September 9, 2011
KENNETH REPETTI, PLAINTIFF-APPELLANT,
JOHN R. VITALE, NINA VITALE, JOHN R. VITALE AT PORT LIBERTE, A NEW JERSEY CORPORATION, JOHN R. VITALE, D.M.D., P.A. AND VITAL CASH, L.L.C., DEFENDANTS-RESPONDENTS.
On appeal from the Superior Court of New Jersey, Law Division, Somerset County, Docket No. L-508-08.
NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION
Argued May 18, 2011
Before Judges Lihotz and J. N. Harris.
Plaintiff Kenneth Repetti appeals from a July 14, 2010 order granting judgment for defendants and dismissing his second amended complaint with prejudice. Plaintiff also appeals from the order denying his request for reconsideration.
Plaintiff filed a single count complaint alleging defendants Dr. John R. Vitale, his wife Nina Vitale, various corporate entities owned by the couple, including Dr. Vitale's dental practice titled John R. Vitale at Port Liberte, P.A., John R. Vitale, D.M.D., P.A. (a defunct professional association) and Vital Cash, L.L.C. (an ATM machine business owned by Nina and their two sons) entered into a fraudulent scheme or conspiracy to prevent assets from being attached in satisfaction of two judgments plaintiff had obtained against Dr. Vitale. The parties agreed to a trial "on the papers," that is, plaintiff submitted his case through documentation; thereafter, defendants were deemed to have moved for an involuntary dismissal. The court granted defendants' motion, concluding plaintiff failed to state a claim for relief. On appeal, plaintiff argues the trial court erred in its legal conclusions. We disagree and affirm.
In 1998, plaintiff lent Dr. Vitale $80,000 and $100,000, with the expectation of repayment along with twenty percent interest. In 2000, when Dr. Vitale defaulted, plaintiff sued and recovered two judgments in the United States District Court for the Southern District of New York.
In his pursuit of satisfaction of these judgments, plaintiff initiated this action on April 2, 2008. Plaintiff's second amended eight-paragraph complaint*fn1 stated Dr. Vitale and Nina engaged in a scheme and conspiracy to borrow money  from other persons based on the credit and income of defendant [Dr.] Vitale, and with those borrowed mon[ies] acquired assets and diverted those assets and a substantial portion of the income generated from his dental practice to defendant, Nina Vitale, by placing those substantial assets in her name and paying her a salary out of [a] portion [of] his income.
According to the complaint, as a direct result of the fraudulent scheme and conspiracy aforesaid, plaintiff has been unable to collect on his judgment since legal title to said assets, such as [the family residence located on] Old Chester Road, Gladstone, New Jersey, the shares of stock of John R. Vitale at Port Liberte, a substantial portion of the income from the dental practice of Dr. John R. Vitale, and a one- third interest in Vital Cash, LLC, have been transferred to defendant, Nina Vitale.
In a ruling on defendants' pre-trial motion to dismiss for failure to state a claim for relief, the motion judge concluded that a liberal reading of these assertions, Printing Mart-Morristown v. Sharp Elecs. Corp., 116 N.J. 739, 772 (1989), suggested claims for conspiracy to divert assets, Banco Popular, N.A. v. Gandi, 184 N.J. 161, 175 (2005), and conspiracy to commit fraud implicating the New Jersey Uniform Fraudulent Transfer Act (UFTA), N.J.S.A. 25:2-25.
