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The United States Small Business Administration As Receiver For Penny Lane Partners, L.P v. Abraham Herbst

August 24, 2011


The opinion of the court was delivered by: Hon. Garrett E. Brown, Jr.



BROWN, Chief Judge

This matter comes before the Court upon the cross-motions for summary judgment (Doc. Nos. 34, 44) filed by Plaintiff, the United States Small Business Administration (SBA) as Receiver for Penny Lane Partners, L.P. ("Penny Lane"), and pro se Defendant Abraham Herbst. Also before the Court is the Receiver's motion to amend the Complaint (Doc. No. 49), which addresses objections to the Complaint raised by Mr. Herbst in his motion for summary judgment. The Court has considered the parties' submissions and decided the matter without oral argument pursuant to Federal Rule of Civil Procedure 78. For the following reasons, the Court will grant Receiver's motion for summary judgment, deny Defendant's motion, and deny Receiver's motion to amend as moot.


Receiver brings this ancillary action to recover unfunded capital contributions it claims that Defendant owed as a Private Limited Partner of Penny Lane. Penny Lane was a licensed Small Business Investment Company, and it was placed into Receivership under the SBA by this Court's Order of May 16, 2006. United States v. Penny Lane Partners, LP, Civ. No. 06-1894, Doc. No. 15 (D.N.J. 2006). Defendant has not submitted a proper response to Receiver's Statement of Undisputed Material Facts as required by Local Civil Rule 56.1 or legal brief, but has instead submitted two affidavits by him and his brother that present a number of unsupported, conclusory assertions. Generally, where a responsive party does not file a Local Rule 56.1 statement, "all facts contained in [the moving party's] Rule 56.1 statement will be deemed admitted if they are supported by evidence and not contradicted in [the adversary's] opposing evidence." Sampson v. Ctr. for Family Guidance, No. 05-4975, 2007 U.S. Dist. LEXIS 60749, at *1 n.1 (D.N.J. Aug 16, 2007); Hill v. Algor, 85 F. Supp. 2d 391, 408 (D.N.J. 2000) ("Facts submitted in the statement of material facts which remain uncontested by the opposing party are deemed admitted."); see also Fed. R. Civ. P. 56(e) ("If a party fails to properly support an assertion of fact of fails to properly address another party's assertion of fact as required by Rule 56(c), the court may: (2) consider the fact undisputed for purposes of the motion"). However, the Court is mindful of Defendant's pro se status and will endeavor to ascertain the material facts that Defendant attempts to dispute. See, e.g., Haines v. Kerner, 404 U.S. 519, 520 (1972); see also Wade v. Yeager, 377 F.2d 841, 846 (3d Cir. 1967) (recognizing that a petition made without the benefit of counsel must be read with a measure of tolerance).

Receiver has put forth evidence indicating that Defendant became a Private Limited Partner in Penny Lane when he executed the Limited Partnership Agreement (LPA) memorializing his interest in the partnership and capital commitment of $230,000. (Morris Aff. ¶ 5, Ex. 2 (LPA) at 60, 68.) According to William Van Der Weele, principal agent for Receiver,Defendant's contributions to and distributions from Penny Lane were recorded on Penny Lane's IRS K-1 tax forms ("K-1 forms"). (Van Der Weele Aff. ¶ 8.) From the K-1 forms, Mr. Van Der Weele deduced that Defendant still owed $51,750.00 of his original $230,000-commitment as of October 2006, and he issued a demand letter for this balance to Defendant on October 31, 2006. (Id. ¶ 9 & Ex. 9.). Article 5.11 of the LPA provides that Private Limited Partners are liable for 10% interest on any unfunded capital contribution. (LPA art. 5.11.) It is undisputed that Defendant has not paid any of this remaining balance. (See Receiver's 56.1 Statement ¶ 8; Van Der Weele Aff. ¶ 10; Def.'s Aff. ¶ 108.)

By untimely submissions filed June 28, 2011,*fn1 Defendant presents inter alia the following objections: (1) there remains an active fraud claim against Penny Lane in a collateral case brought by Defendant's brother, Jackie Herbst; (2) there was correspondence between Bill Denslow and Jackie Herbst, wherein Penny Lane "was accused of numerous breaches, commissions and omissions of obligations, including not charging a commission to one single partner in just one single case which amounted to almost one hundred thousand dollars which should have been paid to Penny Lane, and obviously considerably skewed EVERY partner's numbers and distributions"; (3) that, pursuant to the LPA, any representation made by or to any partner is a "representation, claim and legally-binding obligation to each and every other partner"; (4) that Receiver's supporting affidavits are inadmissible for failure to comply with the requirements of Federal Rule 56; (5) that "Receiver provide [sic] no basis for t[he] calculation" of the balance of his capital commitment, and that the K-1 forms cited by Mr. Van Der Weele are "incomplete," "inaccurate and unverified"; (6) that partners' "commitments were reduced or waived for various reasons"; (7) that Penny Lane "waived capital commitments by letter written in good faith, and any error on Penny Lane's part in doing so is a an [sic] error by Penny Lane, not defendant"; (8) that Defendant "had withdrawn as a [limited partner] by virtue of his litigation against Penny Lane for fraud, breach of contract, and other claims"; and (9) that article5.12(a) and (b) of the LPA permitted Penny Lane to reduce the amount of a limited partner's commitment, in the event that the limited partner failed to make a calldown contribution. (Def.'s Aff. ¶¶ 7, 13, 17, 22, 27, 29, 35, 37, 66.) Defendant denies that he was a Private Limited Partner at the time of Receiver's 2006 letter demanding payment of the remainder of his capital commitment, but he "admits that at one time he may have been a limited partner." (Id.¶¶ 98--99.) Despite this concession, Defendant "denies that he signed the LPA" provided as Receiver's Exhibit 2. (Id. ¶ 100.) Defendant contends that this Exhibit "is incomplete, inaccurate, and unsigned by necessary parties." (Id. ¶ 102.) Defendant further denies that the LPA required him to make capital contributions, but states that "even if the LPA had been binding on defendant, there would have been numerous exemptions and exceptions under the LPA which could have been claimed by a party which would have resulted in [waiver]." (Id.¶ 15.) With regard to the K-1 forms, Defendant further objects that they were prepared by anoutside accounting firm as opposed to Penny Lane. (Id. ¶ 113.)

