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United States Land Resources, LP v. JDI Realty LLC

August 12, 2009


The opinion of the court was delivered by: William H. Walls United States Senior District Judge


Walls, Senior District Judge

Defendants have moved to dismiss plaintiffs' complaint pursuant to Fed. R. Civ. P. 12(b)(6).


On August 21, 2008, plaintiffs United States Land Resources, LP ("USLR") and Waterford Investors, LP ("Waterford LP") filed a complaint in New Jersey Superior Court against defendants JDI Realty LLC, JDI Montclair LLC and Jeffrey Aeder. (See Not. of Removal Pls.' Compl. and Jury Demand ("Pls.' Compl.") (Dkt. Entry No. 1, filed Oct. 20, 2008.) Plaintiffs alleged the following:

Plaintiffs*fn1 entered into a contract to purchase a commercial warehouse in Wall Township, New Jersey (the "Property") for $15.6 million. (See Pls.' Compl. ¶¶ 9-10.) Plaintiffs obtained a mortgage from Smith Barney in the amount of $11 million and sought second mortgage financing from defendants. (See id. ¶¶ 10-11.) Defendant Jeffrey Aeder agreed on behalf of defendants to provide second mortgage financing in the amount of $3,150,000 at a rate of 17% per annum. (See id. ¶ 12.) As a condition, defendants required that plaintiffs enter into a partnership agreement with Aeder and transfer to defendants their partnership interest in the entity that contracted to purchase the property.*fn2 (See id. ¶ 13.) This structure was designed to allow defendants to effectively foreclose on the property without instituting a foreclosure proceeding. (See id. ¶ 14.) Aeder represented to plaintiffs that, "when plaintiffs paid off the second mortgage financing, defendants would be 'bought out' of any ownership interest in the property" and plaintiffs relied upon this representation in agreeing to the terms. (See id. ¶ 16.)

Defendants originally agreed to provide the second mortgage financing for a three-year term, at the end of which (the "Unwind Date") defendants were to pay off the principal balance but plaintiffs "did not pay off the second mortgage financing [at the Unwind Date]," (Id. ¶ 18.), because Aeder had assured them on behalf of defendants that, as long as they continued to make interest and principal payments, defendants "would honor their agreement to transfer back to

[p]laintiffs their partnership interest in the entity owning the Property." (Id. ¶ 19.)

In 2003, without notice to plaintiffs, Aeder renegotiated a lease with one of the tenants at the Property at a lower rent. (See id. ¶¶ 20-21.) Plaintiffs claim that such reduction lowered the value of the Property. (See id. ¶ 22.) Defendants later sold the property, again without notice to plaintiffs, for "only $300,000 more than the price paid six years earlier." (See id. ¶ 23.) Plaintiffs first learned of the sale when they received a check for $64,117 from defendants, which sum, defendants asserted, was plaintiffs' share of the proceeds. (See id. ¶ 25.)

On the basis of these factual allegations, plaintiffs alleged fraud (Count 1), breach of contract (Count 2), unjust enrichment (Count 3), breach of implied duty of good faith and fair dealing (Count 4), conversion (Count 5) and breach of fiduciary duty (Count 6). (See Pls.' Compl. ¶¶ 27-50.) Defendants removed to this Court and filed a motion to dismiss in lieu of an answer. (See Mot. to Dismiss Action (Dkt. Entry No. 3, filed Dec. 14, 2008).) In response, plaintiffs filed an amended complaint, adding two new parties, plaintiff Lawrence Berger and defendant Waterford Investors, LLC ("Waterford LLC"), and making several changes to their initial allegations. (See First Am. Compl. (Dkt. Entry No. 4, filed December 31, 2008).) Plaintiffs allege that Waterford LLC "was created by defendants (or certain of them) to act as the general partner of Waterford LP." (Id. ¶ 10.) Waterford LLC has not been served. (See Defs.' Supp. 1.)

