United States District Court, D. New Jersey
December 16, 2005.
FARASH & ROBBINS, INC., Plaintiff,
FLEET NATIONAL BANK, as successor of SUMMIT BANK, Defendant. FLEET CAPITAL CORPORATION, Counterclaim and Third Party Plaintiff, v. FARASH & ROBBINS, INC., Counterclaim-Defendant, and ISIDOR FARASH, Third Party Defendant.
The opinion of the court was delivered by: DENNIS CAVANAUGH, District Judge
This matter comes before the Court upon motions filed by
Defendant Fleet Capital Corporation ("Fleet") and by Plaintiff
Farash & Robbins, Inc. ("Plaintiff"). Fleet moves for summary
judgment on its counterclaims against Plaintiff for breach of
contract 2) Isidor Farash ("Farash") for breach of contract and 3) Plaintiff and Farash for
conversion. Plaintiff moves to dismiss all Fleet's counterclaims.
Defendant moves and Plaintiff cross-moves for summary judgment on
Plaintiff's claims against Fleet for breach of contract, breach
of the covenant of good faith and fair dealing, and violation of
the New Jersey Consumer Fraud Act ("CFA").
No oral argument was heard pursuant to Federal Rule of Civil
Procedure 78. After carefully considering the submissions of all
parties and for the following reasons, Fleet's motion for summary
judgment, Plaintiff's motions for summary judgment, and Fleet's
motion to dismiss are denied. Fleet's motion to dismiss with
regard to Plaintiff's CFA claim is granted.
Plaintiff originally brought this action in the New Jersey
Superior Court, Law Division, Bergen County. Fleet removed the
action to federal court on January 1, 2003 on the basis of
diversity jurisdiction. On June 10, 2003, Fleet filed
counterclaims against Plaintiff for breach of contract and
conversion, and a third-party complaint against Isidor Farash
("Farash") for breach of contract. On February 13, 2004, this
Court denied Fleet's motion to dismiss Plaintiff's claims for
breach of contract, breach of the implied covenant of good faith
and fair dealing, and violation of the Consumer Fraud Act, and
granted Fleet's motion to dismiss as to Plaintiff's claims for
common law fraud, negligent misrepresentation, and punitive
The parties are in agreement as to the following facts.
Plaintiff is a vendor of watch assortments and is wholly owned by
Farash. Pl's Opp. Br. at 5; Def. Mov. Br. at 8. In 1998,
Plaintiff and Fleet's predecessor Summit Bank entered into a Loan
and Security Agreement ("Loan Agreement"), to provide working
capital to Plaintiff. Id. Plaintiff's availability under the
credit facility was determined under a borrowing base formula
consisting of a percentage of Plaintiff's eligible accounts receivable and eligible inventory.
Id. Throughout the relevant period, that financial information
was provided to Summit Bank (and subsequently to Fleet) in
borrowing base certificates (`BBCs"). Id. The BBCs were
prepared by Plaintiff. Id.
Plaintiff's credit facility was modified twice, pursuant to
Loan Modification Agreements, dated October 13, 1998 ("First
Modification Agreement") and March 27, 2000 ("Second Modification
Agreement"). Id. The Second Modification, inter alia,
increased the maximum principal amount of the credit facility to
$1,500,000.00, and modified the borrowing base to up to 80% of
Borrower's Eligible Accounts Receivable under 90 days from the
original invoice date, plus up to 50% of the value of Borrower's
eligible inventory on hand up to a maximum amount of
$1,250,000.00. Pl's Opp. Br. at 6; Def. Mov. Br. at 8.
A. Standard of Review
1. Summary Judgment
Summary judgment is granted only if all probative materials of
record, viewed with all inferences in favor of the non-moving
party, demonstrate that there is no genuine issue of material
fact and that the movant is entitled to judgment as a matter of
law. Fed.R.Civ.P. 56(c); Celotex Corp. v. Catrett,
477 U.S. 317, 330 (1986). The moving party bears the burden of showing
that there is no genuine issue of fact and it must prevail as a
matter of law, or that the non-moving party has not shown facts
relating to an essential element of the issue for which he bears
the burden. Celotex, 477 U.S. at 331. If either showing is made
then the burden shifts to the non-moving party, who must
demonstrate facts which support each element for which he bears
the burden and must establish the existence of genuine issues of
material fact. Id. The non-moving party "may not rest upon the mere allegations or denials of his
pleading" to satisfy this burden, Fed.R.Civ.P. 56(e), but must
produce sufficient evidence to support a jury verdict in his
favor. Matsushita Electric Industrial Co. v. Zenith Radio
Corp., 475 U.S. 574 (1986).
