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Steiert v. Mata Services

August 28, 2000

GEOFFREY L. STEIERT, GEOFFREY L. STEIERT, ESQ., P.C.; PENSCO PENSION SERVICES, INC. FBO GEOFFREY L. STEIERT; FRANKLIN & MCKINLEY, INC.; NETWORK COMMUNICATIONS, INC. D/B/A HEALING TOUCH;
PLAINTIFFS,
V.
MATA SERVICES, INC.; KI DIGITAL, INC.; CHARLES & MARGARET MCCORMICK, H/W WILLIAM AND KATHY SCHROEDER, H/W MACROPHAGE, INC; KI DIGITAL, LLC; MATA SERVICES, LLC; IRIDIUM INTERSTATE, LLC; FILM EAST, LLC; SCREENWORKS, LLC; KI MANAGEMENT, LLC; KEVIN A. MCCORMICK; K.A.M. ENTERPRISES, INC.; ROBERT STEVENS, ESQ., AS RECEIVER FOR MATA SERVICES, INC. AND KI DIGITAL, INC.; JOHN DOE 1; JOHN DOE 2; C CORP. 1 AND C CORP. 2,
DEFENDANTS.



The opinion of the court was delivered by: Brotman, District Judge

FOR PUBLICATION

OPINION ON DEFENDANTS' MOTIONS TO DISMISS PURSUANT TO FEDERAL RULE OF CIVIL PROCEDURE 12(b)(1) OR 12(b)(6)

Presently before this Court pursuant to 28 U.S.C. ' 1331 (federal question jurisdiction) is Defendants' *fn1 motion to dismiss the complaint of Plaintiffs Geoffrey L. Steiert (hereinafter "Steiert" or "Plaintiff"); Geoffrey L. Steiert, Esq., P.C.; Pensco Pension Services, Inc. FBO Geoffrey L. Steiert; Franklin & McKinley, Inc.; and Network Communications, Inc d/b/a/ Healing Touch (collectively "Plaintiffs").

I. FACTUAL AND PROCEDURAL BACKGROUND

The instant suit arises out of a series of loans made by Plaintiff Geoffrey Steiert to Defendants Mata Services, Inc. and its affiliates. On or about November, 1996, Plaintiff was solicited by defendants William and Kathy Schroeder (collectively "Schroeders") and Macrophage to lend money to defendant Mata Services for the purpose of participating in the "factoring of commission paper" involved in the short-term bulk sale of upscale computer equipment. (See First Amended Compl. at ¶¶ 35-40. Predicated on the Schroeders' representations, Steiert invested $2,500 in Mata Services which was repaid by the end of March 1997. (See id. at ¶ 41)

Subsequently, Bill Schroeder informed Steiert that Mata Services was now seeking to continue its factoring loans, but without outside financing. ( See id. at ¶¶ 42-56) Shortly thereafter, Mata Services announced a one-time opportunity to invest in a new business venture, which would be a "division" of Mata Services called "Ki". ( See id. at ¶¶ 46-47).

By April of 1998, Steiert's loans to the company totaled approximately $500,000. (See id. at ¶ 56). The private stock offering was postponed and with each delay, Plaintiff's loans were renewed or "rolled over." (See id. ¶¶ 56-61) In May of 1998, Plaintiff requested the return of his loan proceeds, but was advised that Mata Services could not make any payments due to an ongoing Securities and Exchange Commission ("SEC") audit. (See id. at ¶¶ 58-61)

On or about June 19, 1998, the Attorney General of the State of New Jersey, individually and on behalf of the Chief of the Bureau of Securities, filed a civil enforcement action against Mata Services, Inc.; Ki Digital, Inc.; and Charles McCormick alleging violations of New Jersey's securities law. ( See id. at ¶ 62) On that same date, a Consent Order was entered into by Mata Services, Inc., Ki Digital, Inc., McCormick, and the State Bureau of Securities, which was signed by the Honorable Harry A. Margolis, P.J.Ch. The Order, among other things, appointed Robert Stevens, Esq. ("Stevens") as the Receiver for Mata Services and its related entities. (See id. at ¶ 63)

On November 4, 1998, Steiert filed the instant action, asserting that he was induced to make these loans by certain misrepresentations made by Defendant Mata Services, including the misrepresentation that: i) Mata Services was well-capitalized and had no debt; ii) Steiert's loans were secured; iii) Steiert's loans would be converted to stock upon approval by the SEC of Mata Services' stock offering; and iv) Mata Services had enough cash to repay the loans on demand at any time before the SEC approval of Mata Services' offering. In addition to violations of federal securities law, the Plaintiff sought recovery under New Jersey's securities law, New Jersey's Consumer Fraud Act, and various common law tort claims. (See First Amended Compl.)

Five months later, on April 8th 1999, Plaintiff filed an application in this Court for a temporary restraining order, preliminary injunction and expedited discovery. Magistrate Judge Robert B. Kugler denied the Plaintiff's application for a temporary restraining order. (See Opinion & Order dated April 20th 1999)(recounting denial of temporary restraining order) Judge Kugler further ordered the parties to appear before him on April 13th for a hearing on Plaintiff's preliminary injunction application. (See id.) After the April 13th hearing, an Opinion & Order was issued denying Plaintiff's application. (See id.) In it Judge Kugler rejected Defendant's argument that principles of abstention required the Court to refrain from exercising jurisdiction. (See id. at 24-27)

Shortly thereafter Defendants filed a motion to dismiss pursuant to Rule 12(b)(6) and in response the Plaintiff filed a cross-motion to amend the complaint. In a July 12th Opinion and Order the Court granted Plaintiff leave to amend his complaint and Defendants' motion was denied in part and dismissed in part without prejudice. *fn2 On November 3rd 1999 the state court expanded Steven's authority, consistent with N.J.S.A. 49:3-69, by appointing him a permanent receiver. Six days later, on November 9th 1999, the Plaintiff amended the complaint in this action. (See First Amended Complaint) In response the Defendants filed the instant motion, arguing that the Younger and Colorado River abstention doctrines mandate that the Court refrain from exercising jurisdiction.

II. DISCUSSION

Asserting that allowing Plaintiffs to pursue their federal suit could potentially deplete the allegedly limited pool of assets the state seeks to preserve for redistribution to investors, the Defendants argue that the Court should abstain from hearing this matter under the doctrine of either Younger or Colorado River. The Plaintiffs, however, contend that Judge Kugler's April 20th 2000 Opinion and Order rejected the applicability ...


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