FAMECO REAL ESTATE, L.P. v. BENNETT et al
Filing
26
OPINION. Signed by Judge Joel A. Pisano on 5/7/2013. (gxh)
NOT FOR PUBLICATION
UNITED STATES DISTRICT COURT
DISTRICT OF NEW JERSEY
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Plaintiff,
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v.
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TYLER BENNETT AND DANIEL
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SPECTOR, et al..
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Defendants.
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____________________________________:
FAMECO REAL ESTATE, L.P.,
Civil Action No. 12-06102 (JAP)
OPINION
PISANO, District Judge.
This is an action brought by Plaintiff Fameco Real Estate, L.P. (“Plaintiff” or “Fameco”)
against Defendants Tyler Bennett (“Bennett”), Daniel Spector (“Spector”), Winick Realty Group
NJ, LLC and Winick Realty Group LLC (collectively, “Defendants”). Plaintiff’s Complaint
alleges that Defendants are liable for breach of contract, breach of duty of loyalty, breach of the
duty of good faith and fair dealing, interference with contract, interference with prospective
economic advantage, conspiracy and aiding and abetting, and misappropriation of trade secrets.
Plaintiff also alleges a claim for injunctive relief. Presently before the Court is Defendants’
Motion to Dismiss Pursuant to Federal Rule of Civil Procedure 12(b)(1) for lack of subject
matter jurisdiction (dkt. entry no. 7).1 Plaintiff opposes the motion. The Court decides these
matters without oral argument pursuant to Federal Rule of Civil Procedure 78. For the reasons
set forth below, the Court finds that there is complete diversity of citizenship between the parties
1
Defendants Winick Realty Group NJ, LLC (named in the Complaint as Winick Realty Group
LLC NJ) and Winick Realty Group LLC join in the Motion to Dismiss, which was filed by
Bennett and Spector (dkt. entry no. 25).
and the amount in controversy requirement is met, thereby vesting this Court with subject matter
jurisdiction. Accordingly, Defendants’ Motion to Dismiss shall be denied.
I.
Background
A. Plaintiff’s Complaint
The following allegations are summarized from the Complaint, and must be taken as true
in deciding this Motion to Dismiss. Fameco is a real estate brokerage firm specializing in
retailer representation, landlord leasing, property management and investment sales. In October
2008, Spector entered into a Broker-Salesperson contract with Fameco and in April 2010,
Bennett entered into a Broker-Salesperson contract with Fameco (collectively, the “Broker
Agreements”). The Broker Agreements set forth the terms by which Spector and Bennett would
serve as independent contractors and salespersons for Fameco.
Among other things, the Broker Agreements obligated Spector and Bennett to devote
their best efforts to further the interests of Fameco and to use any information gained from this
affiliation to benefit Fameco. The Broker Agreements also prohibited Spector and Bennett from
distributing information about Fameco’s business to third parties without Fameco’s written
consent and from using such information in any way, should their affiliations with Fameco
terminate. Finally, the Broker Agreements each provided that, in the event Spector or Bennett’s
respective affiliation with Fameco was terminated, such Defendant agreed that he would not
provide brokerage services to any of Fameco’s clients for a period of one year following
termination. If Spector or Bennett failed to comply with these terms, he would forfeit his right to
any future commissions or payments owed to him by Fameco. Throughout their respective
affiliations with Fameco, Spector and Bennett provided brokerage services to various Fameco
clients, in accordance with the terms of the Broker Agreements.
On June 27, 2012, Spector resigned from his position at Fameco. Several weeks later, on
July 17, 2012, Bennett also resigned from his position at Fameco. After Spector and Bennett
terminated their relationships with Fameco, they both became affiliated with Defendant Winick
Realty Group LLC (“Winick”), another real estate brokerage firm. Plaintiff alleges that Winick
hired Spector and Bennett in an effort to open an office in New Jersey that will provide retail
leasing and advisory real estate services. Since becoming affiliated with Winick, Spector and
Bennett have allegedly provided brokerage services to Fameco’s clients, in violation of the terms
of the Broker Agreements.