Plaintiffs now claim that Aeder, "acting both on his behalf and that of the [d]efendants (whom he controlled and was a principal in), agreed and promised plaintiffs that [d]efendants would not take any other action to jeopardize [p]laintiffs' interest in the [p]roperty as long as [defendants]*fn3 were paid the aforementioned seventeen percent (17%) interest," (See First Am. Compl. ¶ 27.), and that "Aeder further assured the plaintiffs that neither he nor the other

[d]efendants were interested in ownership or operation of the property, and that they simply wanted to collect 17% interest per annum as a lender." (See id. ¶ 29.) According to plaintiffs, such assurances were given again after the transaction was consummated. (See id. ¶ 30.) Plaintiffs insist that Aeder's assurances "were important and material to [p]laintiffs in agreeing to proceed with the transaction as structured by [d]efendants, and in allowing the transaction to continue without taking action to satisfy the loan or protect and preserve [p]laintiffs' rights and interest." (See id. ¶ 31.) According to plaintiffs, "Aeder's assurances were untrue at the time they were made and were given with the intention of inducing plaintiffs to rely" upon them in "consummating the transaction and in refraining from taking actions which they would have taken, or which [d]efendants believed they would have taken, to protect and preserve [p]laintiff's rights." (See id. ¶ 32.) Additionally, [p]laintiffs allege that "there came a time when Aeder knew that [his assurances] were no longer true, and Aeder knowingly and intentionally failed to notify [p]laintiffs of that change, with the intention that [p]laintiffs would continue to rely." (See id. ¶ 33.)

Plaintiffs also omit in their amended complaint, the allegation, present in their initial complaint, that they "did not pay off the second mortgage in the year 2000," (See Pls.' Compl. ¶ 18.), and delete dates that were present in the original complaint, (See, e.g., id. ¶ 17 ("The original agreement . . . was that the second mortgage financing was for a period of three years . . . plaintiffs were to pay off the second mortgage loan in or about the year 2000."); id. ¶ 20 (alleging that Aeder renegotiated the lease in 2003)), noting only that defendants received payment of 17% per annum interest. (See First Am. Compl. ¶ 34.) Plaintiffs do provide more detail as to the purportedly secret lease extension. Now plaintiffs allege that Aeder and defendants had agreed to the reduction in rent in order to extend the term of the lease and, ultimately, to facilitate sale. (Id. ¶ 35-42.) Plaintiffs claim further that defendants "willfully and knowingly [failed to] notif[y] [p]laintiffs in advance of [d]efendants' plan to renegotiate of [sic] the lease or sell the Property because [d]efendants did not want [p]laintiffs"*fn4 to take action to protect their interests. (Id. ¶ 45.) Finally, plaintiffs added a count for waste and mismanagement (Count 7) and violation of the New Jersey Consumer Fraud Act (the "CFA") (Count 8). (See First Am. Compl. ¶¶ 51-57.)

The Court has subject matter jurisdiction over this matter pursuant to 28 U.S.C. § 1332. Defendants now move for dismissal, with prejudice, of each of plaintiffs' counts. Short of full dismissal, defendants insist that plaintiff Waterford LP and plaintiff USLR should be dismissed, that plaintiffs' fraud counts must be amended to plead fraud with particularity, that Waterford LLC should be dismissed pending service of process and that plaintiffs' CFA claim must be dismissed for failure to state a claim.

On a motion to dismiss pursuant to Fed. R. Civ. P. 12(b)(6), a court is required to accept as true all allegations in the complaint and draw all reasonable inferences in the light most favorable to the non-moving party. See Umland v. Planco Fin. Servs., 542 F.3d 59, 64 (3d Cir. 2008); see also Phillips v. County of Allegheny, 515 F.3d 224, 232-33 (3d Cir. 2008).

A complaint will survive a motion under Rule 12(b)(6) if it states plausible grounds for plaintiff's entitlement to the relief sought. See Bell Atl. Corp. v. Twombly, 550 U.S. 544, 127 S.Ct. 1955, 1965, 1968-69 (2007) (abrogating Conley v. Gibson, 355 U.S. 41, 45-46, 78 S.Ct. 99 (1957) which held that a "complaint should not be dismissed for failure to state a claim unless it appears beyond doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief") (emphasis added). A plaintiff's obligation to provide the grounds for its "entitlement to relief" requires "more than labels and conclusions, and a formulaic recitation of the elements of a cause of action will not do." Bell Atl. Corp., 127 S.Ct. at 1964-65. In other words, the complaint must contain sufficient factual allegations "to raise a right to relief above the speculative level." Id. at 1965. "The issue is not whether a plaintiff will ultimately prevail but whether the claimant is entitled to offer evidence to support the claims. Indeed it may appear on the face of the pleadings that a recovery is very remote and unlikely but that is not the test." Id. at 1981 (quoting Scheuer v. Rhodes, 416 U.S. 232, 236, 94 S.Ct. 1683 (1974)). "The plausibility standard is not akin to a 'probability requirement,' but it asks for more than a sheer possibility that a defendant has acted unlawfully." Ashcroft v. Iqbal, 129 S.Ct. 1937, 1949, 2009 WL 1361536 (2009).

