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Professional Cleaning and Innovative Building Services, Inc. v. Kennedy Funding

June 12, 2009

PROFESSIONAL CLEANING AND INNOVATIVE BUILDING SERVICES, INC., PLAINTIFF,
v.
KENNEDY FUNDING, INC., GREGG WOLFER, JEFFREY WOLFER, JOSEPH OPINION WOLFER, AND KEVIN WOLFER, HON. WILLIAM J. MARTINI DEFENDANTS.



The opinion of the court was delivered by: Martini, U.S.D.J.

This matter comes before the Court on cross-motions for summary judgment arising out of claims stemming from a commercial real estate financing transaction. The Court did not hold oral argument. Fed. R. Civ. P. 78. For the following reasons, the Defendants Kennedy Funding Inc. ("Kennedy"), Gregg Wolfer, Jeffrey Wolfer, Joseph Wolfer, and Kevin Wolfer's motion for summary judgment is GRANTED with regards to Counts One, Two, Three, and Six. Defendants' motion or summary judgment is GRANTED with regards to Gregg Wolfer and DENIED with regards to Kennedy for purposes of Counts Four and Five. Plaintiff Professional Cleaning and Innovative Building Services, Inc.'s ("Professional") cross-motion for summary judgment is DENIED in its entirety. In addition, the Court will sua sponte DISMISS the present action for lack of subject matter jurisdiction.

BACKGROUND

This is one of many actions within this district involving Kennedy and its lending practices.*fn1 Kennedy is a New Jersey based lender of last resort--a "hard money lender"--that provides financing to companies with time-sensitive needs. (Aff. of Gregg Wolfer (hereinafter "Wolfer Aff.") Ex. A.) Professional is a Missouri based corporation that engages in the purchasing, leasing, and maintenance of commercial property. (Second Amend. Compl. ¶ 5.)

In February 2004, Professional contacted Kennedy, through a broker, seeking to obtain a loan of $1,800,000 to purchase commercial property in Bonner Springs, Kansas. (Id. at ¶¶ 19-24.) Kennedy sent Professional a letter of interest on March 4, 2004. (Wolfer Aff. Ex. B.) The letter indicated that Kennedy would make a five-year loan to Professional for up to 60% of the "as is" market value of the real estate collateral that would secure the loan, defining "as is" market value as a "three (3) to four (4) month sale to a cash buyer." (Id.) Kennedy agreed to charge Professional a flat rate of 12% for the first year and 18% per year thereafter. (Id.) The letter also demanded a $10,000 fee in order for Professional to receive a draft of a loan commitment, which was "fully refundable for any reason if you do not execute a loan commitment with [Kennedy]." (Id.)

Professional paid the $10,000 fee and received a draft of the loan commitment on March 11, 2004. (Id. at Ex. C.) In addition to restating the above definition of "as is" market value, the draft articulated that Kennedy would select an appraiser of its choice to determine the value of the collateral property. (Id.) Following the initial valuation, Professional had the option to obtain a third-party appraisal, at its own expense, from a mutually agreed upon party. (Id.) Execution of the draft was contingent upon receipt of a $54,000 non-refundable fee. (Id.)

Professional CEO, Brenda Wood, called Kennedy CEO, Gregg Wolfer, on April 9, 2004. (Affirmation of Jill Anne Lazare (hereinafter "Lazare Affirmation") Ex. OO tab 2.) As stated at Wood's deposition, during the course of this conversation, Professional alleges that Gregg Wolfer assured Wood that Professional would receive the needed financing if the property value was appraised in excess of $3,100,000. (Lazare Affirmation Ex. II.)

On April 12, 2004, Professional sent Kennedy a letter seeking further clarification of the loan commitment terms. (Wolfer Aff. Ex. D.) The letter primarily focused on two issues: (1) Professional's obligation to pay Kennedy's legal fees and expenses; and (2) whether or not the initial $10,000 fee was refundable. (Id.) The letter did not address the definition of "as is" market value.