On September 23, 2008, defendants filed an answer to the second amended complaint and itemized affirmative defenses believed to warrant dismissal of the action. These included plaintiff's failure to state a claim upon which relief could be granted and that the action was barred by the applicable statute of limitations. On January 22, 2009, plaintiff moved for summary judgment, which was met by defendants' cross-motion for summary judgment. Judge Ciccone was assigned to review the matter and denied the cross-motions, finding disputed issues of material fact were presented. At the conclusion of discovery, plaintiff reasserted his prior claims, moving for summary judgment, prompting defendants to respond with a cross-motion for summary judgment. Judge Ciccone denied the cross-motions, except she concluded any claim under the UFTA was time-barred and, therefore, dismissed. The judge made clear plaintiff's common law claims for fraud were not similarly barred.*fn2
The action was assigned for trial. On December 17, 2009, the parties stipulated plaintiff would submit his case, consisting of documentary evidence, deposition transcripts and a legal memorandum, "on the papers." The parties agreed that upon plaintiff's submission, "[d]efendants shall be deemed to have moved for judgment in [their] favor . . ., dismissing the [s]econd [a]mended [c]omplaint, pursuant to R[ule] 4:40-1." The stipulation provided for submission of "rebuttal" evidence and the court's final disposition.
Plaintiff marked into evidence a list of twenty documents, all of which previously had been submitted in support of the motion to dismiss. These included his judgments, excerpts from depositions of Dr. Vitale and Nina, deeds, tax returns, loans by Dr. Vitale on behalf of the corporate defendants to other creditors and corporate status reports.
In his deposition, Dr. Vitale explained that in 1996, following entry of his Chapter 7 bankruptcy discharge, he borrowed $80,000 from Raymond Rothschild using his newly incorporated dental practice as collateral. He gave the money to his brother Anthony, who used it as a down payment and obtained a mortgage to buy a residence for Dr. Vitale and Nina. Nina believed the purchase price was $429,000. Three and one-half years later, Anthony transferred the realty to Nina. The stated consideration in the May 2000 deed was $1.00; however, Nina obtained a mortgage with Washington Mutual to satisfy Anthony's mortgage. The loan documents are not in the record so it is unclear what representations were made to support the borrowing. The record does include a January 14, 2004 Form HUD-1 from Nina's mortgage refinance of the same realty, reflecting satisfaction of Washington Mutual's obligation totaling $397,151.87. Further, the condominium in which Dr. Vitale's dental practice operated was transferred to Nina. This realty was encumbered by two personal loans in the principal amount of $500,000. Also, in 2004, Dr. Vitale borrowed $250,000 from Rothschild, which he used to allow his sons to start a business, known as Vital Cash, LLC. Nina and her two sons each owned a one-third interest in the business. The loan is secured by a lien on the dental practice receivables and equipment and repaid by Vital Cash, LLC.
On July 14, 2010, the trial judge rendered a written opinion
accompanied by an order granting judgment in favor of
defendants and dismissing plaintiff's second amended complaint with
prejudice. The court reviewed plaintiff's evidence and considered five
potential bases of relief intended to be proffered.*fn3
Finding the evidence insufficient to sustain any claim, the
court dismissed the matter, concluding:
The first cause of action is that part of plaintiff's case-in-chief sounding in creditor fraud, which cause of action does not exist in this State; further, plaintiff has abandoned any possible claim for straightforward creditor fraud. The second ground for possible recovery is an action under the UFTA. However, as Judge Ciccone has held, any such claim by plaintiff would now be time-barred, and thus plaintiff also abandoned any possible UFTA claim. Third, plaintiff has abandoned any potential claim for common law fraud, but not withstanding such abandonment, he has neither pled fraud with specificity, nor does the record indicate any non-time-barred misrepresentation by the defendants, nor reliance by plaintiff. Thus, plaintiff has no viable claim for common law fraud. The fourth claim plaintiff pursues is that of veil-piercing. However, this claim must fail, insofar as what plaintiff seeks is actually reverse veil-piercing, which remedy has never been authorized in New Jersey. Finally, any claim for conspiracy to commit the above-listed causes of action must fail, because a successful claim for conspiracy depends on the viability of the underlying wrong. Here, plaintiff has pursued no meritorious cause of action against these defendants, and, thus, his claims for conspiracy cannot survive.
Plaintiff's motion for reconsideration was denied and this appeal ensued.