In deciding a motion to dismiss under Federal Rule of Civil
Procedure 12(b)(6), all allegations in the complaint must be
taken as true and must be viewed in the light most favorable to
the plaintiff. See Warth v. Seldin, 422 U.S. 490, 501 (1975);
Trump Hotels & Casino Resorts, Inc., v. Mirage Resorts Inc.,
140 F.3d 478, 483 (3d Cir. 1998). In evaluating a Rule 12(b)(6)
motion to dismiss for failure to state a claim, a court may
consider only the complaint, exhibits attached to the complaint,
matters of public record, and undisputedly authentic documents if
the plaintiff's claims are based upon those documents. See
Pension Benefit Guar. Corp. v. White Consol. Indus.,
998 F.2d 1192, 1196 (3d Cir. 1993). If, after viewing the allegations in
the complaint in the light most favorable to the plaintiff, it
appears beyond doubt that no relief could be granted "under any
set of facts which could prove consistent with the allegations,"
a court shall dismiss a complaint for failure to state a claim.
Hishon v. King & Spalding, 467 U.S. 69, 73 (1984).
B. Fleet's Motion for Summary Judgment
The Court will first address the arguments raised in Fleet's
motion for summary judgment.
1. Proper Party
In its May 30, 2003 motion to dismiss, Fleet asserted that
Fleet National Bank, as successor of Summit Bank, was incorrectly named as a Defendant in
this action, and that Fleet Capital Corporation is instead the
proper defendant. This Court declined to dismiss Plaintiff's
Complaint on this basis in its February 13, 2004, Opinion. Fleet
now asserts the same argument on summary judgment grounds,
arguing that the evidence "conclusively confirms that FC is,
indeed, the proper party." In support of its argument, Fleet
alleges the following facts:
Plaintiff entered into the Loan Agreement and Third
Note with Summit Bank, and Farash entered into a
Limited Guarantee with Summit Bank. On or about March
1, 2001, Summit Business Capital Corporation, then a
unit of Summit Bancorp, acquired various loans from
Summit as a contribution to capital, including the
Loan Agreement, Third Note and Limited Guarantee.
Fleet Boston Financial Corporation acquired Summit
Bancorp on March 1, 2005. On December 30, 2002,
Summit Business Corp. was merged into Fleet Capital
Corporation. Therefore, Fleet is the successor in
interest to Summit as to the Loan Agreement, Third
Note and Limited Guarantee.
Fleet's Mov. Brief at 9. Fleet states that in light of the above,
it is undisputable that Fleet is the proper party in this action.
Fleet has also provided an affidavit from Timothy Clarke, Senior
Vice President and General Counsel of Fleet Capital Corporation,
attesting to same, and including the merger certificate of Summit
Business Capital into Fleet Capital Corporation. (See Ex. 8,
Cert. of Joseph Tripodi).
Plaintiff responds to Fleet's assertion by claiming that no
documentation has been provided to support Fleet's allegation.
The Court finds this argument without merit. The Court is
satisfied with the proofs provided by Fleet, and thereby holds
that Fleet Capital Corporation is the proper defendant in this
Nevertheless, despite the fact that Fleet is incorrectly named
as a party, the Court finds this to be an understandable error
because of the consecutive mergers between the various banking institutions. As such, the Court does not find this to be grounds
for dismissal or judgment as a matter of law. From here forward,
however, Defendant will be properly identified as Fleet Capital
2. Breach of Contract
Fleet moves for summary judgment on its counterclaim against
Plaintiff for breach of contract. To prevail on a claim for
breach of contract against Plaintiff, Defendant must prove that
as a matter of law 1) a valid contract existed between Plaintiff
and Fleet, 2) Plaintiff breached the contract; 3) Fleet performed
its obligations under the contract and 4) Fleet was damaged as a
result of the breach. Video Pipeline, Inc. v. Buena Vista Home
Entertainment, Inc., 275 F.Supp 2d 543, 566 (D.N.J. 2003).