The parties executed the loan commitment on April 14, 2004 and Professional paid Kennedy a non-refundable $54,000 fee. (Wolfer Aff. Ex. E.) Kennedy then selected Volpe, Inc. ("Volpe") to perform the initial appraisal. (Id. at Ex. F.) Volpe determined that the property in question had a value of $2,610,000 and an "as is" market value of 20% less, or $2,088,000. (Id.; Lazare Affirmation Ex. OO tab 4.) Based on this appraisal, Kennedy offered Professional a loan of $1,253,000, or approximately 60% of $2,088,000. (Wolfer Aff. Ex. F.)

Upon receipt of the loan offer, Professional requested a third-party appraisal and sent Kennedy a copy of a phone book for "use as a reference for some companies... in the local area." (Id. at Ex. G.) On May 13, 2004, Kennedy selected Adamson & Associates, Inc. ("Adamson & Associates") for the appraisal, at a cost of $2,000. (Id. at I.) After Kennedy notified Professional of its selection, Professional forwarded this amount to Kennedy. Adamson & Associates determined that the property in question had a value of $3,040,000 and an "as is" market value of $2,430,000. (Id. at K.) Kennedy offered Professional a second loan of $1,458,000, or approximately 60% of $2,430,000. (Id. at L.) Despite two extensions, Professional refused to accept this offer. (Id. at Exs. M, N.)

On May 5, 2005, Professional initiated the present action. The original complaint asserted claims for violation of the New Jersey Consumer Fraud Act ("CFA"), N.J.S.A. §§ 56:8-1 et seq., unconscionability, breach of good faith and fair dealing, and breach of contract. On August 11, 2005, the Court granted Kennedy's motion to dismiss, finding that it lacked subject matter jurisdiction. Thereafter, Professional attempted to file an amended complaint, seeking to add claims for common law fraud and unjust enrichment. Magistrate Judge Ronald Hedges denied this request initially and upon reconsideration and this Court affirmed. On appeal, the Third Circuit reversed, stating that "the District Court erred in reasoning that the proposed amended complaint failed to sufficiently plead a claim for common-law fraud and a claim under the [CFA], providing the possibility for punitive or treble damages." Professional Cleaning & Innovative Bldg. Servs. Inc., v. Kennedy Funding Inc., 245 Fed. Appx. 161, 162-63 (3d Cir. 2007). The matter was remanded.

Professional filed a first and second amended complaint on August 27, 2007 and April 29, 2008 respectively. The Second Amended Complaint added Gregg Wolfer, Jeffrey Wolfer, Joseph Wolfer, and Kevin Wolfer as defendants and sought relief under the CFA, the New Jersey Racketeer Influenced and Corrupt Organizations Act ("RICO"), N.J.S.A. §§ 2C:41-1 et seq., as well as common law claims for unconscionability, breach of contract, fraud, and unjust enrichment. Defendants filed a motion for summary judgment on November 6, 2008 and Professional cross-motioned for summary judgment on December 19, 2008.

STANDARD OF REVIEW

Summary judgment eliminates unfounded claims without resorting to a costly and lengthy trial. Celotex Corp. v. Catrett, 477 U.S. 317, 327 (1986). A court should grant summary judgment only "if the pleadings, the discovery and disclosure materials on file, and any affidavits show that there is no genuine issue as to any material fact and that the movant is entitled to judgment as a matter of law." Fed. R. Civ. P. 56(c). The burden of showing that no genuine issue of material fact exists rests initially on the moving party. Celotex, 477 U.S. at 323. Once the moving party makes a properly supported motion for summary judgment, the burden shifts to the nonmoving party to "set out specific facts showing a genuine issue for trial." Fed. R. Civ. P. 56(e)(2); Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247-48 (1986). When evaluating a summary judgment motion, a court must view all evidence in the light most favorable to the nonmoving party. Matsushita Elec. Indus. Co., Ltd. v. Zenith Radio Corp., 475 U.S. 574, 587 (1986); Goodman v. Mead Johnson & Co., 534 F.2d 566, 573 (3d Cir. 1976).

