KOLBER PROPERTIES, LLC. v. EVAN

Filing 29

OPINION. Signed by Judge Joel A. Pisano on 2/11/2014. (gxh)

NOT FOR PUBLICATION
UNITED STATES DISTRICT COURT
DISTRICT OF NEW JERSEY
____________________________________
:
KOLBER PROPERTIES, LLC,
:
:
Plaintiff,
:
:
v.
:
Civil Action No. 13-293 (JAP) (TJB)
:
DAVID EVAN,
:
OPINION
:
Defendant.
:
:
PISANO, District Judge.
This is an action brought by Plaintiff Kolber Properties, LLC (“Plaintiff” or “Kolber
Properties”) against Defendant David Evan (“Defendant” or “Evan”). Plaintiff’s Complaint
alleges that Defendant is liable for breach of contract, breach of the covenant of good faith and
fair dealing, and unjust enrichment in connection with a loan to a partnership to purchase and sell
real estate. Defendant has filed counterclaims alleging that Plaintiff is liable for breach of
contract, breach of the covenant of good faith and fair dealing, breach of fiduciary duty, and
prima facie tort, and requesting an equitable accounting and rescission. Presently before the
Court is Plaintiff’s Motion to Dismiss Defendant’s Counterclaim pursuant to Federal Rule of
Civil Procedure 12(b)(6) [ECF No. 19]. Defendant has opposed this motion, and filed a CrossMotion to Dismiss Counts One and Two of Plaintiff’s Complaint in the alternative. The Court
decides these matters without oral argument pursuant to Federal Rule of Civil Procedure 78. For
the reasons set forth below, the Court will grant Plaintiff’s Motion, and deny Defendant’s CrossMotion.

I.

Background and Procedural History
As the Court has already recounted the facts of this case in its Motion to Dismiss Opinion

(the “Opinion”) dated June 18, 2013 [ECF No. 14], the Court will only recount relevant facts as
to this motion. In May 2005, George Kolber (“Kolber”), Steven Ambrogio (“Ambrogio”), and
Defendant (together, the “Partners”) entered into a partnership to purchase three condominiums
in Biloxi, Mississippi (the “Properties”). The Partners each contributed $89,494.86 to the
partnership, which would be used to partially fund the purchase of the Properties. The Partners
also entered into a Partnership Agreement, which governed the terms of their business
arrangement. Kolber Properties is not a party to this Partnership Agreement.
Pursuant to the terms of the Partnership Agreement, the Partners agreed to share profits
from the operation and/or sale of the Properties according to terms set forth in the agreement.
The Partners agreed to appoint Plaintiff Kolber Properties, a separate entity, to be their agent for
purposes of acquiring and holding title to the Properties. Kolber Properties extended a loan to
the Partnership in the amount of approximately $1.1 million to acquire the Properties in 2007.
Kolber Properties was to distribute any profits realized from the Properties to the Partners. In
return, the Partners each agreed to repay one-third of the principal loan to Kolber Properties plus
interest within three years of the loan. The specific repayment terms for the loan are set forth in
the Partnership Agreement.
In September 2007, Kolber Properties began issuing monthly interest statements to each
of the Partners reflecting interest accruing from the advance. Kolber Properties also requested
that each of the three Partners repay their respective one-third of the total principal and interest
due from the loan. Defendant made monthly interest payments to Kolber Properties from
September 2007 through October 2012 but did not make any attempt to repay principal and has

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not made any more payments. Kolber Properties alleges that Defendant now owes more than
$364,700 for his one-third share of the loan.
On January 15, 2013, Plaintiff commenced this action, seeking damages due to
Defendant’s alleged failure to repay his share of the advance. On March 6, 2013, Defendant
moved to dismiss the Plaintiff’s Complaint, arguing that Plaintiff Kolber Properties was bound
by the terms of the Partnership Agreement, particularly the arbitration clause. This Court denied
that motion on June 18, 2013, holding that Kolber Properties was not a party to the Partnership
Agreement and was not therefore bound by the terms of the Agreement. [See Opinion, ECF No.
16]. Thereafter, Defendant filed his Answer, Affirmative Defenses, and Counterclaims on July
2, 2013. Plaintiff now moves to dismiss these counterclaims, essentially on the basis that this
Court has already ruled that it is not a party to the Partnership Agreement through which
Defendant bases most of its counterclaims. Defendant opposes this motion, and alternatively
moves to dismiss Counts One and Two of the Complaint if the motion is granted. Defendant
bases this cross-motion on the premise that “[e]ither Plaintiff is a party to the Agreement, and
Defendant has every right to assert contractual claims against Plaintiff based upon Plaintiff’s
material breach of the terms of the Agreement, or Plaintiff is not a party to the Agreement and
Defendant’s cross-motion…must be granted.” Opp. Br. at 4.
II.

