UNITED STATES SMALL BUSINESS ADMINISTRATION, v. HERBST
Filing
66
OPINION filed. Signed by Judge Anne E. Thompson on 10/9/2012. (mmh)
NOT FOR PUBLICATION
UNITED STATES DISTRICT COURT
DISTRICT OF NEW JERSEY
UNITED STATES SMALL BUSINESS
ADMINISTRATION,
Civ. No. 08-01396
Plaintiff,
OPINION
v.
ABRAHAM HERBST,
Defendant.
THOMPSON, U.S.D.J.
INTRODUCTION
This matter comes before the Court upon a motion to vacate summary judgment, (Doc.
No. 63), filed by Defendant Abraham Herbst. Plaintiff, the United States Small Business
Administration as Receiver for Penny Lane Partners, L.P., opposes. (Doc. No. 65). Although
the motion is jointly put forward by both Abraham Herbst and his brother, Jackie Herbst, to
vacate their individual separate summary judgment rulings, this Court will herein consider the
motion to vacate with regard solely to Abraham Herbst, issuing the Opinion and Order for Jackie
Herbst separately. The Court has decided these matters upon review of the parties’ submissions
without oral argument pursuant to Federal Rule of Civil Procedure 78(b). For the reasons set
forth below, Defendant’s Motion to Vacate Summary Judgment is denied.
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BACKGROUND
Defendant Abraham Herbst (“Defendant”) moves to vacate an August 30, 2011 summary
judgment against him in favor of Plaintiff, the United States Small Business Administration
(“SBA” or “Plaintiff”) as Receiver for Penny Lane Partners, L.P. (“Penny Lane”). The summary
judgment results from an ancillary action brought by Plaintiff to recover unfunded capital
contributions Defendant allegedly owed Plaintiff as a Private Limited Partner of Penny Lane.
(Doc. No. 1). Penny Lane was a licensed Small Business Investment Company, placed into
Receivership by court order on May 16, 2006. United States v. Penny Lane Partners, L.P., Civ.
No. 06-1894, Doc. No. 15 (D.N.J. 2006). Receivership was terminated by court order dated July
23, 2012. United States v. Penny Lane Partners, L.P., Civ. No. 06-1894, Doc. No. 168 (D.N.J.
2012).
On March 17, 2008, Plaintiff filed a Complaint in the District Court to recover
$51,750.00 plus ten percent (10%) interest allegedly owed by Defendant as a result of his
partnership obligation. (Doc. No. 1 at ¶¶ 1, 18). After an untimely response on the part of
Defendant, (Doc. No. 12), the parties filed cross-motions for summary judgment, (Doc. Nos. 34,
44). In support of its May 12, 2011 motion for summary judgment, (Doc. No. 34), Plaintiff
supplied a Statement of Undisputed Material Facts, in accordance with Local Rule 56.1,
accompanied by three supporting affidavits and the documents mentioned therein. (Doc. Nos.
34, 36). The Defendant produced two affidavits without the requisite Statement of Undisputed
Material Facts. (Doc. No. 38). Nevertheless, the Court took into account Defendant’s pro se
status and endeavored to ascertain the material facts in dispute. (Doc. No. 52). Upon review, the
Court found the affidavits to be lacking “colorable evidence that would create a genuine dispute
of material fact,” and that furthermore, Defendant failed to “present[] a cognizable legal or
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factual theory that would overcome his obligations under the LPA.” (Id.). In contrast, the Court
found that Plaintiff satisfied its initial burden of producing evidence of Defendant’s
commitments under the Limited Partnership Agreement (LPA) and granted summary judgment
in favor of Plaintiff for the requested $51,750, plus ten percent (10%) interest, pursuant to Article
5.11 of the LPA. (Id.).
Defendant has since moved to vacate the summary judgment ruling based upon the
mistake, omission, fraud, misrepresentation, or misconduct on the part of Plaintiff, pursuant to
Federal Rule of Civil Procedure 60(b), and to have the action dismissed. (Doc. No. 63). In
support of his motion, Defendant has submitted an affidavit that includes, in no particular order,
the following objections: a) the error in Plaintiff’s initial Complaint incorrectly naming “Penny
Lane Partners, L.P.” as “Penny Lane Capital Partners, L.P.” prejudiced Defendant in the
subsequent action and defeated proper service of process; b) the Court lacked personal and
subject matter jurisdiction; c) the LPA is invalid due to a lack of proper signatures from the SBA
and the General Partner; d) a fraud claim against Penny Lane by Defendant’s brother, Jackie
Herbst, in New York state court shows summary judgment was premature; e) Penny Lane
engaged in multiple breaches that resulted in nullification of the partnership contract; f)
Plaintiff’s submissions in support of summary judgment failed to comply with the Federal Rules
of Civil Procedure, and were “perjurious” under Federal Rule of Civil Procedure § 11(b) in
claiming that there were no unresolved issues of fact; and g) Plaintiff engaged in improper ex
parte communications with the Court and various other acts of fraud, and the Court generally
showed favoritism to Plaintiff so as to put Defendant at a disadvantage. (Doc. No. 63 at ¶¶ 8, 9,
11, 12, 13, 14, 21, 28, 37, 122, 139, 144-66).
