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East Side Ventures, LLC v. J&M Land Co.


October 8, 2010


On appeal from the Superior Court of New Jersey, Atlantic County, Law Division, Docket No. L-2098-08.

Per curiam.


Argued: September 22, 2010

Before Judges Axelrad and R. B. Coleman.

Plaintiff East Side Ventures, LLC, a limited liability company of the State of New Jersey ("East Side - New Jersey"), appeals from the Law Division orders of October 23, 2009, granting summary judgment to defendant, J&M Land Co. ("J&M"), dismissing plaintiff's complaint, and denying plaintiff's motion for leave to file a second amended complaint to permit its principals to proceed as individual parties. We affirm substantially for the reasons articulated by Judge Nelson C. Johnson in his comprehensive memoranda of decision issued in connection with J&M's two summary judgment motions.

The facts are not in dispute. On March l4, 2003, a Certificate of Formation was filed with the State of Delaware as to East Side Ventures, LLC, a Delaware limited liability company ("East Side - Delaware"). In August 2003, J&M entered into an agreement to sell a vacant parcel of land in New Jersey to East Side - Delaware.*fn2 On November 21, 2003, J&M deeded the property to East Side - Delaware. On March 8, 2004, a Certificate of Cancellation was filed with the State of Delaware as to East Side - Delaware.

On February 25, 2004, a Certificate of Formation was filed with the State of New Jersey as to East Side - New Jersey. On July l6, 2004, East Side - Delaware deeded the subject parcel to East Side - New Jersey. No documents to consolidate or merge East Side - Delaware with East Side - New Jersey were filed with either the states of Delaware or New Jersey, nor are there any written agreements between either limited liability company doing so. Moreover, according to New Jersey Department of Treasury records, East Side - Delaware neither registered nor was authorized to do business in New Jersey.

This action was commenced by way of a complaint and amended complaint filed on June 26, 2008 and July 28, 2008, respectively, in the Superior Court of New Jersey by East Side - New Jersey against J&M to recover damages for allegedly fraudulent representations made by J&M to East Side - Delaware. After filing answers to the pleadings, J&M moved for summary judgment, which was denied without prejudice by order of September 11, 2009. In his memorandum of decision, Judge Johnson concluded that "[p]laintiff's Complaint does not state a cause of action," but the judge gave East Side - New Jersey an opportunity to "seek to amend its Complaint setting forth a proper articulation of its claim supported by Certifications and documents." The judge further admonished that "[p]laintiff must demonstrate compliance of both the Plaintiff and the predecessor entity with both New Jersey and Delaware law as appropriate."

On or about October 7, 2009, East Side - New Jersey filed a motion for leave to file a second amended complaint, seeking to abandon any claims on behalf of the limited liability company and assert claims of fraud on behalf of its principals, Jack Morris and Sheryl Weingarten, who had also been principals of East Side - Delaware. J&M responded with a cross-motion for summary judgment. Both parties filed responses to the respective motions. Following oral argument on October 23, 2009, Judge Johnson entered two orders, denying East Side - New Jersey's motion to amend its complaint and granting J&M summary judgment dismissing the complaint. In the appended memorandum of decision, the judge noted, among other findings of fact:

12. At oral argument, Plaintiff's counsel conceded that the New Jersey LLC does not have standing to bring this claim and, further, that any claim which Weingarten and Morris may have arises out of the Contract between the Delaware LLC and the Defendant, J&M.

The judge referenced N.J.S.A. 42:2B-57(a), which expressly precludes a limited liability company doing business in New Jersey from maintaining "any action, suit or proceeding" in New Jersey until it has registered here. As it was undisputed East Side - Delaware never registered to do business in New Jersey, the judge concluded that the foreign limited liability company did not have standing to file the suit against J&M.

The judge also found the principals were statutorily precluded from asserting a derivative action and "step[ping] into the shoes" of East Side - Delaware. He explained that, under N.J.S.A. 42:2B-50(b) and its mirror image statute in Delaware, 6 DEL. CODE ANN. §l8-803(b), the "persons winding up the limited liability company's affairs" had the ability "in the name of, and for and on behalf of, the limited liability company [to] prosecute and defend suits" but only "upon dissolution" of the limited liability company "and until the filing of a certificate of cancellation." As it was undisputed East Side -Delaware's certificate was cancelled on March 2, 2004, neither Weingarten nor Morris had the legal authority to prosecute an action on behalf of East Side - Delaware under the plain language of either statute.

Judge Johnson also concluded the principals were further precluded from bringing a derivative action under either or both N.J.S.A. 42:2B-6l and 6 DEL. CODE ANN. §l8-1002, which explicitly provide, in pertinent part, that "[i]n a derivative action, the plaintiff must be a member ("or an assignee of a limited liability company interest" under the Delaware statute) at the time of bringing the action . . . ." (emphasis added). Since East Side - Delaware was cancelled in March 2004, its principals were not members of that entity when this suit was instituted.

On appeal, East Side - New Jersey renews its arguments made to the trial judge, primarily that based on J&M's tortious conduct, equity should permit the principals to proceed on their fraud claims. We perceive this argument to be no more compelling than did Judge Johnson. As he noted, citing Dunkin' Donuts of America, Inc. v. Middletown Donut Corp., 100 N.J. 166, 183 (l985), "equity follows the law." East Side - New Jersey neither provided to the trial judge nor to us any legal authority to support its position that its principals, Weingarten and Morris, would have standing to assert a claim against J&M arising out of a real estate transaction that J&M entered into with a separate and distinct foreign limited liability company. The principals made a decision regarding the formation and structure of their companies, including canceling the East Side - Delaware limited liability company and choosing not to merge the two entities. Along with the advantages surrounding a limited liability company come the consequences.


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