While a court will accept well-pleaded allegations as true for the purposes of the motion, it will not accept unsupported conclusions, unwarranted inferences, or sweeping legal conclusions cast in the form of factual allegations. See id. at 1949-50. Moreover, the claimant must set forth sufficient information to outline the elements of his claims or to permit inferences to be drawn that these elements exist. See Fed. R. Civ. P. 8(a)(2); Twombly, 550 U.S. at 555.

The Court may consider the allegations of the complaint, as well as documents attached to or specifically referenced in the complaint, and matters of public record. See Sentinel Trust Co. v. Universal Bonding Ins. Co., 316 F.3d 213, 216 (3d Cir. 2003); see also 5B Wright & Miller, Federal Practice & Procedure § 1357 (2009)."A 'document integral to or explicitly relied upon in the complaint' may be considered 'without converting the motion [to dismiss] into one for summary judgment.'" Mele v. Federal Reserve Bank, 359 F.3d 251, 255 n.5 (3d Cir. 2004) (quoting Shaw v. Digital Equip. Corp., 82 F.3d 1194, 1220 (1st Cir. 1996)). "Plaintiffs cannot prevent a court from looking at the texts of the documents on which its claim is based by failing to attach or explicitly cite them." In re Burlington Coat Factory Sec. Litig., 114 F.3d 1410, 1426 (3d Cir. 1997).


1. Dismissal of Waterford LP

On the basis of a good standing certificate from the State of New Jersey, defendants claim that Waterford LP was dissolved on September 30, 1997 and, therefore, it is legally impossible for Waterford LLC to have been its general partner during the operative years. (See Defs.' Supp. 8-9.) Moreover, defendants posit that plaintiffs fail to allege that Waterford LLC authorized Waterford LP to hire plaintiffs' counsel, (See Def.'s Supp. 9.), and also fail to plead that Waterford LLC authorized suit by Waterford LP against defendants (See id.)

Plaintiffs respond that consideration of the certificate submitted by defendants is improper on a Rule 12(b)(6) motion. (See Pls.' Opp'n 8-9.) According to plaintiffs, the Court should consider only the pleadings, documents attached to the pleadings, exhibits to the pleadings and matters of judicial notice. (Pls.' Opp'n 8.) Plaintiffs insist that whether Waterford LP exists is a factual question more properly dealt with in discovery. (Pls.' Opp'n 9.)

a. Standard

Generally, if "matters outside the pleadings are presented to and not excluded by the court" a motion to dismiss must be treated as a motion for summary judgment. Fed. R. Civ. P. 12(d); see also In re Rockefeller Ctr. Props. Sec. Litig., 184 F.3d 280, 287 (3d Cir. 1999); Garlanger v. Verbeke, 223 F. Supp. 2d 596, 606 n.4 (D.N.J. 2002). There are several narrow exceptions to this general rule. See In re Rockefeller Ctr. at 287. A court may consider documents "integral to or explicitly relied upon in the complaint," In re Burlington Coat Factory, 114 F.3d at 1426, or "undisputedly authentic documents [] if the plaintiff's claims are based on the document." Pension Benefit Guar. Corp. v. White Consol. Indus., 998 F.2d 1192, 1196 (3d Cir.1993).The rationale behind these exceptions is that the primary problem created by review of documents outside of the pleadings, a lack of notice to the plaintiff, is not present where a plaintiff has actual notice of the document and relied upon it in its pleadings. See In re Burlington Coat Factory, 114 F.3d at 1426.

b. Discussion

This case is distinguishable from In re Burlington Coat Factory, where the Third Circuit affirmed a district court's consideration of an annual report because the complaint referred to data in the annual report without citation. See id. Although plaintiffs' claim here is not based on the document in question, defendants do rely on an "undisputedly authentic document." See Pension Benefit Guar. Corp., 998 F.2d at 1196. Plaintiffs do not contest the authenticity of the certificate and the certificate bears similarity to the other types of documents that courts have properly reviewed in support of a motion to dismiss. See id. at 1197 (public records, including criminal case dispositions, letters of decision by government agencies, and published reports of administrative bodies, may be considered). Unlike the documents deemed not to be public records for purposes of a motion to dismiss in Pension Benefit Guar. Corp., the certificate was not subject to any access restrictions. See id. at 1197.

