UNITED STATES DISTRICT COURT FOR THE DISTRICT OF NEW JERSEY
January 7, 2008
FORD MOTOR CREDIT COMPANY, PLAINTIFF,
RUDOLPH M. CHIORAZZO, JASON CHIORAZZO, JOHN CHIORAZZO, KATHLEEN CHIORAZZO, AND SOUTH SHORE AUTO WORLD OF MAYSLANDING, INC. DEFENDANTS.
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 Rudolph's interest in Mays Landing as partial repayment of the loan, and as a result of the alleged fraudulent transfer, FMCC suffered damages.
Defendants contend that these allegations provide insufficient detail because they do not state the exact time, place, or circumstances of the alleged fraudulent transfer. This overstates the particularity requirement. In Seville, an industrial plant charged a corporation with state claims of fraud relating to a series of transactions that included the sale of some seven hundred pieces of industrial equipment. Id. at 787. The Third Circuit held that the complaint, which contained a list of the industrial equipment that was the subject of the fraud,*fn12 met the requirements of Rule 9(b). Id at 791. Similarly, a complaint containing the approximate year and month of an allegedly fraudulent misrepresentation and a general statement of intent was found to be sufficient under Rule 9(b). See Florian Greenhouse, Inc. v. Cardinal I.G. Corp, 11 F. Supp. 2d 521, 526 (D.N.J. 1998) (noting that a plaintiff need not speculate about a defendant's motives when pleading fraud). Id.*fn13
FMCC has described the allegedly fraudulent transfer, including the approximate time that it occurred, the people to whom the transfer was made, and the amount and type of value transferred. Furthermore, FMCC need only plead fraud generally when stating allegations of Defendants' intent or motive in transferring Mays Landing's stock. See Fed. R. Civ. P. 9(b). FMCC's allegations are sufficient to put Defendants on notice of their alleged misconduct. Accordingly, this Court holds that FMCC has pleaded fraud with sufficient particularity.
Next, Defendants seek dismissal of the 2007 action pursuant to Federal Rule of Civil Procedure 12(b)(1), claiming that the allegations are not ripe for review. FMCC has alleged that: (1) Rudolph and Mays Landing are guarantors of South Shore Ford's obligations to FMCC; (2) South Shore Ford is in default; and (3) Rudolph and Mays Landing, as guarantors, owe FMCC over twelve million dollars. (Compl. ¶¶ 16-29, 37). A court determines whether a claim is ripe based upon (1) the fitness of the legal issues for determination, and (2) the potential hardship to the parties if the court withholds consideration. See Abbott Labs. v. Gardner, 387 U.S. 136, 149 (1967).
Defendants argue that final adjudication of the bankruptcy litigation and the 2006 action is necessary to determine the amount of debt owed, if any, to FMCC, before FMCC can bring its 2007 action. A contingent creditor, however, may commence an action without a final adjudication or finding of the precise amount of debt due. Cf. Bath Unlimited, Inc. v. Ginarte et al., No. 04-03919, 2005 WL 2406097, at *11 (D.N.J. Sept. 29, 2005)(holding that an action alleging fraudulent filing of workers' compensation claims was ripe even though the underlying workers' compensation claims were not yet decided).
New Jersey's statutory language defining fraud further suggests that the 2007 action is ripe for review. A "claim" brought under the NJFTA is defined as "a right to payment, whether or not the right is reduced to judgment, liquidated, unliquidated, fixed, contingent, matured, unmatured, disputed, undisputed, legal, equitable, secured, or unsecured." N.J. Stat. § 25:2-21.*fn14 Determining whether a particular transfer is fraudulent only requires a court to answer two questions: whether the debtor has placed some asset beyond the reach of its creditor which would have been available to it at some point in time but for the conveyance; and whether the debtor has transferred property with an intent to defraud, delay, or hinder the creditor. See Gilchinsky v. Nat'l Westminster Bank N.J., 159 N.J. 463, 475 (N.J. 1999).
Furthermore, under New Jersey's receivership statutes, upon which part of this action is based, the definition of "creditor" supports the Court's determination that the action is ripe for review. See N.J. Stat. § 14A:14-1(b) (a "creditor" is a "holder of any claim, of whatever character, against a corporation, whether secured or unsecured, matured or unmatured, liquidated or unliquidated, absolute or contingent.")
Lastly, the potential hardship on the parties if the Court withholds determination is great, due to FMCC's allegations that their assets are being dissipated, transferred, and distributed to their detriment. (Compl. ¶¶ 65, 68). Accordingly, the Court holds that FMCC's allegations are ripe for review, regardless of whether there has been a final adjudication of related proceedings. Defendants' motion to dismiss under the ripeness doctrine will be denied.
Defendants next argue that FMCC's 2007 action is barred by the Entire Controversy Doctrine (the "ECD"). This Court must decide whether the ECD is the appropriate preclusion law for two successive diversity actions still pending in federal court. We hold that it is not.