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Plaintiff requests a denial of Defendant’s motion, claiming Defendant has already had a
full and fair opportunity to litigate this matter before the Court, and has failed to raise any new
evidence or circumstance that warrants vacating the previous judgment. (Doc. No. 65).
DISCUSSION
I.
Legal Standard for a Motion to Set Aside Judgment
Federal Rule of Civil Procedure 60 provides that a court may relieve a party or its legal
representative from a final judgment or order on grounds of “newly discovered evidence that,
with reasonable diligence, could not have been discovered in time to move for a new trial under
Rule 59(b),” or “fraud (whether previously called intrinsic or extrinsic), misrepresentation, or
misconduct by an opposing party.” Fed. R. Civ. P. 60(b)(2) and (3). “The general purpose of
Rule 60, which provides relief from judgments for various reasons, is to strike a proper balance
between the conflicting principles that litigation must be brought to an end and that justice must
be done.” Boughner v. Sec’y of Health, Educ. & Welfare, 572 F.2d 976, 977 (3d Cir. 1978). A
motion for relief under Rule 60(b) is directed to the sound discretion of the court. Pierce Assoc.,
Inc. v. Nemours Found., 865 F.2d 530, 548 (3d Cir. 1989). Such motions are to be granted only
in exceptional circumstances. Boughner, 572 F.2d at 977.
II.
Analysis: Motion to Vacate Summary Judgment
Upon review of the materials, this Court finds that Defendant has not met the rigorous
standard required to vacate a ruling of summary judgment. Defendant’s affidavit is filled with
numerous conclusory statements, little factual support, and no new evidence of fraud,
misrepresentation, or misconduct by Plaintiff to warrant dismissal, despite numerous assertions
to the contrary. (See, e.g., Doc. No. 63 at ¶ 4). Most of the arguments presented by Defendant
have been addressed previously, and have little to do with the actual merits of the case. For the
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sake of evaluation, the Court has grouped the various claims and accusations presented across
Defendant’s 178-paragraph affidavit into a handful of major arguments, which will briefly be
summarized and rejected here.
To start, Defendant attempts to argue that the initial Complaint’s error in identifying the
partnership in receivership as “Penny Lane Capital Partners, L.P.,” as opposed to the correct
“Penny Lane Partners, L.P.,” (see, e.g., Doc. No. 1 AT ¶ 4), is a “devastating mistake” for
Plaintiff’s case. (Doc. No. 63 at ¶ 91). The Court squarely dealt with this issue in the summary
judgment opinion. (See Doc. No. 52). The Court found the mistake to be a non-prejudicial
scrivener’s error: the Complaint clearly identified “Penny Lane Partners, L.P.,” as the entity in
receivership in both the Complaint caption and paragraph 2, and Defendant’s untimely response
to the motion for summary judgment showed a clear understanding that Plaintiff referred to
Penny Lane Partners, L.P. Id.
Because Defendant has attempted to gain traction on this claim various times in this
litigation (see, generally, Doc. No. 44), this Court reiterates that the Federal Rules reject the idea
that “pleading is a game of skill in which one misstep by counsel may be decisive to the
outcome.” Conley v. Gibson, 355 U.S. 41, 48 (1957) (abrogated on other grounds by Bell
Atlantic Corp. v. Twombly, 550 U.S. 544 (2007)). Instead, “[p]leadings must be construed so as
to do justice.” Fed. R. Civ. P. 8(e). Because Defendant has provided no new previously
undiscovered evidence that shows prejudice or injury as a result of the error or its correction, nor
fraud, misrepresentation, or misconduct, the Court finds this line of argument insufficient to
vacate summary judgment under Rule 60(b).
Defendant further attempts to justify vacating summary judgment by arguing that this
Court lacks both personal and subject matter jurisdiction. (See, e.g., Doc. No. 63 at ¶ 12.k).
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Each of these jurisdictional issues has been raised and addressed in previous proceedings. (See
Doc. Nos. 24, 44, 52). As stated before, this Court appropriately has jurisdiction over this
ancillary action pursuant to the Court’s May 16, 2006 Order in the Receivership action, Civ. No.