Standard of Review
Federal Rule of Civil Procedure 12(b)(6) provides that a court may dismiss a complaint

“for failure to state a claim upon which relief can be granted.” When reviewing a motion to
dismiss, courts must first separate the factual and legal elements of the claims, and accept all of
the well-pleaded facts as true. Fowler v. UPMC Shadyside, 578 F.3d 203, 210-11 (3d Cir. 2009).

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All reasonable inferences must be made in the Plaintiff’s favor. See In re Ins. Brokerage
Antitrust Litig., 618 F.3d 300, 314 (3d Cir. 2010).
In order to survive a motion to dismiss, the plaintiff must provide “enough facts to state a
claim to relief that is plausible on its face.” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570
(2007). This standard requires the plaintiff to show “more than a sheer possibility that a
defendant has acted unlawfully.” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009). A “plaintiff's
obligation to provide the grounds of his entitle[ment] to relief requires more than labels and
conclusions, and a formulaic recitation of the elements of a cause of action will not do.”
Twombly, 550 U.S. at 555 (internal quotations and citations omitted). When assessing the
sufficiency of a civil complaint, a court must distinguish factual contentions and “[t]hreadbare
recitals of the elements of a cause of action, supported by mere conclusory statements.” Iqbal,
556 U.S. at 678. Any legal conclusions are “not entitled to the assumption of truth” by a
reviewing court. Id. at 679. Rather, “[w]hile legal conclusions can provide the framework of a
complaint, they must be supported by factual allegations.” Id.; see also Fowler, 578 F.3d at 210
(explaining that “a complaint must do more than allege a plaintiff’s entitlement to relief”).
III.

Legal Discussion
In his Counterclaim, Defendant has brought six claims against Plaintiff, alleging various

state law claims. The Court will address each of these claims below.
First, turning to Counts One and Two of the Counterclaim, Defendant brings claims for
breach of contract and breach of the covenant of good faith and fair dealing based upon Kolber
Properties’ alleged failure to issue a note as required under the Partnership Agreement. These
claims must fail because, as this Court has already held, Kolber Properties is neither a party to
the Partnership Agreement nor otherwise bound to the Partnership Agreement by “traditional

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principles of contract and agency law.” Bel Ray Co. Inc. v. Chemrite (Pty) Ltd., et al., 181 F.3d
435, 444 (3d Cir. 1999); see also Opinion at 6-9. Consequently, Counts One and Two, which
allege that Plaintiff has breached the Partnership Agreement, are meritless. Furthermore,
because Counts One and Two of Plaintiff’s Complaint is premised on a loan agreement between
the Partners and Plaintiff, and not the Partnership Agreement upon which Defendant’s
Counterclaim is based, Defendant’s Cross-Motion to Dismiss is denied.
Next, in Count Three, Defendant alleges that Plaintiff has breached its fiduciary duty to
him by engaging in self-dealing when it “fail[ed] to conduct itself in an honest and forthright
manner with respect to the nature of the obligations and rights and responsibilities set forth in the
Agreement.” Countercl. ¶ 27. Defendant’s claim, however, suffers from a fatal flaw: it fails to
allege the existence of a cognizable fiduciary relationship between Plaintiff and himself. “A
claim of breach of fiduciary duty obviously requires the existence of a fiduciary duty between
the parties.” Kronfeld v. First Jersey Nat'l Bank, 638 F. Supp. 1454, 1467 (D.N.J. 1986). In his
crossclaim, Defendant alleges that Plaintiff owed a fiduciary duty to Plaintiff as a party to the
Agreement because New Jersey law recognizes the existence of such a duty between co-partners
in a business transaction. Kolber Properties, however, was not a party to the Partnership
Agreement and not a co-partner of Defendant. See Opinion at 6-9. Therefore, Plaintiff’s attempt
to assert a fiduciary relationship predicated on this basis is insufficient.
Defendant tries to solve this problem by alleging that Plaintiff owed him a fiduciary duty
because Plaintiff was its agent. See Opp. Br. at 8. As an initial matter, because this allegation is
notably missing from Defendant’s Counterclaim and only raised for the first time in Defendant’s
Opposition, it cannot appropriately form the basis of any of his claims nor be considered by a
court in determining the sufficiency of a party’s counterclaims under Rule 12(b)(6). See, e.g.,