The ECD, codified in New Jersey Court Rule 4:30A, states that "non-joinder of claims required to be joined by the [ECD] shall result in preclusion of the omitted claims to the extent required by the [ECD]." Under the ECD, "a party cannot withhold part of a controversy for separate later litigation even when the withheld component is a separate and independently cognizable cause of action." Paramount Aviation Corp. v. Augusta, 178 F.3d 132, 137 (3d Cir. 1999).
The general rule is that the preclusive effect of a judgment is determined by the preclusion law of the issuing court. Paramount, 178 F.3d at 135. The Third Circuit, in In re Kaplan, 143 F.3d 807, 814-15 (3d Cir. 1997), held that federal law governs the preclusive effect of a prior diversity judgment on a subsequent federal question case. As the Paramount court opined, however, this rule should also apply to successive diversity actions. See Paramount, 143 F.3d at 146; see also Fioriglio v. City of Atlantic City, 963 F. Supp. 415, 424 (D.N.J. 1997) (noting that had the first case, a federal question, "rested on diversity jurisdiction, this Court would be inclined to follow the vast weight of authority and apply federal preclusion law").
The Paramount court reversed a district court's application of the ECD because the issuing court was federal. The Court reasoned that, as a matter of policy, federal courts should have the right to determine the scope of their own judgments. Thus, it concluded, if state law were to apply simply because the basis of jurisdiction in a case were diversity, such application of state law would destroy the basic principles of the Federal Rules of Civil Procedure. Id. at 146. We hold, based upon that principle, that the ECD does not apply, and FMCC is not barred from bringing this action.
Even if, however, the ECD applied, it would not bar the 2007 action. The Third Circuit, in Rycoline Prod., Inc. v. C & W Unlimited, 109 F.3d 883, 887 (3d Cir. 1997), held that the ECD "does not give preclusive effect to a litigation that has not yet been concluded." Rycoline, 109 F.3d at 887; see also Kaselaan & D'Angelo Assocs., Inc. v. Soffian, 657 A.2d 705, 708 (N.J. Super. App. Div. 1996). Because the 2006 action is still pending, the ECD does not preclude FMCC from bringing the 2007 action.*fn15
Alternatively, the Defendants request that this Court stay the 2007 action pending a final resolution of both the bankruptcy proceeding and 2006 action. This Court holds that a stay is not necessary and the actions are permitted to run concurrently because of: (1) the disparity of the parties involved in each of the suits; (2) the differing, independent legal issues of the three actions; and (3) a strong interest in avoiding further dissipation of Mays Landing's assets to the detriment of FMCC.
The power to stay a proceeding is derived from the inherent power of a court to efficiently manage its own docket. Landis v. North American Co., 299 U.S. 248, 254-55 (1936). Determining whether to stay an action requires the court to balance competing interests, including whether the actions: (1) involve the same parties; (2) involve the same issues; or (3) are pending in the same court. See Local 478 Trucking & Allied Indus. Pension Fund v. Jayne, 778 F. Supp. 1289, 1324 (D.N.J. 1991). Additionally, a court should consider whether a stay would prejudice the plaintiff and if it would further the interest of judicial economy. Id.
Although the bankruptcy proceeding, 2006 action, and 2007 action all derive from the same general set of facts, they involve different parties. South Shore Ford is only a party to the bankruptcy proceeding. Rudolph Chiorazzo and Mays Landing are the only Defendants named in both the 2006 and 2007 actions.*fn16 Furthermore, although the 2006 and 2007 actions arise out of the same nucleus of facts, there are differences in the factual and legal issues.*fn17 This Court has already determined that the 2007 claims are not dependent upon the final resolution of the bankruptcy or guaranty proceedings. Finally, a stay of these proceedings could prejudice FMCC due to the purported continued dissipation Mays Landing's assets. Therefore, the Court will deny Defendants' motion to stay.
Finally, Defendants request that the Court consolidate the 2007 and 2006 actions. Federal Rule of Civil Procedure 42(a) gives courts discretion to consolidate simultaneously pending actions that involve a common question of law or fact to avoid unnecessary cost or delay. The Court has "broad powers to consolidate actions involving common questions of law or fact if, in its discretion, such consolidation would facilitate the administration of justice." Liberty Lincoln Mercury v. Ford Mktg. Corp., 149 F.R.D. 65, 80 (D.N.J. 1993)(citation omitted).
Although this Court finds that the 2006 and 2007 actions contain some factual overlap, we decline to consolidate the actions for any purposes. Discovery in the 2006 action is nearly complete, and pending before the Court are two summary judgment motions. The 2007 action, however, is in its preliminary stages. Currently a motion for discovery on an expedited basis is pending before Magistrate Judge Schneider. It is not clear from the record what discovery, if any, has occurred in connection with the 2007 action. Thus, the actions will remain independent due to the disparities in their procedural postures and the different legal issues involved.
For the reasons set for above, this Court will deny Defendants' motion to dismiss, stay, or consolidate. The Court will enter an appropriate Order.
JOSEPH E. IRENAS, S.U.S.D.J.