Reddy v. Patel et al
OPINION. Signed by Judge John Michael Vazquez on 5/1/17. (cm, )
Not for Publication
UNITED STATES DISTRICT COURT
DISTRICT OF NEW JERSEY
SANDADI V. REDDY,
Civil Action No. 16-8256
ATUL K. PATEL, GHANSHYAM PATEL alk/a
SAM PATEL, DHARMENDRA BAROT AND
EAST HANOVER HOEL AND CONFERENCE
HOSPITALITY, LLC a/k/a RAMADA,
John Michael Vazguez, U.S.D.J.
The present matter comes before the Court on the motion of Defendants Atul Patel
(“Patel”), Dharmendra Barot (“Barot,” with Patel the “Individual Defendants”) and East Hanover
Hotel and Conference Hospitality, LLC (“East Hanover,” collectively, “Defendants”)’ to dismiss
VI of Plaintiffs Complaint for failure to state a claim pursuant to Rule 12(b)(6) and
Rule 9(b) of the Federal Rules of Civil Procedure.2 The motion is unopposed. This action arises
out of a failed investment by Defendants Patel and Barot. The motion was decided without oral
argument pursuant to Federal Rule of Civil Procedure 78 and Local Civil Rule 78.1. The Court
The remaining Defendant, Ghanshyarn Patel, appears to not join in Defendants’ motion.
Defendants allege that Ghanshyam Patel “has still not been properly served.” D.E. 7 at 1 n.1.
Therefore, this Opinion does not affect the Complaint with respect to Ghanshyam Patel.
Defendants’ motion will be referred to hereinafter as “Def. Br.” (D.E. 7).
has considered Defendants’ submissions, conducted an independent review of the issues, and
grants Defendants’ motion to dismiss Counts II through VI without prejudice.
BACKGROUND & PROCEDURAL HISTORY
The following facts are derived from Plaintiffs Complaint (“Compi.”). D.E. 1 Ex. A.3
The Individual Defendants are the owners and landlords of a building in East Hanover, New Jersey
In or around September 2011, the Individual Defendants
approached Plaintiff to discuss a new business opportunity. Id.
Specifically, the Individual
Defendants wanted Plaintiff to help fund the purchase and management of a hotel, East Hanover,
that would operate at the Premises. Id.
The Individual Defendants proposed that, in return
for Plaintiffs time and monetary contributions, Plaintiff “would be made a shareholder in [East
Hanover] and share in the profits and have a say in the day[-]to[-]day operations and decision
Plaintiff agreed, and on October 17, 2011 he transferred $250,000 to an account that
Defendants established for East Hanover. Id. ¶ 12. Plaintiff subsequently transferred an additional
$100,000 to the account on October 18, 2011. Id.
Plaintiff alleges that he was led to believe
that each individual would be contributing to renovations at the Premises, and that “they were all
to be shareholders.” Id.
15, 16. After providing a total of $350,000 towards renovations, “the
relationship between [P]laintiff and [D]efendants began to break down.” Id.
demanded that shareholder and partnership documents be drafted to no avail. Id.
also requested multiple times to inspect the books and tax returns of East Hanover but was denied
every time. Id.
When reviewing a motion to dismiss, the Court accepts as true all well-pleaded facts in the
complaint. Fowler v. UFMC Shadyside, 578 f.3d 203, 210 (3d Cir. 2009).
Between April 2012 and March 2013, “[D]efendants would give the impression to
[P]laintiff that they were in the middle of finally drafting all documents and that [Plaintiff] would
be receiving returns on his investments ‘soon.” Id.
However, “[t]o date, Plaintiff has not
received a single penny from [D]efendants for his initial contributions,” and Plaintiff alleges that
“[D]efendants are indebted to [him] in the sum of $350,00.00.” Id.
Plaintiff filed his Verified Complaint on September 6, 2016 in the Supreme Court of New
York, Queens County, asserting six causes of action against Defendants.
D.E. 1 Ex. A.
Subsequently, Defendants removed the action to the Eastern District of New York. D.E. 1.
Defendants then sought to have Plaintiffs Complaint dismissed for lack of personal jurisdiction,
or in the alternative, transferred to the District of New Jersey. D.E. 4. The parties appeared before
Judge Garaftiis on October 27, 2016, at which time Plaintiff consented to have this matter
transferred to the District of New Jersey. Currently pending before this Court is Defendants’
motion to dismiss Counts II, III, IV, V, and VI of Plaintiffs Complaint. As noted, the motion is
II. STANDARD OF REVIEW
In New York state court and in the Eastern District of New York, Plaintiff was represented by
Avish Dhanirarn, Esquire. D.E. 1. Once the case was transferred to the District of New Jersey,
the Clerk’s Office filed a letter stating that Dhaniram was not a member of the Federal Bar of New
Jersey, and that, pursuant to Local Civil Rule 101.1, Dhaniram is responsible “for having a member
of the Bar of [New Jersey] file on appearance [on behalf of Plaintiff].” D.E. 6. When no
appearance was made on behalf of Plaintiff, the Court contacted Mr. Dhaniram to determine the
status of Plaintiffs representation. He said he had transferred Plaintiffs file to a New Jersey
attorney and gave the Court the attorney’s contact information. The Court then contacted the New
Jersey attorney who said that he was waiting to hear from Plaintiff to see if he had been retained.