Defendant also relies on the affidavit of his brother Jackie Herbst, which states that he has personal knowledge of "multiple frauds committed by Penny Lane," and "multiple violations of the LPA by Penny Lane." (Jackie Herbst Aff. ¶¶ 3--4.) As an example, Jackie Herbst states that Penny Lane committed fraud against him, "depriving him of a portion of his shares and portions of almost all distributions made by Penny Lane." (Id. ¶ 8.) He further asserts that "[s]ome partners were charged a commission, [and] some partners were not charged a commission, a violation of the LPA. In one case alone, a private limited partner saved $80,000 by not being charged a commission." (Id. ¶¶ 12--13.) Jackie Herbst additionally states that distributions to limited partners varied "wildly"; that the K-1 forms "were inaccurate and unreliable on an ongoing basis," which required numerous corrections; that capital commitments were changed on a regular basis; and that Penny Lane failed to provide copies of the LPA to some limited partners at the time of execution. (Id. ¶¶ 14, 16--18, 20, 24.) *fn2

Receiver's Complaint presents a single claim for breach of contract. Defendant's Answer purports to set forth 48 affirmative defenses and more than 50 counterclaims, although the Answer fails to set forth specific factual allegations to support the separate affirmative defenses and counterclaims.

Cross-Motion for Summary Judgment & Motion to Amend The Court considers first Defendant's cross-motion for summary judgment and Receiver's related cross-motion to amend. Defendant argues that he is entitled to judgment on Receiver's claim, because the Complaint identifies the partnership in receivership as "Penny Lane Capital Partners, L.P.," as opposed to "Penny Lane Partners, L.P." (See Compl. ¶ 4.) Defendant states that he has no knowledge of or affiliation with such an organization. Receiver cross-moves to amend, stating that the reference to Penny Lane Capital Partners, L.P., was in error. This Court will deny Defendant's motion, because the challenged reference appears to have been a simple scrivener's error, and Defendant has shown no prejudice by the mistake.

The Complaint clearly identifies "Penny Lane Partners, L.P.," as the entity in receivership in both the Complaint caption and in paragraph 2 of the Complaint, which cites this Court's order in the receivership action, United States v. Penny Lane Partners, L.P., Civ. No. 06-1894 (D.N.J. May 16, 2006). Receiver's moving papers expressly identified the partnership as "Penny Lane Partners, L.P." (Doc. No. 35 at 1), and Defendant's untimely response to Receiver's motion (Doc. No. 38)-filed nearly a month before Defendant filed the cross-motion for summary judgment (Doc. No. 44)-clearly demonstrated that he understood Receiver to be referring to Penny Lane Partners, L.P., as opposed to another entity (see Doc. No. 38 (presenting arguments for why he does not owe capital contributions under the limited partnership agreement with Penny Lane)). The Federal Rules of Civil Procedure provide that "[p]leadings must be construed so as to do justice." Fed. R. Civ. P. 8(e). Defendant has had a full and fair opportunity to respond to the merits of Receiver's claims, and he has done so. Defendant makes no effort to show unfair surprise or prejudice from this pleading error, but instead raises this motion as an attempt to block Receiver's merits motion. No injustice would result by construing the Complaint's reference to "Penny Lane Capital Partners, L.P.," to mean the entity that bothparties understood Receiver to be referring to-Penny Lane Partners, L.P. The Court will therefore deny Defendant's frivolous motion, and the Court will deny Receiver's cross-motion to amend as moot.

Receiver's Motion for Summary Judgment

The Court turns now to Receiver's motion, which seeks summary judgment on its contract claim under the LPA. A party seeking summary judgment must "show[] that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law." Fed. R. Civ. P. 56(a); see also Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986); Hersh v. Allen Prod. Co., 789 F.2d 230, 232 (3d Cir. 1986). The threshold inquiry is whether there are "any genuine factual issues that properly can be resolved only by a finder of fact because they may reasonably be resolved in favor of either party." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 250 (1986) (noting that no triable issue exists unless there is sufficient evidence favoring the nonmoving party for a jury to return a verdict in its favor). In deciding whether triable issues ...

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