In August 2012, Fameco sent Bennett a letter, demanding that he cease and desist from
violating his agreement with Fameco and notifying Bennett that it intended to file suit if Bennett
did not confirm in writing that he had ceased working with Fameco’s clients. Bennett did not
respond to Fameco’s letter. Similarly, in September 2012, Fameco sent Spector a letter,
demanding that he cease and desist from violating his agreement with Fameco and notifying
Spector of its intent to file suit if Spector did not confirm in writing that he had ceased working
with Fameco’s clients. Spector did not respond to Fameco’s letter. Fameco also sent a letter to
Winick in September 2012, in which it stated that it was aware of Bennett and Spector’s
affiliation with Winick and intended to file suit if Defendants did not cease working with
Fameo’s clients. Winick did not respond to this letter. On September 27, 2012, Fameco
commenced this action.
B. Defendants’ Motion to Dismiss
Defendants move to dismiss Plaintiff’s Complaint, arguing that one of Fameco’s partners
is a citizen of New Jersey and thus, there is not complete diversity of citizenship between the
parties since Defendants are also New Jersey citizens. Specifically, Defendants assert that
Plaintiff’s Complaint fails to identify an individual named Jay Miller (“Miller”) as a partner of
Fameco, but that the firm’s public materials make clear that Miller is a partner of the firm.
Defendants claim that Miller became a partner in 2009 and since that time, Fameco has held
Miller out as a partner to customers, firm employees and salespersons, including Defendants.
Defendants further argue that, even if Miller is not an equity partner, they were never made
aware of Miller’s non-equity status or his purported inability to enter into agreements on the
firm’s behalf. Instead, they claim that they were led to believe that Miller was a full partner of
the firm, with all the right and obligations associated with partnership. Accordingly, they
contend that Fameco should be estopped from now denying Miller’s status as partner. And
because Mercer County tax records demonstrate that Miller is a citizen of New Jersey,
Defendants argue that there is not complete diversity and the Court lacks jurisdiction.
Plaintiff does not dispute that Miller is a citizen of New Jersey, but instead asserts that
Miller’s citizenship is irrelevant for purposes of determining Fameco’s citizenship because
Miller is not in fact a partner of the firm. Plaintiff asserts that in 2009, Miller entered into an
agreement with Fameco, which set forth the parameters of their relationship (the “Non-Equity
Agreement”). The Non-Equity Agreement states that: Miller has a contractual relationship with
Fameco that is outside the purview of the firm’s partnership agreement; he is not a signatory to
Fameco’s partnership agreement; he has not contributed any capital to the firm; he has no voting
rights or ownership rights in the partnership; he has no responsibility for Fameco’s liabilities;
and he is not entitled to a share of the firm’s profits. In addition, Fameco claims that Miller has
been issued a Form 1099 annually, as opposed to equity partners, who receive Form K-1s.2
2
Both parties have submitted fact affidavits and exhibits in support of their contentions. Plaintiff
also filed a sur-reply requesting that the Court strike a portion of Defendants’ reply brief and
supporting declarations because these submissions allegedly raised new arguments that were not
advanced in the initial papers or Plaintiff’s opposition. As an initial matter, the Court notes that
Finally, Plaintiff asserts that Miller is also bound by another agreement with the firm, which bars
him from executing documents on Fameco’s behalf or otherwise obligating the firm in any way.
The Court addresses these arguments below.
II.
Standard of Review
Federal courts are courts of limited jurisdiction. See Kokkonen v. Guardian Life Ins. Co.
of Am., 511 U.S. 375, 377 (1994). As a result, they only have jurisdiction over civil actions
arising under the Constitution, laws or treaties of the United States. See 28 U.S.C. § 1331. When
a claim does not arise out of a federal question, federal courts have jurisdiction only in cases
where there is complete diversity of citizenship between the parties involved and the amount in
controversy requirement is met. 28 U.S.C. § 1332. The current general-diversity statute grants
federal district courts jurisdiction over suits for more than $75,000 “between . . . citizens of
different States.” 3 28 U.S.C. § 1332(a). For diversity jurisdiction to attach, “all parties on one
side of a litigation must be of a different citizenship from all of those of the other.” Carlsberg
Resources Corp. v. Cambria Savings and Loan Assoc., 554 F.2d 1254, 1258 (3d Cir. 1977). The
party claiming jurisdiction bears the burden of demonstrating complete diversity. See Chem.