In reviewing a motion for judgment at the close of evidence, R. 4:40-1, the trial court must "'accept as true all the evidence which supports the position of the party defending against the motion and according him the benefit of all inferences which can reasonably and legitimately be deduced therefrom[.]'" Verdicchio v. Ricca, 179 N.J. 1, 30 (2004) (quoting Estate of Roach v. TRW, Inc., 164 N.J. 598, 612 (2000)). If reasonable minds could differ, the motion must be denied. Ibid.; see also Pressler & Verniero, Current N.J. Court Rules, comment 1 on R. 4:40-2 (2011); Dolson v. Anastasia, 55 N.J. 2, 5-6 (1969). This is a legal determination. In our review, we apply the same standard, according no deference to the trial judge's determination. Manalapan Realty, L.P. v. Twp. Comm. of Manalapan, 140 N.J. 366, 378 (1995).
On appeal, plaintiff argues the trial court erred in concluding he
failed to prove a viable cause of action, maintaining he showed Nina
knowingly conspired with her husband to divert his money to her, in an
effort to avoid payment to his
creditors. Plaintiff concedes there is no UFTA claim against Nina, and
does not attempt to establish the tort of creditor fraud.*fn4
He also acknowledges he does not seek affirmative relief
against Dr. Vitale because he already holds a judgment. Succinctly,
plaintiff limits examination to whether he fully pled and proved
Nina's participation in a conspiracy to divert and divest Dr. Vitale's
money and assets to avoid creditors' claims and this alone is
sufficient to allow entry of a judgment against her. Plaintiff is
The trial judge concluded plaintiff's complaint "lack[ed] any viable cause of action under the UFTA, . . . or for common law fraud[,]" consequently, "a cause of action for conspiracy c[ould] not stand alone without a valid underlying action[.]" The court stated: "plaintiff's claim of conspiracy between the defendants is left dangling, alone, without a meritorious underlying claim to sustain it; case law in New Jersey reflects that this cannot be." Plaintiff responds that the Supreme Court in Banco Popular, supra, provides a creditor with a claim against one who assists another in executing a fraudulent transfer. 184 N.J. at 178.
In Banco Popular, the plaintiff bank filed an action for civil conspiracy against its debtor, his wife, debtor's attorney and his law firm, alleging the attorney advised the debtor to transfer two parcels of real property to his wife, in order to avoid the possible execution by another creditor. Id. at 165. The plaintiff had funded loans to the debtor both before and after he made the fraudulent transfers of assets to his wife. Id. at 164. The plaintiff's action alleged the transfers violated the UFTA. Id. at 169. The plaintiff amended the complaint to add claims when it was learned counsel had advised and aided in the transfers. Ibid. In its opinion, the Supreme Court addressed whether New Jersey permits relief on a cause of action of conspiracy to commit a fraud prohibited by the UFTA. Id. at 177.
The Court noted the UFTA modernized the legal rights and remedies of creditors when a debtor's transfer of assets is designed or the effect of which is to prevent or impede satisfaction of claims from the debtor's assets. Ibid. In other words, the purpose of the UFTA prevents a debtor's attempt to defraud his creditors by placing his assets beyond the reach of the creditor's execution. A creditor may undo the wrongful transaction and execution of the wrongfully transferred property. See N.J.S.A. 25:2-29(a)(1); Gilchinsky v. Nat'l Westminster Bank N.J., 159 N.J. 463, 475 (1999).
The Court also reviewed the elements of a claim for civil conspiracy, noting the claim requires proof of "'a combination of two or more persons acting in concert to commit an unlawful act, or to commit a lawful act by unlawful means, the principal element of which is an agreement between the parties to inflict a wrong against or injury upon another, and an overt act that results in damage.'" Banco Popular, supra, 184 N.J. at 177 (quoting Morgan v. Union Cnty. Bd. of Chosen Freeholders, 268 N.J. Super. 337, 364 (App. Div. 1993), certif. denied, 135 N.J. 468 (1994)).