Based on the good standing certificate, Waterford LP was cancelled in 1997. (See Certification of Robert E. Bartkus, Esq. (Dkt. Entry No. 7-2, filed Jan. 27, 2009).) A non-existent plaintiff does not have standing to sue. See Pharmaceutical Sales & Consulting Corp. v. J.W.S. Delavau Co., 59 F. Supp. 2d 398, 401 (D.N.J. 1999) (quoting St. John Baptist Greek Catholic Church v. Gengor, 118 N.J. Eq. 467, 473 (1935) (a "corporation must qualify as 'either de jure or de facto or it has no legal capacity to sue or be sued.'") Waterford LP is dismissed without prejudice. The Court grants plaintiffs leave to amend to plead the status of plaintiff Waterford LP.

2. Dismissal of USLR

Defendants argue that defendant USLR should also be dismissed for lack of standing, (Def.'s Supp. 10 n.2.), and plaintiffs do not respond to this argument. If the Court finds that USLR satisfies the requirements for standing generally, defendants argue that USLR lacks standing for Count 6, alleging breach of fiduciary duty and Count 7, alleging waste, because plaintiffs have conceded that Berger, as the partner in Waterford LP, is the only party asserting these claims. (See Pls.' Opp'n 23.)

a. Standard

"Article III of the Constitution restricts the judicial power of the United States to the resolution of cases and controversies." Taliaferro v. Darby Twp. Zoning Bd., 458 F.3d 181, 188 (3d Cir. 2006) (internal quotations omitted). A litigant must satisfy the elements of standing or a federal court does not have subject matter jurisdiction over the litigants claims and they must be dismissed. See id.

The three elements of standing are "(1) the plaintiff must have suffered an injury in fact- an invasion of a legally protected interest which is (a) concrete and particularized, and (b) actual or imminent, not conjectural or hypothetical; (2) there must be a causal connection between the injury and the conduct complained of; and (3) it must be likely, as opposed to merely speculative, that the injury will be redressed by a favorable decision."

Id. (quoting United States v. Hays, 515 U.S. 737, 742-43, 115 S.Ct. 2431 (1995)).

b. Discussion

Plaintiffs pleadings as to USLR are opaque. Although, plaintiffs assert that USLR formed Waterford LP, (See First Am. Compl. ¶ 16.), and contributed $1,500,000 in cash to permit Waterford LP to purchase the Property, (See First Am. Compl. ¶ 19.), plaintiffs then resort to the general term "Plaintiffs" in other allegations. The pleadings do not identify USLR, separate from the other plaintiffs, as having independently been either the subject or object of the other allegations. This imprecision makes it difficult for the defendants, as well as the Court, to disentangle the substance of plaintiffs' allegations. However, accepting all of plaintiffs' allegations as true and drawing all reasonable inferences in the light most favorable to the non- moving party, see Umland, 542 F.3d at 64, plaintiffs' complaint alleges that USLR contributed funds used to purchase the Property in reliance upon defendants' assurances that they would not disturb plaintiffs' interests and, as a result, USLR suffered damages caused by defendants' renegotiation of the lease and sale of the Property.

These allegations are sufficient to support USLR's standing with regard to plaintiffs' claims for fraud (Count 1), breach of contract (Count 2), unjust enrichment (Count 3), breach of implied duty of good faith and fair dealing (Count 4), conversion (Count 5) and the New Jersey CFA (Count 8). Plaintiffs have alleged that USLR was injured by reason of defendants' misrepresentations and such injury could be redressed by judgment in USLR's favor. Plaintiffs do not, however, allege that USLR is an equity owner of Waterford LP, (See First Am. Compl. ¶ 4.) To the extent that any of plaintiffs' counts depend on a partnership relationship, such counts must be dismissed as to USLR. Count 6 alleges a breach of fiduciary duty owed by defendants to plaintiffs "[b]y reason of the partnership relationship and business dealings between Plaintiffs and Defendants." (See id. ¶ 48, p. 10.) Plaintiffs conceded in opposition that this claim is "based [on] a partnership relationship." (Pls.' Reply ¶ 23.) As such, Count 6 is dismissed as to USLR. For the same reasons as apply to Count 6, Count 7, which alleges that defendants "wasted the only asset of Waterford LP to the detriment of [p]laintiffs," is dismissed as to USLR.

3. Fraud

a. ...

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