Leaman Tank Lines, Inc. v. Aetna Cas. & Sur. Co., 177 F.3d 210, 222 n. 13 (3d Cir. 1999).
In evaluating a Rule 12(b)(1) motion to dismiss, the Court must determine whether the
motion attacks the Complaint as deficient on its face, or whether the motion attacks the existence
of subject matter jurisdiction in fact. See Turicentro, S.A. v. Am. Airlines, Inc., 303 F.3d 293,
Plaintiff did not request the Court’s permission to file this sur-reply, as required by Local Rule
7.1(d)(6), and therefore the sur-reply is improper. In any event, the Court finds that Defendants’
reply brief and supporting declarations should be considered because Defendants bear the burden
of proof in establishing there is a partnership and are entitled to present evidence in support of
this proposition. See Leprino Foods Co. v. Gress Poultry, Inc., 379 F. Supp. 2d 650, 655 (M.D.
Pa. 2005). Thus, the Court declines to strike Defendants’ reply brief.
3
The parties in this case do not dispute that the amount in controversy exceeds $75,000.
Therefore, the Court will not address that issue in this Opinion.
300 & n.4 (3d Cir. 2002). “In reviewing a facial attack, the court must only consider the
allegations of the complaint and documents referenced therein and attached thereto, in the light
most favorable to the plaintiff. In reviewing a factual attack, the court may consider evidence
outside the pleadings.” Gould Elecs. Inc. v. United States, 220 F.3d 169, 176 (3d Cir. 2000).
The Court has substantial procedural flexibility in handling Rule 12(b)(1) motions, but “the
record must clearly establish that after jurisdiction was challenged the plaintiff had an
opportunity to present facts by affidavit or by deposition, or in an evidentiary hearing, in support
of his jurisdictional contention.” Berari v. Swanson Mem’l Lodge No. 48 of Fraternal Order of
Police, 920 F.2d 198, 200 (3d Cir. 2000). Defendants in this case make a factual attack on
subject matter jurisdiction. Accordingly, the Court will consider all of the evidence submitted by
both parties in deciding this Motion to Dismiss.
III.
Legal Discussion
A. Citizenship of the Partnership
Defendants allege lack of subject matter jurisdiction due to a lack of diversity between
the parties. The Supreme Court has established that for artificial entities other than corporations,
citizenship “depends on the citizenship of all the members, the several persons composing such
association, each of its members.” Carden v. Arkoma Assocs., 494 U.S. 185, 195-96 (1990)
(internal quotations omitted). “When the rule of complete diversity is applied in conjunction
with the principle that the citizenship of a partnership depends upon that of its members, it
becomes clear that diversity jurisdiction may not obtain . . . unless all of the members of the
plaintiff partnership are of distinct citizenship from all of the defendants.” Carlsberg, 554 F. 2d
at 1259. A limited partnership is a citizen of every state of which any partner, general or
limited, is a citizen. Id. at 1260-62. There are no exceptions to this rule. Thus, if Miller is a
partner of Fameco, Fameco is a citizen of any state of which Miller is a citizen.
There are cases, however, in which a partnership may describe a person as one of its
“partners,” although that person is not actually a partner of the partnership under state law. For
example, in the case on which Plaintiff primarily relies, Morson v. Kriendler & Kriendler LLP,
616 F. Supp. 2d 171 (D. Mass. 2009), a New York law firm described one of its attorneys as a
partner, even though, under New York law, that attorney was really only an employee. In such
cases, the citizenship of the purported “partner” can be disregarded. See id.; see also Garcia v.
Farmers Ins. Exchange, 121 F. Supp. 2d 667, 669-670 (N.D. Il. 2000) (finding that the
citizenship of insurance company’s members or policyholders was irrelevant for purposes of
determining the company’s citizenship, since such policyholders had a contractual relationship
with the company but were not members of the company under state law). Thus, the Court must
determine whether Miller is in fact a partner of Fameco under state law.4
Under Pennsylvania law, a “partnership is an association of two or more persons to carry
on as co-owners a business for profit.” 15 Pa. Cons. Stat. Ann. § 8311(1). To determine if a
partnership exists, there must be “clear, mutual assent on the part of two or more persons” to
form a partnership. In re Jackson, 28 B.R. 559, 562-63 (Bankr. E.D. Pa. 1983). A partnership
may be in writing, or it may be implied from all attending facts and circumstances, i.e., the
manner in which the purported partners conducted their business. See Leprino Foods Co. v.
