest’s business), a resolution in one matter will not necessarily
“leave[] little or nothing to be determined in the other.” Grider, 500 F.3d at 334 (quoting Smith,
129 F.3d at 361) (internal quotation marks omitted). This case centers on Plaintiff’s rights under
the Intercreditor Agreement, a subject which need not be addressed in the bankruptcy proceeding.
(See Compl. ¶¶ 16-23.)
Furthermore, it is unclear how either Defendant’s purported
indemnification right against Forest or the fact that Forest filed an adversary proceeding three
months after Plaintiff filed the Complaint in this matter implicate the first-filed rule. Neither of
those facts make this matter “truly duplicative of the suit before [[the Bankruptcy Court]].” Grider,
500 F.3d at 334 n.6 (quoting Smith, 129 F.3d at 361). This matter does not involve the “same
parties and issues” as those in the bankruptcy proceeding and, therefore, the first-filed rule may
not be applied in this instance. Triangle Conduit & Cable Co., 125 F.2d at 1009.
IV.
CONCLUSION
For the reasons set forth above, Defendant’s Motion is DENIED.
s/ Susan D. Wigenton
SUSAN D. WIGENTON
UNITED STATES DISTRICT JUDGE
Orig:
cc:
Clerk
Leda D. Wettre, U.S.M.J.
Parties
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