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Frederico v. Home Depot, 507 F.3d 188, 201-02 (3d Cir. 2007) (“[W]e do not consider after-thefact allegations in determining the sufficiency of [a party’s] complaint. . . .”); Com. of Pa. ex rel.
Zimmerman v. PepsiCo, Inc., 836 F.2d 173, 181 (3d Cir. 1988) (“It is axiomatic that the
complaint may not be amended by the briefs in opposition to a motion to dismiss.”) (quoting Car
Carriers, Inc. v. Ford Motor Co., 745 F.2d 1101, 1107 (7th Cir. 1984)). Regardless, even if this
Court could consider this argument, it fails. The facts alleged by both parties show that the
relationship that existed between Defendant and Kolber Properties is most akin to that of a
borrow-lender. See, e.g., Compl. ¶¶ 16-18, 22, 24, 26; Countercl. ¶¶ 7, 10, 11. New Jersey
courts have “universally embraced” the presumption that there is no fiduciary duty between a
borrower and a lender. Santone-Galayda v. Wachovia Mortg., FSB, Civil Action No. 10-1065,
2010 U.S. Dist. LEXIS 135496, at *47 (D.N.J. Dec. 22, 2010) (citing Margulies v. Chase
Manhattan Mortgage Corp., 2005 N.J. Super. Unpub. LEXIS 383, at *8-10 (App. Div. Nov. 7,
2005); United Jersey Bank v. Kensey, 306 N.J. Super. 540, 552 (App. Div. 1997); Globe Motor
Car Co. v. First Fidelity Bank, N.A., 273 N.J. Super. 388, 393 (Law Div. 1993)). Here,
Defendant has alleged no facts sufficient to overcome the “heavy presumption that a lenderborrower arrangement is not ordinarily a special relationship subject to a fiduciary duty.” Id. at *
48. In fact, as noted, there is not a single allegation by Defendant that Plaintiff was acting as the
Partners’ agent with respect to the loan. Therefore, because Defendant has failed to allege any
fiduciary duty owed to him by the Plaintiff, Count Three must be dismissed.
In Count Four of his Counterclaim, Defendant attempts to bring a claim for prima facie
tort. Plaintiff contends that Count Four should be dismissed for failure to meet the pleading
standard set forth in Twombly, 550 U.S. 544. This Court agrees. Count Four does not plead
facts sufficient to raise the right to relief above a speculative level. Rather, Count Four contains

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no factual allegations identifying what intentional or malicious conduct Plaintiff engaged in, nor
specifies how this conduct damaged Defendant. Defendant merely asserts that Plaintiff’s
“improper actions” caused him damages, but this is not more than a “formulaic recitation of the
elements of a cause of action.” Id. at 555. Therefore, Count Four of Defendant’s Counterclaim
will be dismissed.1
Defendant’s request for an equitable accounting in Count Five of his Counterclaim must
also be dismissed. An accounting may be appropriate when three elements are present: (1) the
existence of a fiduciary or a trust relation; (2) the complicated nature or character of the account;
and (3) the need for discovery. See Transtech Indus., Inc. v. Certain Underwriters at Lloyds
London, No. A-2604-07T2, 2009 N.J. Super. Unpub. LEXIS 3167, at *4-6 (Super. Ct. App. Div.
July 21, 2009). As discussed, Defendant has failed to allege any facts sufficient to show a
fiduciary relationship existed between Plaintiff and himself. Without the existence of such a
relationship, Defendant’s claim for an equitable accounting must fail.
Finally, in Count Six, Defendant seeks the equitable remedy of rescission. “Where a
mistake of both parties at the time a contract was made as to a basic assumption on which the
contract was made has a material effect on the agreed exchange of performances,” a contract
may be rescinded by the adversely affected party “unless he bears the risk of mistake.” Bonnco
Petrol, Inc. v. Epstein, 115 N.J. 599, 608 (1989) (quoting Restatement (Second) of Contracts
§152(1) (1979) [hereinafter, the “Restatement”]). Consequently, a rescission may occur if three
conditions are met: “First, the mistake must relate to a basic assumption on which the contract
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It is also notable that, under New Jersey law, prima facie torts are designed to redress those “intentional, willful
and malicious harms that fall within the gaps of the law and…have been most frequently permitted only in the
limited situations in which plaintiffs would have no other causes of action.” Richard A. Pulaski Constr. Co. v. Air
Frame Hangars, Inc., 195 N.J. 457, 469 (2008) (internal quotations omitted). It can only proceed if it passes the
“threshold requirement” of having no other, established cause of action available to the pleading party. Id. at 470.
Therefore, when attempting to bring such a prima facie tort claim, it is particularly important to provide fair notice
of the factual basis for the tort so the claim can be appropriately evaluated to ensure that it passes the “threshold
requirement” of providing a cause of action where no other one exists.