The Court has not heard from Plaintiff or the New Jersey attorney since. Therefore, the Court
considers Plaintiff pro se for the purposes of this motion. However, since the Complaint was
drafted by an attorney, the Court need not construe Plaintiffs pleadings liberally when ruling on
the pending motion to dismiss.
Rule 1 2(b)(6) of the Federal Rules of Civil Procedure permits a defendant to move to
dismiss a count for “failure to state a claim upon which relief can be granted[.]” To withstand a
motion to dismiss under Rule 12(b)(6), a plaintiff must allege “enough facts to state a claim to
relief that is plausible on its face.” Bell Ati. Corp.
Twombly, 550 U.S. 544, 570 (2007) (emphasis
added). A complaint is plausible on its face when there is enough factual content “that allows the
court to draw the reasonable inference that the defendant is liable for the misconduct alleged.”
Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009). Although the plausibility standard “does not impose
a probability requirement, it does require a pleading to show more than a sheer possibility that a
defendant has acted unlawfully.” Connelly v. Lane Const. Corp., 809 F.3d 780, 786 (3d Cir. 2016)
(internal quotation marks and citations omitted). As a result, a plaintiff must “allege sufficient
facts to raise a reasonable expectation that discovery will uncover proof of [his] claims.” Id. at
In evaluating the sufficiency of a complaint, a district court must accept all factual
allegations in the complaint as true and draw all reasonable inferences in favor of the plaintiff.
Phillips v. Cty. of Allegheny, 515 F.3d 224, 231 (3d Cir. 2008).
A court, however, is “not
compelled to accept unwarranted inferences, unsupported conclusions or legal conclusions
disguised as factual allegations.” Baraka v. Syneevey, 481 F.3d 187, 211 (3d Cir. 2007). If, afler
viewing the allegations in the complaint most favorable to the plaintiff, it appears that no relief
could be granted under any set of facts consistent with the allegations, a court may dismiss the
complaint for failure to state a claim. Defazio v. Leading Edge Recovery Sols., No. 10-2945, 2010
WL 5146765, at *1 (D.N.J. Dec. 13, 2010).
“Independent of the standard applicable to Rule 12(b)(6) motions, Rule 9(b) imposes a
heightened pleading requirement of factual particularity with respect to allegations of fraud.” In
re Rockefeller Ctr. Props., Inc. Sec. Litig., 311 F.3d 198, 216 (3d Cir. 2002). Thus, pursuant to
Rule 9(b), when “alleging fraud or mistake, a party must state with particularity the circumstances
constituting fraud or mistake
[m]alice, intent, knowledge, and other conditions of a person’s
mind may be alleged generally.” fed. R. Civ. P. 9(b). A party alleging fraud must therefore
support its allegations with factual details such as “the who, what, when, where and how of the
events at issue.” US. cx rel. Moore & Co., P.A. v. Majestic Blue Fisheries, LLC, 812 f.3d 294,
307 (3d Cir. 2016). Accordingly, “[tb satisfy the particularity standard, ‘the plaintiff must plead
or allege the date, time and place of the alleged fraud or otherwise inject precision or some measure
of substantiation into a fraud allegation.” feingold v. Graff 516 F. App’x 223, 226 (3d Cir. 2013)
(citing frederico v. Home Depot, 507 F.3d 18$, 200 (3d Cir. 2007)). This heightened pleading
standard is designed to “ensure that defendants are placed on notice of the precise misconduct with
which they are charged, and to safeguard defendants against spurious charges of fraud.”
Craftmatic Sec. Litig. v. Kraftsow, 890 F.2d 628, 645 (3d Cir. 1989) (internal quotation marks
Counts II, III and V
Plaintiff appears to bring Counts II, III and V on behalf of shareholders of East Hanover.
¶J 22-30, 34-39. Count II seeks “unpaid dividends” and alleges that “[East Hanover]
has failed to prepare and distribute to the shareholders any annual financial reports or information.”
¶ 25. Count III seeks damages for “unauthorized payments,” based on allegations that the
Individual Defendants failed to administer the affairs of the corporation, keep accurate records,
and perform their duties as directors and officers. Id.
¶J 26-29. This, alleges Plaintiff, has caused
“shareholders [to be] damaged and the [I]ndividual [D]efendants [to] receive substantial
unauthorized income aggregating in excess of $100,000.00.” Id.
Under Count V, Plaintiff
brings an action for Defendants’ breach of their fiduciary duties, “to both the corporation and to
the other shareholders.” Id.
Defendants argue that Plaintiff was not a shareholder or member of East Hanover and
therefore caimot bring suits on behalf of East Hanover or its shareholders. Def. Br. at 4-5.