The summary judgment standard does not change when, as here, the parties file cross-motions for summary judgment. See Appelmans v. City of Phila., 826 F.2d 214, 216 (3d Cir. 1987). Cross-motions for summary judgment are no more than a claim by each side that it alone is entitled to summary judgment. Transportes Ferreos de Venez. II CA v. NKK Corp., 239 F.3d 555, 560 (3d Cir. 2001). If review of cross-motions for summary judgment reveals no genuine issue of material fact, then judgment may be entered in favor of the party deserving of judgment in light of the law and undisputed facts. See Iberia Foods Corp. v. Romeo, 150 F.3d 298, 302 (3d Cir. 1998).

DISCUSSION

A. Consumer Fraud Act

In Count One, Professional brings a claim under the CFA against Kennedy and Gregg Wolfer individually. (Second Amend. Compl. ¶¶ 56-67.) The CFA protects consumers from deception and fraud in the sale or advertisement of merchandise. Turf Lawnmower Repair, Inc. v. Bergen Record Corp., 139 N.J. 392, 414 (N.J. 1995). The CFA makes it unlawful for "any person"*fn2 to use an "unconscionable commercial practice, deception, fraud, false pretense, false promise, misrepresentation, or the knowing concealment, suppression, or omission of any material fact... in connection with the sale or advertisement of any merchandise or real estate." N.J.S.A. § 56:8-2. To state a claim under the Act, a plaintiff must allege three elements: (1) unlawful conduct by the defendants; (2) an ascertainable loss on the part of the plaintiff; and (3) a causal relationship between the defendants' unlawful conduct and the plaintiff's ascertainable loss. N.J. Citizen Action v. Schering-Plough Corp., 367 N.J. Super. 8, 12-13 (N.J. Super. Ct. App. Div. 2003).

The crux of Professional's CFA claim is that Kennedy and its CEO Gregg Wolfer engaged in the following unlawful conduct. First, Kennedy and Gregg Wolfer knowingly concealed, suppressed, or omitted and/or conspired to conceal, suppress, or omit the equation for "as is" market value by nebulously defining the term as a "three (3) to four (4) month sale to a cash buyer." Plaintiff contends that this definition did not explicitly indicate that the collateral property's appraised value would be discounted by 20%, thereby inducing Professional into executing the loan commitment and paying a nonrefundable $54,000 loan commitment fee. (Second Amend. Compl. ¶¶ 58-63.) In support of this argument, Professional presents evidence of a February 16, 2001 transaction involving Kennedy, where the same appraiser used here, Volpe, applied a 20% and 30% discount to derive the "'as is' quick sale value" of the collateral property, defined as a 90-to-120 day sale to a cash buyer.*fn3 (Lazare Affirmation Exs. X, Y & Z.)

Second, Professional alleges that Gregg Wolfer made a material misrepresentation to its CEO Brenda Wood prior to the execution of the loan commitment in the form of an oral assurance. Wood asserts that during a telephone conversation on April 9, 2004 Gregg Wolfer stated that if the property met the "appraised value"*fn4 of between $3,100,000 and $3,200,000 "that there should be no problem getting this deal through." (Lazare Affirmation Ex. II.) Since Kennedy knew that Professional needed $1,800,000 in financing and according to Wood believed the property in question to be worth between $3,000,000 and $3,200,000, Kennedy's alleged assurance indicated that the collateral's appraised value would not be discounted by 20%. (Wolfer Aff. Ex. E; Lazare Affirmation Exs. II, OO tab 3.) Professional relied on this statement when entering into the loan commitment, suffering an ascertainable loss in the form of a non-refundable $54,000 loan commitment fee and $6,000 in appraisal fees. (Second Amend. Compl. ¶ 67.)