A plaintiff seeking redress need not prove that each participant in a conspiracy knew the "'exact limits of the illegal plan or the identity of all participants.'" [Hampton v. Hanrahan, 600 F.2d 600, 621 (7th Cir. 1979), rev'd on other grounds, 446 U.S. 754, 100 S. Ct. 1987, 64 L. Ed.2d 670 (1980)] (quoting Hoffman-LaRoche, Inc. v. Greenberg, 447 F.2d 872, 875 (7th Cir. 1971)). The unlawful agreement need not be express. The participants in the conspiracy "must share the general conspiratorial objective, but . . . need not know all the details of the plan designed to achieve the objective or possess the same motives for desiring the intended conspiratorial result." Ibid. To establish a conspiracy, "it simply must be shown that there was 'a single plan, the essential nature and general scope of which [was] known to each person who is to be held responsible for its consequences.'" Ibid.
(quoting Hoffman-LaRoche, Inc., supra, 447 F.2d at 875). [Morgan, supra, 268 N.J. Super. at 364.]
For liability, it is sufficient if the parties "understand the general objectives of the scheme, accept them, and agree, either explicitly or implicitly, to do their part to further them." Banco Popular, supra, 184 N.J. at 177. "Most importantly, the 'gist of the claim is not the unlawful agreement, but the underlying wrong which, absent the conspiracy, would give a right of action.'" Id. at 177-78 (quoting Morgan, supra, 268 N.J. Super. at 364) (other internal quotations and citations omitted).
In allowing a conspiracy cause of action, the Court specifically instructed a creditor in New Jersey may bring a claim against one who assists another in executing a fraudulent transfer. Such an action would require the creditor to prove that the conspirator agreed to perform the fraudulent transfer, "which, absent the conspiracy, would give a right of action" under the UFTA. Morgan, supra, 268 N.J. Super. at 364, (quoting [Bd. of Educ. v.] Hoek,  38 N.J. [213,] 238 [(1962)] . . . . A creditor asserting a claim against a conspirator must satisfy the agreement and knowledge aspects of civil conspiracy and all of the underlying components of a UFTA claim. . . . [Banco Popular, supra, 184 N.J. at 178.]
In Banco Popular, the plaintiff alleged a conspiracy cause of action resulting against the debtor's attorney because he encouraged the debtor to violate the UFTA. Ibid. In its review, the Court held this court "properly declined to dismiss the conspiracy count of the complaint to the extent that it was based upon a UFTA violation." Ibid.
Here, contrary to the requisites set forth in Morgan and adopted by Banco Popular, plaintiff alleges no underlying tortious conduct committed by Nina, but he asserts only that she was involved in a conspiracy. After plaintiff's conceded UFTA claims were time barred, a decision not challenged on appeal, the trial judge reviewed alternative causes of action possibly linked to the conspiracy cause; finding none, she properly dismissed the complaint. Absent the support of a timely UFTA claim, plaintiff's conspiracy claim cannot stand alone.
Plaintiff also argues the trial court erred in not piercing the corporate veil of the professional corporation John R. Vitale at Port Liberte, P.A. Plaintiff suggests Dr. Vitale has manipulated his professional corporation, including diverting its income to Nina. He broadly asserts this conduct "resulted in the financial wherewithal of the corporation being turned over to Nina Vitale, directly or through the intervention of third parties, in order to assist Dr. Vitale in perpetrating a fraud against plaintiff, his creditor." He maintains the trial judge failed to recognize the circumstances supporting when a corporate veil could be pierced. We disagree.
