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Ford Motor Credit Co. v. Chiorazzo

January 7, 2008


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


Plaintiff, Ford Motor Credit Company ("FMCC"), initiated this action (the "2007 action") in the District Court of New Jersey on June 19, 2007.*fn1 Before this Court is Defendants' motion to dismiss, stay, or consolidate. The crux of Defendants' argument is that this action arises out of the same set of facts as does an action filed with this Court in 2006 (the "2006 action"). The facts underlying both actions are set forth below.


On July 28, 1997, South Shore Ford, Inc. ("South Shore Ford"),*fn2 through its owner, Rudolph Chiorazzo ("Rudolph"), entered into a Wholesale Financing and Security Agreement ("Financing Agreement") with Volvo Finance North America, Inc. ("Volvo Finance").*fn3 The Financing Agreement extended credit to South Shore Ford, a car dealership, to finance the acquisition of inventory for sale or lease to retail customers.*fn4 (Compl. ¶ 16). Rudolph and Kathleen Chiorazzo each signed individual guaranty agreements to secure the obligations set forth in the Financing Agreement. (Compl. ¶ 20). In addition, South Shore Auto World of Mays Landing, Inc. ("Mays Landing"), also owned by Rudolph, signed a corporate guaranty.*fn5 (Compl. ¶ 25). FMCC alleges that Volvo Finance could freely transfer or assign its rights and obligations under the Financing Agreement and the Guaranties, and did transfer or assign those rights to FMCC in 1999.

At some point in 2005, Rudolph transferred all of his shares of Mays Landing stock, totaling one hundred percent, to his sons, John and Jason Chiorazzo.*fn6 Subsequently, South Shore Ford, unable to maintain timely payments to FMCC, breached the provisions of the Financing Agreement. FMCC initiated default proceedings by sending out three Notices of Default and Demand for Immediate Payment Letters to South Shore Ford and the Defendants/guarantors. (Compl. ¶¶ 31-33). None have cured or explained the default. (Compl. ¶ 33).

On July 13, 2006, South Shore Ford filed for bankruptcy under Chapter VII of the Bankruptcy Code, in the United States Bankruptcy Court for the District of New Jersey.*fn7 Subsequently, FMCC initiated two actions. First, on July 24, 2006, FMCC filed an action with Judge Irenas, D.N.J., against Defendants Rudolph Chiorazzo, Kathleen Chiorazzo, and Mays Landing. FMCC alleged breach of the individual guaranty agreements (Counts One and Two), and breach of the corporate guaranty agreement (Count Three).*fn8

On June 19, 2007, FMCC filed a second action in the District of New Jersey against the Defendants listed in the first action,*fn9 as well as Jason Chiorazzo and John Chiorazzo. The 2007 action also arises out of the Chiorazzo's failure to pay money they allegedly owe to FMCC as a result of the Financing Agreement and guaranty agreements they signed. The basis of the 2007 action, however, is that the 2005 transfer of one hundred percent of the Mays Landing stock from Rudolph to John and Jason was fraudulent.

The 2007 action, alleging violations of New Jersey's Uniform Fraudulent Transfer Act ("NJFTA"), N.J. Stat. § 25:2-20 et seq., contains allegations that Rudolph and his two sons engaged in an intentionally fraudulent transfer (Count One) and a constructively fraudulent transfer (Count Two). FMCC further alleges that Defendants' conduct constitutes a common law fraudulent transfer (Count Three). FMCC requests appointment of a receiver to conserve and marshal Mays Landing's assets (Count Four); a constructive trust of Mays Landing's sale proceeds (Count Five); and a constructive trust of Mays Landing's stock (Count Six). Both the 2006 and 2007 actions are currently pending before this Court.

Presently before the Court is Defendants' motion to dismiss the 2007 action for failure to state a claim upon which relief can be granted pursuant to Fed. R. Civ. P. 12(b)(6); failure to plead fraud with particularity under Fed. R. Civ. P. 9(b); and lack of subject matter jurisdiction under Fed. R. Civ. P. 12(b)(1). In the alternative, Defendants request that the action be stayed until final resolution of the bankruptcy litigation and the 2006 action, or that the 2007 action be consolidated with the pending 2006 action. For the reasons set forth below, this Court will deny Defendants' motion.


When considering a motion to dismiss, the Court must accept as true all well-pleaded allegations in the Complaint and view them in the light most favorable to the Plaintiff. See Scheuer v. Rhodes, 416 U.S. 232, 236 (1974); Jordan v. Fox, Rothschild, O'Brien & Frankel, 20 F.3d 1250, 1261 (3d Cir. 1994). The Court must accept as true any and all reasonable inferences derived from those facts. See Oshiver v. Levin, Fishbein, Sedran & Berman, 38 F.3d 1380, 1384 (3d Cir. 1994). In addition to the allegations of the Complaint, the Court may consider documents attached to or specifically referenced in the Complaint, and matters of public record, without converting the motion to dismiss into one for summary judgment. See Mele v. Fed. Reserve Bank of N.Y., 359 F.3d 251, 255 n.5 (3d Cir. 2004); Sentinel Trust Co. v. Universal Bonding Ins. Co., 316 F.3d 213, 216 (3d Cir. 2003).


Defendants move to dismiss the 2007 action on three grounds. First, Defendants argue that FMCC failed to plead fraud with particularity. Under Fed. R. Civ. P. 9(b), when alleging fraud, all "circumstances constituting fraud . . . shall be stated with particularity, . . . [whereas] . . . intent, knowledge, and conditions of the mind [may] be averred generally."*fn10 See also Cramer v. Gen. Tel. & Elecs. Corp., 582 F.2d 259, 273 (3d Cir. 1978). The purpose of Rule 9(b) is to "place the defendants on notice of the precise misconduct with which they are charged, and to safeguard defendants against spurious charges of immoral and fraudulent behavior." Seville Indus. Mach. Corp. v. Southmost Mach. Corp., 742 F.2d 786, 791 (3d Cir. 1984). When applying Rule 9(b), courts should not focus exclusively on the "particularity" language because doing so "fails to take [into] account the general simplicity and flexibility contemplated by the rules." Christidis, 717 F.2d at 100. Although the requirement that a party state the circumstances constituting fraud may be fulfilled by alleging the date, place, and time of the fraudulent behavior, the plaintiff is free to use alternative means to inject precision and substantiation into its allegations. See Seville, 742 F.2d at 791.

FMCC alleges that Rudolph transferred one hundred percent of his Mays Landing stock to his sons with actual intent to either hinder, delay, or defraud his creditors, and without receiving a reasonably equivalent value in exchange. FMCC asserts that Rudolph should have reasonably believed that he was going to incur debt, that the transfer rendered him insolvent,*fn11 and as a result of the transfer he reasonably should have believed that he would incur debts beyond his ability to pay. But for the transfer, FMCC claims it would have been able to use ...

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