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United States of America v. Penny Lane Partners

February 9, 2011

UNITED STATES OF AMERICA, PLAINTIFF,
v.
PENNY LANE PARTNERS, L.P., DEFENDANT.



The opinion of the court was delivered by: Brown, Chief Judge,

NOT FOR PUBLICATION

MEMORANDUM OPINION

This matter comes before the Court upon Jackie Herbst's objections (Doc. No. 135) to Magistrate Judge Douglas E. Arpert's October 26, 2010 Report and Recommendation ("R&R"). (Doc. No. 131.) The Court has jurisdiction over this matter pursuant to 28 U.S.C. § 1331. The Court, having considered the parties' submissions and having decided this matter pursuant to Federal Rule of Civil Procedure 78, and for the reasons set forth below, will: (1) overrule Herbst's objections (Doc. No. 135); (2) adopt Magistrate Judge Arpert's October 26, 2010 R&R (Doc. No. 131); (3) deny Herbst's Motion objecting to the Receiver's Reevaluation of his Direct Fraud Claim (Doc. No. 104); and (4) adopt and confirm the Receiver's Recommendation in its Notice and Reevaluation of Jackie Herbst's Direct Fraud Claim (Doc. No. 96).

I. BACKGROUND

This Court will not reiterate the entirety of the factual and procedural background as it has been addressed first in this Court's July 24, 2008 memorandum opinion and has again been amply set forth in Judge Arpert's thorough and thoughtful Report and Recommendation. The Court, therefore, will only address that which is relevant to address Jackie Herbst's objections. This matter involves the issue of whether Jackie Herbst, a private limited partner in Penny Lane Partners L.P. ("PLP"), who has filed a claim of direct fraud against Penny Lane, in which he alleges that half of his partnership interest in PLP was fraudulently transferred to three assignees, Mark Barbera, Steven Berger, and Birdie Capital Corporation, should be compensated by PLP for the alleged fraud. This Court referred this matter to the Magistrate Judge for a R&R, and on June 1, 2010, the Magistrate Judge held an evidentiary hearing. After the Magistrate Judge considered the evidence and the record, he filed his R&R. Thereafter, Jackie Herbst filed his objections, and the Receiver filed his response to those objections. The Court now considers these submissions.

II. DISCUSSION

A. The Parties' Argument

Jackie Herbst filed a fifteen page written objection to the R&R, which the Court has carefully reviewed. (Herbst's Objections at 7; Doc. No. 135.) He asserts a number of arguments in response to those set forth by the Receiver at the hearing, and because these are not specific objections to the R&R, the Court will not address them. However, Herbst also states a number of objections directly related to the R&R, as follows: (1)the Magistrate Judge erred when he found that Herbst failed to provide proof of the emergency conditions that existed that caused him to transfer his interest and in this regard (id. at 8); (2)the Magistrate Judge failed to consider the entirety of Mr. Denslow's statements when making its credibility determinations (id. at 9); (3) the Magistrate Judge erred when he found that Richard Rosenblum's affidavit and the affidavit of Jackie Herbst were contradictory (id. at 11); (4) the Magistrate Judge erred in his findings with respect to Herbst's actions "around the time of the fraud and for a short time afterwards" (id. at 13); (5) the Magistrate Judge erred when he concluded that Herbst had not established the five elements that constitute fraud (id. at 7); (6) the Magistrate Judge erred in concluding that restitution and rescission are not proper remedies in this matter (id.); and (7)the Magistrate Judge erred in concluding that Penny Lane did not have authority to assign any interests without the prior written authorization of the SBA (id. at 10).