Gress Poultry, Inc., 379 F. Supp. 2d 650, 655 (M.D. Pa. 2005). The sharing of gross returns
does not alone establish a partnership, see 15 Pa. Cons. Stat. Ann. § 8312, but a pattern of profit
and loss sharing or a partnership tax return may support a finding of a partnership. Leprino, 379
4
Fameco is a Pennsylvania limited partnership. Accordingly, the Court must look to
Pennsylvania law to determine whether Mr. Miller is a partner.
F. Supp. 2d at 655. The burden of proof lies with the party seeking to establish there is a
partnership. Id.
Here, Defendants contend that the designation of Miller as a “partner,” coupled with
Plaintiff’s apparent practice of holding out Miller as partner is sufficient to establish that Miller
is a partner of the firm. The Court disagrees. Defendants have not presented any evidence that
Fameco or Miller intended to enter into a partnership with one another, except for the
designation of Miller as a “partner” on the firm’s website and public materials. Nor is there any
evidence of profit and loss sharing between Miller and Plaintiff from which an intent to form a
partnership may be inferred. Indeed, Miller’s contract with Fameco specifically denies any such
profit sharing and makes clear that Miller is not a co-owner of the firm and is not a signatory to
the partnership agreement.5 See Morson, 616 F. Supp. 2d at 172-73 (contract partner who was
paid a fixed salary, did not make a capital contribution or share in the firm’s profits and did not
have any liability for the firm’s debts was merely an employee whose “citizenship is irrelevant
for purposes of a diversity analysis”). Additionally, Miller has not filed a partnership tax return
or received a Form K-1 from Plaintiff during the period in which he has been affiliated with it.
Miller “do[es] not become a member of a business association merely by entering into a
contractual relationship with it.” Garcia, 121 F. Supp. 2d at 669. Thus, the Court finds that
Miller is not a partner of Fameco.
5
The fact that Miller may be entitled to a bonus if he hits certain commission targets and the firm
is profitable in a given year does not transform his contractual relationship with Fameco into a
partnership. The Non-Equity Agreement specifically provides that Miller’s annual bonus is to be
calculated as a percentage of his gross commissions, not of Fameco’s profits. In other words,
Miller’s potential bonus is more akin to a bonus on a fixed salary than to a share of profits.
B. Partnership by Estoppel
Alternatively, Defendants argue that even if Miller is not technically a partner under state
law, he is nonetheless a partner under a theory of “partnership by estoppel”. The Court is not
persuaded.6 Under Pennsylvania law, the elements of partnership by estoppel are: (1) a
representation to a third party that one is a partner; (2) reliance upon that representation by the
third party to whom it was made; and (3) the extension of credit by such party on reliance upon
the representation. Leprino, 379 F. Supp. 2d at 656 (citing Import Prods. Co., Inc. v. Group RL
Inc., 1998 WL 1093454, at *4 (Pa. Com. Pl. 1998)). “Estoppel is based upon the principle that if
a man holds himself out, either actively or passively, or permits himself to be held out as a
member of a partnership, and so induces third parties to deal with the firm and extend credit
upon the belief that the party estopped was a member thereof, and upon credit of this party, when
otherwise they would not have so dealt, he should not then be allowed to deny his apparent
connection with the partnership, and so escape liability.” Id. (citations omitted).
Here, Bennett and Spector contend that they were misled by Miller’s and Fameco’s
representations that Miller was a partner and that they relied on these representations in their
professional interactions with Miller and the other partners at Fameco. They assert that they
“took directions” from Miller and “accepted as true” information that Miller relayed to them
about Fameco’s management and operations. They state that they did not distinguish Miller
from the other partners in any way and “tended to their duties and responsibilities” as
salespersons based on their belief that Miller was a partner. Bennett and Spector further allege
that Miller made certain promises on behalf of Plaintiff, including a representation that Fameco
intended to make Spector a partner in Fameco’s New Jersey office.