06-1894, and pursuant to 15 U.S.C. § 687(c), and 28 U.S.C. §§ 754, 1367, and 1692. Defendant
fails to provide new, previously undiscovered evidence to support lack of jurisdiction or to
sufficiently allege fraud or misconduct; thus, this claim fails the standard required by Rule 60 to
vacate summary judgment.
With regards to Defendant’s continued insistence that a mistake in the service of process
negates personal jurisdiction – this claim has also been addressed previously. (See Doc. No. 24
(finding that Plaintiff fulfilled its statutory filing requirements to establish personal jurisdiction
in the special case of a receivership action, and that, as concerns proper service, Defendant at the
time of that opinion had proper notice)). Since Defendant has failed to provide new, previously
undiscovered evidence on this point or to allege fraud or misconduct, this claim fails the standard
required by Rule 60 to vacate summary judgment.
The Court similarly discards Defendant’s claims that the LPA is invalid based on the lack
of a signature page showing the SBA’s agreement to be a Preferred Limited Partner, (see, e.g.,
Doc. No. 63 at ¶ 28), or the signature of the General Partner, (see, e.g., id. at ¶ 139 (claiming,
inter alia, that the typed signature of an unknown Michael Denslow on one of the LPA’s pages
on behalf of the General Partner negates the existence of a valid partnership contract)). Not only
has Defendant brought these claims previously, (see, e.g., Doc. No. 44), the Court can find no
newly presented evidence of fraud or misrepresentation in connection with these claims.
Regarding the SBA’s signature, or lack thereof, the terms of the LPA agreement itself provide
that even if “the SBA is not a party to the agreement, the SBA shall be deemed an express third
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party beneficiary of the provisions of the Agreement . . . to the extent of the rights of the
preferred limited partners . . . and shall be entitled to enforce such provisions . . . as if the SBA
were a party thereto.” (Doc. No. 34, Ex. 2 at ¶ 4.10). With regards to the authorized signature of
a general partner, the evidence shows that the signature of General Partner William R. Denslow
appears on all of the pages of the LPA that were physically signed by the private limited
partners. (See Doc. No. 34, Ex. 2). Defendant fails to proffer evidence that this page does not
provide adequate confirmation of the authorization of a valid General Partner. As this Court fails
to find any fraud or misrepresentation as to these matters on the part of the opposing party, and
fails to see any newly discovered evidence proffered by the Defendant that might affect a
reevaluation on the merits, these claims must also be disregarded.
Equally fruitless for the Defendant are 1) his citations to a New York state court fraud
claim brought by his brother, Jackie Herbst, against Penny Lane as evidence that summary
judgment was premature, (Doc. No. 63 at ¶ 11 at 147-62), and 2) his assertions that Penny Lane
engaged in previous breaches of contract that resulted in an invalid and null partnership contract,
(id. at ¶ 163-66). Generally, a material breach that might relieve Defendant of his
responsibilities under the LPA, “must ‘go[] to the essence of the contract . . .’” [and] be “‘of
sufficient importance to justify non-performance by the non-breaching party.’” Norfolk S. Ry.
Co. v. Basell USA Inc., 512 F.3d 86, 92 (3d Cir. 2008) (quoting Biolife Solutions, Inc. v.
Endocare, Inc., 838 A.2d 268, 278 (Del. Ch. 2003)). Defendant fails to present evidence that the
alleged fraud against his brother and the other alleged breaches (which possess no coherent
factual support) resulted in harm to himself sufficient to counter his obligations as a limited
partner. Thus, the Court finds these claims insufficient to vacate summary judgment under Rule
60.
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Finally, Defendant makes various claims attacking both Plaintiff’s conduct and the
Court’s. Defendant argues that Plaintiff’s motion for summary judgment failed “multiple”
Federal Rules of Civil Procedure requirements, was supported by flawed affidavits, and was
“perjurious” under Federal Rule of Civil Procedure § 11(b) in claiming that there were no issues
of unresolved fact. (Doc. No. 63 at ¶¶ 8-10). Defendant claims that the Court engaged in
multiple ex parte communications and negotiations with Plaintiff, and expressed general
favoritism toward the receiver, harming Defendant. (See, e.g., id. at ¶ 14). Defendant further
declares that Plaintiff submitted false or fabricated documents to the Court. (Id. at ¶ 13). While
these claims, if shown to be true, would be serious, here they lack any factual or evidentiary
support. Thus, the Court also rejects these claims as sufficient to vacate summary judgment
under Rule 60.
CONCLUSION
For the aforementioned reasons, the Court will deny Defendant’s motion for summary
judgment. An appropriate form of Order accompanies this Memorandum Opinion.
Dated: October 9 , 2012
/s/Anne E. Thompson
ANNE E. THOMPSON, U.S.D.J.
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