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was made. Second, the party seeking avoidance must show that the mistake has a material effect
on the agreed exchange of performances. Third, the mistake must not be one as to which the
party seeking relief bears the risk.” Restatement § 152(a).
Under Rule 9(b), when a party alleges mistake, the party must state with particularity the
circumstances constituting mistake. “Rule 9(b) exists to insure adequate notice so that
defendants can intelligently respond.” Ill. Nat'l Ins. Co. v. Wyndham Worldwide Operations,
Inc., 653 F.3d 225, 232-233 (3d Cir. 2011) (citing Morganroth & Morganroth v. Norris,
McLaughlin & Marcus, P.C., 331 F.3d 406, 414 n.2 (3d Cir. 2003)). In its Counterclaim,
Defendant vaguely alleges that the “same erroneous assumptions as to the material terms, rights
and obligations relevant to their shared venture” were shared by both parties, and that these
“shared erroneous assumptions were material to the agreed exchange of performance,” and that
the parties were not aware of these erroneous assumptions and therefore “the agreement between
the parties should be rescinded.” Countercl. ¶¶ 33-36. A review of the Counterclaim fails to
show any factual allegations that support these legal conclusions. For example, a reading of the
Counterclaim gives absolutely no notice to what “erroneous assumptions” were shared by both
parties.

Consequently, these allegations would fail to meet the requirements of Rule 8(a),

nevertheless the higher standard required under Rule 9(b), which demands that a party
“specifically allege[] the mistake and remedy being sought.” Ill. Nat’l Ins. Co., 653 F.3d at 233.
For that reason alone, Count Six must be dismissed.
Defendant, however, once again attempts to improperly amend his Counterclaim by
asserting new factual allegations in his Opposition. Even if the Court were to consider these
allegations, Defendant’s claim for an equitable rescission would still fail. Defendant appears to
allege that, when the Partners entered into the Partnership Agreement in May 2005, their basic

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assumption was that the Properties would be quickly resold at a profit, but that the subsequent
unexpected occurrence of Hurricane Katrina, in August 2005, dramatically changed the market
conditions. Once again, this allegation relates at best to a fact assumed by the Partners when
they entered into their Partnership Agreement. The occurrence and effect of Hurricane Katrina
cannot form the basis of mutual mistake shared by Plaintiff and Defendant when they entered
into their loan agreement almost two years later. Furthermore, even if Plaintiff and Defendant
did share a mutual mistake as to their shared expectations regarding their resale of the Properties,
Defendant, as an investor, assumed the risk that the market conditions would change and
Defendant could suffer a loss. See Restatement §§ 152(1), 154; see also Beachcomber Coins,
Inc. v. Boskett, 166 N.J. Super. 442, 446 (App. Div. 1979) (“It is well established that a party to a
contract can assume the risk of being mistaken as to the value of the thing sold. . . .Where the
parties know that there is doubt in regard to a certain matter and contract on that assumption, the
contract is not rendered voidable because one is disappointed in the hope that the facts accord
with his wishes. The risk of the existence of the doubtful fact is then assumed as one of the
elements of the bargain.”) (internal quotation and citation omitted). Plaintiff cannot have an
agreement rescinded simply because the investment did not turn out to be profitable. Therefore
Count Six of Defendant’s Counterclaim is dismissed.
IV.

Conclusion
For the reasons stated above, Plaintiff’s Motion to Dismiss is granted and Defendant’s

Cross-Motion to Dismiss is denied. An appropriate Order accompanies this Opinion.
/s/ Joel A. Pisano
JOEL A. PISANO, U.S.D.J.

Dated: February 11, 2014

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