Even in light of the foregoing, Professional cannot maintain a claim under the CFA against Kennedy or Gregg Wolfer individually. The CFA does not cover every sale in the marketplace. Papergraphics Intern., Inc. v. Correa, 389 N.J. Super. 8, 13 (N.J. Super. Ct. App. Div. 2006). The statute's applicability hinges on the nature of a transaction, requiring a case by case analysis. Id. The CFA only applies "to consumer transactions which are defined both by the status of the parties and the nature of the transaction itself." Hoffman v. Encore Capital Group, Inc., 2008 WL 5245306, at *3 (N.J. Super. Ct. App. Div. Dec. 18, 2008) (citation omitted). Courts addressing whether a given transaction qualifies as a "consumer transaction" often examine whether the challenged service qualifies as "merchandise"*fn5 which is"of the type sold to the general public." Finderne Mgmt. Co., Inc. v. Barrett, 402 N.J. Super. 546, 570 (N.J. Super. Ct. App. Div. 2008) (collecting cases); see also Cetel v. Kirwan Fin. Group, Inc., 460 F.3d 494, 514 (3d Cir. 2006); S. Broward Hosp. Dist. v. MedQuist Inc., 516 F. Supp. 2d 370, 399 (D.N.J. 2007); Salamon v. Teleplus Enters., Inc., Civ. No. 05-2058, 2008 WL 2277094, at *11-12 (D.N.J. Jun. 2, 2008). In addition, courts focus on the nature of the transaction, such as evidence relating to the experience of the commercial entities and evidence of equal bargaining power. See Papergraphics, 389 N.J. Super. at 14; accord 539 Absecon Blvd., L.L.C. v. Shan Enters. Ltd. P'ship, 406 N.J. Super. 242, 276 (N.J. Super. Ct. App. Div. 2009).

Turning to the facts at hand, the record amply demonstrates that Professional and Kennedy are experienced commercial entities with relatively equal bargaining power. The parties negotiated the terms of the loan commitment prior to its execution. In an April 12, 2004 letter from Professional CEO Brenda Wood to Gregg Wolfer, Wood sought to "meet[] in the middle" with regards to Professional's obligation to pay legal fees and costs under the loan commitment. (Wolfer Aff. Ex. D.) Wood also questioned whether the $10,000 fee, discussed in the letter of intent, would be refundable. (Id.) Wood acknowledged that Professional was not a first-time buyer of real estate and mentioned that the entity recently purchased a real estate company. (Id.)

Moreover, the hard money financing offered to Professional is not "merchandise" which is "of the type sold to the general public." As repeatedly stated by New Jersey courts, the thrust of the CFA "is pointed to products and services sold to consumers in the popular sense." Finderne Mgmt., 402 N.J. Super. at 570 (quoting Arc Networks, Inc. v. Gold Phone Card Co., 333 N.J. Super. 587, 589 (N.J. Super. Ct. Law Div. 2000)). Unlike the sale of credit to the general public, Kennedy specializes in "unconventional financing where speed and attention to special circumstances are critical." (Wolfer Aff. Ex. A.) As evidenced by Kennedy's website, the company markets itself not as a standard commercial lender, but as "America's leading commercial hard money lender" that provides "creative funding solutions." (Id.) This type of funding does not qualify as the sale of credit in the "popular sense."

In total, Professional is not an unsophisticated buyer, suffering a disparity of industry knowledge, victimized after being lured into this purchase through fraudulent, deceptive selling or advertising practices. See D'Ercole Sales, Inc. v. Fruehauf Corp., 206 N.J. Super. 11, 23-24 (N.J. Super. Ct. App. Div. 1985). To the contrary, Professional is an experienced commercial entity that negotiated to obtain "creative financing" from ...


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