In response, the Receiver asserts that this Court should overrule Herbst's objections, adopt the Magistrate Judge's R&R, deny Herbst's Motion objecting to the Receiver's Reevaluation of his Direct Fraud Claim (Doc. No. 104), and adopt and confirm the Receiver's Recommendation in its Notice and Reevaluation of Jackie Herbst's Direct Fraud Claim (Doc. No. 96). (Receiver's Resp. Br. at 1; Doc. No. 139.)The Receiver argues that the Court should conclude that Herbst has not proven by clear and convincing evidence that he has met each element of fraud, in that he "has presented no proof that any of the alleged misrepresentations were actually made," "that he relied upon them," or that he . . . was damaged by the assignments." (Id. at 16.) The Receiver points out that according to Herbst's testimony, he "signed the assignment only after speaking to Gregory Trautman, and did so without ever first ascertaining the specific substantive reasons for the assignments themselves." (Id. at 14.) Because the Magistrate Judge at the evidentiary hearing concluded that Herbst only spoke with Mark Barbera and Gregory Trautman in regard to this transfer, and because "[n]either one of them is Penny Lane's General Partner" or "the President or CEO for Penny Lane, Inc., the entity that controls Penny Lane's General Partner," the Receiver maintains that it follows that Penny Lane itself is not liable for the transfer, even if fraudulently induced. (Id.) In fact, the Receiver notes that a letter written by William Denslow, the Chairman of Penny Lane, Inc., to Herbst, in which he writes "your complaints about your September 1997 partial assignments of limited interests do not involve Penny Lane and should be taken up with the parties to that transaction." (Id. at 15.) In sum, the Receiver asserts that because "[t]he language of the assignments and even [Herbst's] own actions after the assignments are contrary to the claim that the assignments were temporary and were supposed to revert back to him," this Court should overrule Herbst's objections.

B. Standard of Review

Review of a Magistrate Judge's R&R, as well as objections to it, is governed by Local Civil Rule 72.1. The rule provides that the Court "shall make a de novo determination of those portions [of the R&R] to which objection is made and may accept, reject, or modify, in whole or in part, the findings or recommendations made by the Magistrate Judge." L. CIV. R. 72.1(c)(2). In conducting its review, the Court "may consider the record developed before the Magistrate Judge, making [its] own determination on the basis of that record." Id. See also State Farm Indem. v. Fornaro, 227 F. Supp. 2d 229, 231 (D.N.J. 2002).

Therefore, "this Court will review a magistrate judge's findings of fact for clear error." Lithuanian Commerce Corp., Ltd. v. Sara Lee Hosiery, 177 F.R.D. 205, 213 (D.N.J. 1997) (citing Lo Bosco v. Kure Eng'g Ltd., 891 F. Supp. 1035, 1037 (D.N.J. 1995)). Under this standard, a finding is clearly erroneous when "although there is evidence to support it, the reviewing court on the entire evidence is left with the definite and firm conviction that a mistake has been committed." Anderson v. City of Bessemer City, 470 U.S. 564, 573 (1985) (citing United States v. U.S. Gypsum Co., 333 U.S. 364, 395 (1948)). The district court will not reverse the magistrate judge's factual determination, even in circumstances where the court might have decided the matter differently. Bowen v. Parking Auth. of Camden, 2002 U.S. Dist. LEXIS 14585, *3 (D.N.J. Jul. 30, 2002). "A district judge's simple disagreement with the magistrate judge's findings is insufficient to meet the clearly erroneous standard of review." Andrews v. Goodyear Tire & Rubber Co., Inc., 191 F.R.D. 59, 68 (D.N.J. 2000).

C. Analysis

This Court referred this matter to the Magistrate Judge for an evidentiary hearing on March 24, 2010, and a R&R was issued. Herbst does not object to the basic tenet of law stated in the R&R regarding the five elements required to sustain his direct fraud claim and that he must prove these elements by clear and convincing evidence. To this end, the Court adopts the Magistrate Judge's R&R. In addition, Herbst has not objected to the conclusions regarding jurisdiction and the Receiver's alleged conflict of interest, and therefore, the Court accepts and adopts these legal conclusions. To the extent that Herbst has lodged objections to the Receiver's arguments, the Court concludes that it need not consider Herbst's arguments because in the absence of specific objections to the R&R, this Court is not ...


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