6
The Court notes that it is unclear whether its jurisdiction could be divested by an estoppel
theory. However, even if it could, Defendants fail to establish a partnership by estoppel here.
However, even accepting all of Defendants’ assertions as true, the record is completely
devoid of any evidence that Bennett or Spector ever extended credit to Fameco or Miller based
on these representations, a crucial element of establishing partnership by estoppel under
Pennsylvania law.7 Defendants have also failed to show that Spector and Bennett relied upon
representations that Miller was a partner when they entered into the Broker Agreements with
Fameco. Indeed, Spector signed his agreement with Fameco in 2008, a year before Miller
purportedly became a partner of the firm and there is no evidence that Spector continued his
relationship with Fameco after 2009 based on his belief that Miller was a partner. See Morson,
616 F. Supp. 2d at 173 (finding that plaintiff could not establish element of reliance where the
events at issue took place years prior to the misrepresentations regarding the contract partner’s
status). Nor is there any evidence that Bennett agreed to enter into a contract with Fameco in
2010 based on his understanding that Miller was a partner.
Simply put, while Bennett and Spector argue that the firm’s designation of Miller as a
“partner” is sufficient evidence of a partnership, they have failed to show how they relied upon
this representation to their detriment. The mere fact that they interacted with Miller as if he were
a partner and believed that he had the authority to bind Plaintiff is insufficient to establish
reliance. “[T]he doctrine of estoppel is not sufficient to create a partnership as between the
alleged partners, or as to third persons who have not in fact been misled.”). Leprino, 379 F.
Supp. 2d at 658 (quoting In re Ganaposki, 27 F. Supp. 41, 42 (M.D. Pa. 1939), emphasis added).
Absent evidence of reliance, Defendants cannot establish a partnership by estoppel.
7
By contrast, the standard for partnership by estoppel under Massachusetts law only requires a
showing of prejudice, not the actual extension of credit. See Morson, 616 F. Supp. 2d at 173.
Either way, Defendants cannot demonstrate the element of reliance.
C. Jurisdictional Discovery
Finally, Defendants request that they be permitted to take limited discovery on the issue
of Miller’s “status as a member of [Fameco] and the application of the doctrine of partnership by
estoppel.” Specifically, they seek to uncover additional information about the identity and
citizenship of Miller and whether he is a partner of Fameco, either as a matter of fact or under an
estoppel theory. As noted above, it is unclear whether the Court’s jurisdiction can be divested by
an estoppel. Even if it could, however, the Court finds that discovery at this stage is
unwarranted, since Plaintiff has established that Miller is not in fact a partner of the firm and
Defendants cannot demonstrate that they detrimentally relied on Miller’s alleged status as a
partner for purposes of establishing a partnership by estoppel.8 Accordingly, Defendants’
request for jurisdictional discovery is denied.
IV.
Conclusion
For the foregoing reasons, the Court finds that it has subject matter jurisdiction over this
case. Therefore, Defendant’s Motion to Dismiss will be denied. An appropriate Order follows.
/s/ Joel A. Pisano
JOEL A. PISANO, U.S.D.J.
Dated: May 7, 2013
8
We recognize that jurisdictional discovery may be appropriate in some cases. “In the Third
Circuit, jurisdictional discovery is available to assist a plaintiff in establishing the contacts
necessary for the exercise of personal jurisdiction.” Everything Yogurt Brands, LLC v. M.A.R.
Air Foods, Inc., 2009 U.S. Dist. LEXIS 94601, at *3 (D.N.J. 2009). Here, however, Defendants
seek jurisdictional discovery related to subject matter – not personal – jurisdiction. “The Third
Circuit has not directly addressed, however, the question of whether jurisdictional discovery is
available to assist in resolving uncertainties about diversity jurisdiction.” Id. Moreover, the
Court is unaware of any case in this circuit where jurisdictional discovery is permitted to defeat,
rather than establish, jurisdiction. Nor does such discovery make sense where, as here, Plaintiff
has established this Court's jurisdiction.
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