TOYOTA MOTOR CREDIT CORPORATION v. CTE 1 LLC et al

Filing 191

OPINION & ORDER; that Plaintiff's motion to dismiss (ECF No. 166) is granted; that Defendant's amended counterclaims are dismissed without prejudice.. Signed by Judge Claire C. Cecchi on 11/30/2021. (ld, )

NOT FOR PUBLICATION

UNITED STATES DISTRICT COURT
DISTRICT OF NEW JERSEY
TOTO;^^ MOTOR CREDITi CivilActionNo.:2:19-cv-19092
CORPORATION, i
plaintiff' \ OPINION & ORDER

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CTE1 LLCetaI., I

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Defendants. I

CECCHI, District Judge.
This matter comes before the Court on plaintiff Toyota Motor Credit Corporation's

("Plaintiff) motion to dismiss amended coimterclaims (ECF No. 166) filed by defendant
Carmine A. DeMaio, HI ("Defendant"). ECF No. 164.

WHEREAS Plaintiff filed the instant action on October 17, 2019 (ECF No. 1), and an
amended Complaint on April 6, 2020. ECF No. 63 (<(FAC»). In the FAC, Plaintiff alleges that it
contracted with a car dealership located in New Jersey, owned and operated by Defendant, to
provide it with loans and financing. Id. at 6-7. Plaintiff also asserts that Defendant contracted with
Plaintiff to serve as the car dealership's guarantor for the parties financing agreements. Id. at 4.
Plaintiff further alleges that the car dealership used this financing to purchase inventory and run
its operations. Id, at 6m7. Plaintiff alleges that the car dealership then defaulted on these loans, and,
subsequently, entered Chapter 11 bankruptcy proceedings. Id. at 22, 30. Plaintiff claims that
Defendant, in his capacity as guarantor, has failed to pay off the car dealership's outstanding debt
as required by the loan documents. Id. at 20-21; and
WHEREAS on June 11 , 2020, Defendant filed an answer to the amended complaint, which
contained counterclaims asserted against Plaintiff for breach of contract, breach of the covenant of

good faith and fair dealing, and breach of fiduciary duty. ECF No. 84 at 28-34; and
WHEREAS this Court subsequently dismissed Defendant's counterclaims without
prejudice on the grounds that the counterclaims constituted improper derivative claims brought on
behalf of the car dealership. ECF No. 159 at 3 (holding that Defendant's claims improperly

"flow[edj directly from TMCC's alleged impropriety towards [the car dealership] that caused the
dealership to fall"). In its Opinion, the Court found that Defendant's counterclaims would be
properly pled if Defendant alleged that the car dealership was insolvent, an exception to the general
rule barring derivative claims. See Colchvelt Banker Real Esf., LLC v. Plnmmer & Assocs., Inc.,

No. 09-1313, 2009 WL 3230840, at H (D.N.J. Oct. 2, 2009) ((finding that a guarantor may bring
a derivative suit on behalf of a principal if the principal has become insolvent) citing Cont'l Grp.,
Inc. v. Justice, 536 F. Supp. 658, 661 (D. Del. 1982))); see also ECF No. 159 at 4-5; and
WHEREAS Defendant thereafter filed an amended answer to the amended complaint,
which once again contained counterclaims asserted against Plaintiff for breach of contract, breach
of the covenant of good faith and fair dealing, and breach of fiduciary duty. ECF No. 164.
However, in his amended counterclaims, Defendant adequately alleged the car dealership's
insolvency. ECF No. 164 at 26, ^ 26-27, 29; and
WHEREAS Plaintiff then moved to dismiss the amended counterclaims, arguing that, as
this Court previously held, Defendant lacks standing to bring these claims as they constitute
improper derivative claims brought on behalf of the car dealership. ECF No. 166 at 11. But even
if Defendant has standing because he properly availed himself of the insolvency exception,
Plaintiff argues that Defendant's derivative claims are barred as the car dealership released any
claims against Plaintiff in its bankruptcy confirmation order. M at 12-13; and

WHEREAS the Court agrees with Plaintiff. Specifically, while Defendant has standing to
assert his derivative counterclaims because he has alleged that the car dealership is insolvent, see
Coldwell Banker, 2009 WL 3230840, at *2, the car dealership's bankruptcy confirmation order
has nevertheless released Plaintiff of any liability for such claims; and
WHEREAS indeed, the confirmation order states, in relevant part, that interested parties,
including the car dealership^ "forever release unconditlonaUy . .. [Plaintiffj. . . from . . . released

claims, which . . . include any and all claims, obligations, suits, judgments, damages, demands,
debts, rights, causes of actions [including derivative claims (II.A.16)], and liabilities." ECF No.

166-3 at 76;and
WHEREAS to the extent Defendant brings derivative claims because he opted out of the
bankruptcy confirmation order's release (ECP No. 169-3), that contention lacks merit. As stated
above, these claims are derivative. As such, they belong to the car dealership, and the car dealership
chose to release Plaintiff of any liability, including liability stemming from derivative claims. See
hi re JMO WmdDo^m, Inc., No. 16-10682, 2018 WL 1792185, at *6 (Bankr. D. Del. Apr. 13,
2018) (finding that derivative claims belong to the contracting entity, not its guarantor); In re
SemCrude L.P., 796 F.3d 310, 321 (3d Ch\ 2015) (same). Thus, because the car dealership has
extinguished any derivative claims through its confirmation order, there is no claim for Defendant

to bring on Hs behalf; and
WHEREAS accordingly, Defendants amended counterclaims are dismissed without
prejudice. The Court also notes that Defendant filed proposed amended counterclaims (ECF No.
169-6), but those claims would also fail because he once again proposes to bring a derivative action
on behalf of the car dealership arising from the loan agreements; and

WHEREAS to the extent that Defendant can cure the pleading deficiencies discussed
above, he may file amended counterclaims within thirty (30) days of this Order.

Accordingly, IT IS on this 30th day of November, 2021,
ORDERED that Plaintiffs motion to dismiss (ECF No. 166) is granted; and
ORDERED that Defendant's amended counterclaims are dismissed without prejudice.

SO

ORDERED.

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CLAIRE C. CECCHI, U.S.D.J.