Both parties stipulate that a valid contract existed between
Plaintiff and Fleet. However, the remainder of the necessary
elements for breach of contract are indeed in dispute. In
particular, Fleet contends that because of the alleged defaults
by Plaintiff, and because the language of the Loan Agreement and
Third Note is clear and unambiguous, it is entitled to judgment
as a matter of law. Plaintiff, however, asserts that Fleet, by
modifying the borrowing base and requiring more frequent
reporting of financial information, breached the contract between
the two parties.
The essence of Plaintiff's argument is that it was in fact
Fleet who breached the contract and that Fleet's material breach
relieved Plaintiff of its duty to perform under the contract.
Plaintiff's argument is not without merit. See Travelodge
Hotels, Inc. v. Elkins Motel Associates, Inc. 2005 WL 2656676,
*5 (D.N.J. 2005). New Jersey courts have recognized the doctrine
that a material breach by either party to a bilateral contract
excuses the other party from rendering any further performance. See Magnet Resources, Inc., v. Summit MRI, Inc.,
318 N.J.Super. 275, 286 (App.Div. 1998).
Although a review of the contract in question does seem to
indicate that the contract is clear and unambiguous in its terms,
Plaintiff's have alleged sufficient facts to entitle them to
present their version of the facts as to Fleet's alleged breach
of contract to a fact-finder. As such, Fleet's motion for summary
judgment as to its claim for breach of contract against Plaintiff
3. Limited Guarantee
Fleet moves for summary judgment on its claim against Farash,
owner of Plaintiff, for breach of the limited guarantee.
Section 2.11 of the Second Modification Agreement states "the
unlimited guarantee of the Guarantor shall be changed to a
limited guarantee up to $350,000." Ex. 40, Tripoldi Cert. The
Limited Guarantee, signed by Isidor Farash, executed pursuant to
Section 2.11 reads, in pertinent part, that "[t]he Undersigned
hereby absolutely, unconditionally, and irrevocably guarantees to
the Bank the prompt payment and other performance of the
Obligations when each of such Obligations is due . . . for up to
$350,000." Ex. 41, Tripoldi Cert. "Obligations" is defined as
"all loans, advances, extensions of credit, debts, liabilities,
obligations, payments, guaranties, covenants and duties owing by
the Borrower to the Bank." Ex. 41, Tripoldi Cert. Fleet's
argument is that the above terms of the Limited Guarantee are
clear and ambiguous, and thus should be enforced as written.
In response, Farash acknowledges that a lender may seek
enforcement of a guaranty in an action for breach of contract
upon the borrower's default of the underlying obligation, but
that the lender must first establish the Borrower breached the
agreement and that the lender performed its obligations under the agreement.
Because the Court has already determined that material facts
exist as to whether Plaintiff did in fact breach the contract, it
is premature to determine whether the Limited Guarantee has also
been breached. In order for the limited guarantee to be
triggered, it is obvious that the underlying obligation must also
have been breached. As such, the Court must deny Fleet's motion
for summary judgment as to breach of limited guarantee against
By way of Section 3.1 of the Loan Agreement, in consideration
for the Agreement, Plaintiff granted Summit Bank a "first
priority security interest in and lien on all of the Borrower's
right, title and interest in and to all of the property set forth
on Schedule A." Ex 33, Tripodi Cert. Schedule A is an exhaustive
list that includes, inter alia, Plaintiff's inventory and
account receivable. Id. The record also indicates that Fleet
perfected its security interest in the Schedule A Collateral by
filing and renewing a UCC-1 financing statement in the Office of
the Clerk of the County of Bergen, New Jersey and with the Office
of the New Jersey Secretary of State. See Ex. 34-35, Tripodi
The tort of conversion is defined as "an unauthorized
assumption and exercise of the right of ownership over goods or
personal chattels belonging to another, to the alternation of
their condition or the exclusion of an owner's rights."
Philadelphia Reserve Supply Co. v. Nowalk & Assocs., 1995 U.S.
Dist. LEXIS 9723, *36 (E .D. Pa. 1995) (citing Slowinski v.
Valley National Bank, 624 A.2d 85, 94 (1993)).