Under certain circumstances, courts may pierce the corporate veil by finding that a corporate entity was "a mere instrumentality" of the individual shareholder. See Dept. of Envir. Prot. v. Ventron Corp., 94 N.J. 473, 500-01 (1983). Application of this principle depends on a finding that the [shareholder] so dominated the [corporation] that it had no separate existence but was merely a conduit[.]" Ibid. In the classic application of piercing the corporate veil, "'a court disregards the existence of a corporation to make the corporation's individual principals and their personal assets liable for the debts of the corporation.'" In re Blatstein, 192 F.3d 88, 100 (3d. Cir. 1999) (quoting In re Schuster, 132 B.R. 604, 607 (Bankr. D. Minn. 1991)). In a reverse piercing-the-corporate-veil context, "'assets of the corporate entity are used to satisfy the debts of a corporate insider so that the corporate entity and the individual will be considered one and the same.'" Ibid. (quoting In re Mass, 178 B.R. 626, 627 (M.D. Pa. 1995)). We have located no case employing this remedy in New Jersey.
Only exceptional circumstances warrant disregarding the corporate identity by granting this remedy. The doctrine is imposed "'to prevent an independent corporation from being used to defeat the ends of justice, to perpetrate fraud, to accomplish a crime, or otherwise to evade the law.'" Shotmeyer v. N.J. Realty Title Ins. Co., 195 N.J. 72, 86 (2008) (quoting Ventron Corp., supra, 94 N.J. at 500). Generally, the factors to be considered in piercing the corporate veil under the alter ego theory include: failure to observe corporate formalities; non-payment of dividends; insolvency; siphoning of corporate funds by the dominant shareholder; non-functioning of other officers or directors; absence of corporate records; and gross undercapitalization. In re Mass, supra, 178 B.R. at 629-30.
In reviewing the record, we find none of these factors were present. First, nothing supports the theory that the salary paid to Nina to operate the dental office was inflated or unreasonable. She took over the positions vacated by former employees and performed the designated services. Second, Dr. Vitale is the sole owner of the corporation; Nina did not hold any stock. Third, apparently plaintiff had not attempted to execute his judgment against the corporate stock, freeing Dr. Vitale to pledge his corporate shares as collateral for other debts. Fourth, no evidence suggests Dr. Vitale's personal debts were paid from corporate income, that he sold corporate assets to satisfy his claims or used the corporate bank account as his own. Finally, we are presented with no evidence supporting an allegation Dr. Vitale disregarded the corporate formalities or required the corporation to incur a liability which was actually his own.
Here, the judgment sought to be satisfied by plaintiff is against Dr. Vitale. Consequently, plaintiff provides no basis to enter a similar judgment against the corporate defendant.
Plaintiff's reliance on Velis v. Kardanis, 949 F.2d 78 (3d Cir. 1991), is misplaced. The issue determined by the Third Circuit was whether post-petition transfers by the debtor's solely owned professional corporation, into Keogh and pension plans for the benefit of the debtor, were beyond the reach of the creditors and excluded by 11 U.S.C.A. § 541(c)(2). Id. at 83. The inclusion of the assets resulted from the fact that "there [we]re no enforceable restrictions which preclude treating those distributions as part of the estate of the debtor" and were not subject to exemption pursuant to 11 U.S.C.A. § 522(d)(10)(E). Ibid.
Lastly, we reject plaintiff's final argument that he was entitled to summary judgment. According to plaintiff, defendants never contested facts he submitted in the motion, but only raised the legal contentions that plaintiff's complaint failed to state a cause of action against Nina Vitale. This argument lacks sufficient merit to warrant discussion in our opinion. R. 2:11-3(e)(1)(E).
Finally, as for the denial of the motion for reconsideration, we have determined:
[r]econsideration itself is a matter within the sound discretion of the [trial c]court, to be exercised in the interest of justice[.] It is not appropriate merely because a litigant is dissatisfied with a decision . . . or wishes to reargue a motion, but should be utilized only for those cases which fall into that narrow corridor in which either 1) the [c]court has expressed its decision based upon a palpably incorrect or irrational basis, or 2) it is obvious that the [c]court either did not consider, or failed to appreciate the significance of probative, competent evidence. [Canter v. Lakewood of Voorhees, 420 N.J. Super. 508, 516 (App. Div. 2011) (citations and internal quotation marks omitted).]
Applying this standard, we find no basis to interfere with the trial court's denial of reconsideration.