In his Complaint, Plaintiff alleges that, in return for his “time and monetary contributions,”
he “would be made a shareholder in [East Hanover].” Compl.
10. Plaintiff goes on to explain
how he transferred money to East Hanover, as promised, but received nothing in return. Id.
21. In fact, Plaintiff states that “on many occasions afler funding the renovations, [he] demanded
that the shareholder and partnership documents be drafi[ed].” Id.
Plaintiff therefore fails to
allege, as his Complaint currently stands, that he ever became a shareholder or member of East
Hanover, an essential element in shareholder derivative actions. See N.J.S.A. 42:2C-69 (“[A]
may be maintained only by a person that is a member [of the LLC] at the time
the action is commenced.”); In re PSE & G S’holder Litig., 173 N.J. 258, 277 (2002) (“[A]
shareholder derivative action permits
shareholder to bring suit against wrongdoers on behalf of
the corporation, and it forces those wrongdoers to compensate the corporation for the injury they
have caused.”) (emphasis added). As the Court understands the current allegations, Plaintiff is
complaining that he should have been made a shareholder but never was. The Court will dismiss
Counts II, III and V without prejudice.
Count IV is a claim for “fraud and conversion.” Compi.
¶J 3 1-33.
Plaintiff asserts that
“upon information and belief, [East Hanover] generates a substantial daily gross sale amount and
is indebted to the plaintiff for their shares of the sales.” Id.
¶ 32. Defendants contend that this
allegation falls far short of the heightened pleading requirement for fraud. Def. Br. at
To state a claim for common law fraud in New Jersey, a plaintiff must allege: “(1) a
material misrepresentation of a presently existing or past fact; (2) knowledge or belief by the
defendant of its falsity; (3) an intention that the other person rely on it; (4) reasonable reliance
thereon by the other person; and (5) resulting damages.” Gennari v. Weichert Co. Realtors, 148
N.J. 582, 610 (1997). Additionally, as discussed, Rule 9(b) requires heightened pleading in
instances of fraud, which includes “precise allegations of date, time or place.” Naporano Iron &
Metal Co. v. Am. Crane Corp., 79 F. Supp. 2d 494, 511 (D.N.J. 1999).
In Plaintiffs fraud claim he states that he has been deprived of the “shares of the sales”
allegedly owed to him. Compi.
¶ 32. Because of this, Plaintiff argues that he had been damaged
in an amount greater than $500,000. Id. ¶ 33. The only element of common law fraud that Plaintiff
potentially pleads is damages (although he fails to adequately explain how he reached the damage
amount in light of his investment). He fails to plead (1) any material fact that was misrepresented
by Defendants; (2) with Defendants knowing it was false; (3) Plaintiffs reliance on the
misrepresentation; and (4) any allegation that Defendants intended Plaintiff to rely on it. Thus,
Count IV falls short of a plausible claim for common law fraud and this count is dismissed without
Plaintiff also fails to plausibly plead a claim for conversion. The elements of conversion
are: “(1) the property and right to immediate possession thereof belong to the plaintiff and (2) the
Defendants also argue that the allegations in Count IV are barred by the economic loss doctrine
because they arise out of the same alleged breach as Count I. Id. at 6. Since the Court is dismissing
Count IV based on the pleading standard, it will not address the economic loss doctrine at this
time. However, if Plaintiff files an amended complaint, Defendants are not precluded from raising
the issue concerning the economic loss doctrine in the future.
wrongful act of interference with that right by the defendant.” Lately. Cicenia, No. A-5747-l 3T2,
2015 WL 10458543, at *5 (N.J. App. Div. Mar. 14, 2016) (internal quotation marks omitted).
Plaintiff fails to allege either element and therefore his conversion claim is dismissed without
In Count VI, Plaintiff requests “reasonable attorney fees in an amount not less than
$10,000.00 for the commencement and legal representation in this matter.” Compl.
¶ 42. Plaintiff
does not state any statute or other law pursuant to which he seeks such fees.
Generally, New Jersey adheres to the “American Rule,” “which prohibits recovery of
counsel fees by the prevailing party against the losing party.” In re Estate of Vavda, 184 N.J. 115,
120 (2005). New Jersey has codified specific instances where, “in the absence of a separately
enabling statute or contract, fee shifling is permitted.” Id. Here, Plaintiff has not pled any basis
upon which to recover counsel fees should he prevail on any of the asserted claims. Therefore,
Count VI is dismissed without prejudice.
In sum, the Court GRANTS Defendants’ motion to dismiss. Counts II, III, IV, V and VI
are dismissed without prejudice. Plaintiff has thirty (30) days to file an amended complaint that
cures the deficiencies set forth herein, if he so chooses. If Plaintiff does not submit an amended
complaint curing these deficiencies within thirty days, the dismissal will then be with prejudice.
A dismissal with prejudice means that Plaintiff will be precluded from bringing any of these counts
in this or any future suit against Defendants concerning the allegations in the complaint. An
appropriate Order accompanies this Opinion.
Date: May 1, 2017
JO N MICflEL UEZ
UNITED STATES DISti49JUDGE
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