Defendant argues Plaintiff sold the Schedule A Collateral in
violation of the Loan Agreement, thereby committing a wrongful
conversion of Fleet's collateral. Additionally, Fleet argues Farash as president and owner of Plaintiff, is personally
liable to Fleet as president and owner of such collateral. In
response, Plaintiff asserts that it had the right to sell the
collateral and place the funds in its account. Additionally,
Plaintiff claims that "the collateral has been lodged at
[Plaintiff's] warehouse for the entire term of the loan and has
been available to Fleet for their foreclosure or for any other
remedy that it can perfect." Pl.'s Opp. at 17.
Defendant cites to various exhibits produced in its appendix in
support of its argument. The Court has reviewed these exhibits
and finds that genuine issues of material fact still exist as to
whether Plaintiff did in fact convert property belonging
rightfully to Fleet, or whether Plaintiff was justified in
selling certain collateral and depositing money in its account.
Thus, Fleet's motion for summary judgment against Plaintiff and
Farash as to its conversion claim is denied.
C. Plaintiff's Motion for Summary Judgment
1. Breach of Contract
Plaintiff moves for summary judgment on its claim for breach of
contract against Fleet. Because the Court finds that there are
material issues of fact as to which party in fact breached the
contract at issue, as discussed above, Plaintiff's request for
summary judgment as to breach of contract is denied.
2. Good Faith and Fair Dealing
Plaintiff seeks summary judgment on its claim for breach of the
implied covenant of good faith and fair dealing. Its claim is
rooted in its allegation that Fleet failed to act in a
commercially reasonable manner when it reduced Plaintiff's
borrowing base from $1,250,000 to $625,000 without justification. A covenant of good faith and fair dealing is implied in every
contract in New Jersey. See Sons of Thunder, Inc. v. Borden,
Inc., 690 A.2d 575, 588 (1997). The covenant mandates that
"neither party shall do anything which will have the effect of
destroying or injuring the right of the other party to receive
the fruits of the contract." Id. However, courts have held that
an allegation of bad faith or unfair dealing should not be
permitted to be advanced in the abstract and absent an improper
motive." Wilson v. Amerada Hess Corp, 733 A.2d 1121 (2001).
One of Plaintiff's main allegations in this action is that
Fleet, without justification, reduced the borrowing base, thereby
committing breach of contract. Because issues of material fact
remains as to whether or not this actually occurred, it is
premature to making a determination as to the implied covenant of
good faith and fair dealing. Additionally, Defendants have
submitted sufficient evidence to raise issues of material fact as
to Plaintiff's assertions. As such, Plaintiff's motion for
summary judgment as to breach of the covenant of good faith and
dealing is denied. Defendant's motion to dismiss this claim is
3. Consumer Fraud Act
Plaintiff and Fleet cross-move for summary judgment as to
Plaintiff's claims asserted under the Consumer Fraud Act ("CFA").
In its claim, Plaintiff alleges that Fleet violated the CFA by
reducing the borrowing base and requiring weekly reporting. This
argument is substantially similar to Plaintiff's claim for breach
Under New Jersey law, a tort remedy does not arise from a
contractual relationship unless the breaching party owes an
independent duty imposed by law. Saltiel v. GSI Consultants,
Inc., 788 A.2d 268,280 (2002); see also Bracco Diagnostics
Inc. v. Bergen Brunswig Drug Co., 226 F.Supp. 2d 557, 562 (D.N.J. 2002) ("The economic loss doctrine
`prohibits plaintiffs from recovering in tort economic losses to
which their entitlement flows only from a contract.'") (citation
Here, the claims that Plaintiff seeks damages for under the CFA
are incidental to the loan agreement. Maintenance of the
borrowing base and the alleged reporting requirement violations
are all part of the terms of the contract, whether or not it is
proven that Fleet adhered to them. As such, Plaintiff's claim for
damages under the CFA is appropriately dismissed under the
economic loss doctrine. As such, Defendant's motion to for
summary judgment on the CFA claim is granted and the claim is
For the reasons stated, it is the finding of this Court that
Defendants' motion for summary judgment is granted in part and
denied in part. Plaintiff's motions to dismiss and for summary
judgment are denied. An appropriate Order accompanies this
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