The opinion of the court was delivered by: Hillman, District Judge
This matter concerns the lease of space in a mall by a Hollywood Tans franchise. Before the Court are a motion for partial summary judgment filed by defendants Hollywood Tanning System, Inc., David R. Rahn, Ralph Venuto, Jr., and Ralph Venuto, Sr.*fn2 , and a cross motion for partial summary judgment filed by plaintiff. For the reasons expressed below, defendant's motion will be denied as to plaintiff's fraud claims (Counts Six, and Seven), and as to plaintiff's fraudulent conveyance claim (Count Eight). Defendants' motion will be denied without prejudice as to plaintiff's claim for rescission (Count Two), and plaintiff's claim of individual member liability (Count Five). Plaintiff's cross motion for partial summary judgment as to its breach of contract claims (Count One and Three) will be denied without prejudice.
Plaintiff alleges that this Court has jurisdiction over this matter pursuant to 28 U.S.C. § 1332 because there is complete diversity of citizenship between the parties and the amount in controversy exceeds $75,000. Plaintiff, Rowen Petroleum Properties, LLC is a Wisconsin limited liability company maintaining a principal place of business in Wisconsin. Brendan Rowen is a citizen of Wisconsin and the sole member of Rowen Petroleum Properties, LLC ("Rowen").*fn3 Defendant Hollywood Tanning Systems, Inc. ("HTS") is a New Jersey corporation with its principal place of business in New Jersey. Ralph Venuto, Sr., deceased, was a citizen of New Jersey, and his widow, Carol F. Venuto, who was appointed executrix of his estate from the Surrogate of Camden County, New Jersey, is a citizen of New Jersey. Defendant Ralph Venuto, Jr. is a citizen of New Jersey. Defendant David N. Rahn is a citizen of New Jersey.
The factual background of this case has been stated in previous
Opinions and is repeated, in part, in this Opinion.*fn4
On June 26, 2005, HTS leased space in a mall in Pittsburgh to
operate a Hollywood Tans tanning salon ("Lease"). The Lease was for
ten years and was entered into between Falls Creek Development and
HTS. In February 2006, Rowen purchased the shopping mall from Falls
Creek Development. As a result, Rowen became the landlord of HTS.
On or about April 18, 2007, HTS entered into an asset purchase agreement ("APA") with Tan Holdings, LLC ("Tan Holdings") whereby HTS agreed to sell all of its assets, including the Lease, and whereby Tan Holdings agreed to assume certain HTS liabilities, including but not limited to those under the Lease. According to the terms of the Lease, HTS was permitted to assign the Lease, upon the landlord's prior written consent, to another tenant "whose demonstrable net worth is equal to or exceeds" that of HTS.
On or about April 26, 2007, HTS sent plaintiff, as well as other landlords, a letter requesting consent to the assignment of the Lease to the purchaser pursuant to the APA. Included with the letter was a document titled "Tan Holdings, LLC (formerly Hollywood Tanning Systems, Inc.) Projected Opening Balance Sheet," dated May 31, 2007, showing total assets in the amount of $62,497,314, total liabilities in the amount of $23,997,064, and owner's equity in the amount of $38,500,250, as well as a "Form of Assignment and Assumption Agreement." The agreement, between HTS and Tan Holdings, assigned to Tan Holdings all of HTS's rights under the Lease with Tan Holdings agreeing to assume and be bound to perform the obligations of the tenant under the lease.
Prior to the closing of the deal, HTS contacted Rowen for approval of the assignment of their Lease. There was at least one telephone call and several emails between David Rahn, HTS's CFO, and Brendan Rowen. Unlike the original packet of materials sent to Rowen, the emails messages clearly state that the assignment was to be between HTS and HT Systems, LLC, not between HTS and Tan Holdings. Plaintiff, however, maintains that throughout the email and telephone conversations neither Rahn nor any of the other defendants specifically called his attention to the fact that HT Systems had been substituted for Tan Holdings as the proposed assignee of the Lease, and that HT Systems was not the same entity as Tan Holdings. Further, plaintiff claims that neither Rahn nor any of the other defendants provided plaintiff with any financial information pertaining to HT Systems, as they had done with respect to Tan Holdings in accordance with the requirements of the Lease. Plaintiff also did not request any financial information pertaining to HT Systems. Plaintiff argues that he was given the impression by HTS that whatever entity was on the assignment was the entity that would be inheriting HTS's assets, whether that was Tan Holdings or some other entity. Plaintiff states that had he known HT Systems would not be receiving HTS's assets, he would have never approved HT Systems as an assignee of the Lease because HT Systems was essentially a shell company, was undercapitalized, and lacked the financial resources to assume and discharge its obligations under the Lease. Plaintiff claims that defendants knew this, and that they pulled a "bait and switch."
On May 14, 2007, Rowen received the Assignment of Lease and a form "Acknowledgement, Agreement and Consent" for his signature. According to Rowen, he signed these documents based on the parties' prior conversations and prior documents he reviewed and his belief that the assignee was to inherit HTS's assets. On or about May 31, 2007, the deal closed and HTS sold its assets to defendant Tan Holdings pursuant to the APA, and the Lease was assigned to HT Systems.
Rowen came to discover that the assignment of lease did not indicate an assignment between HTS and Tan Holdings, but rather between HTS and HT Systems. Rowen claims that he was fraudulently induced into approving the assignment, and that it also constituted a fraudulent conveyance. He brings fraud claims against HTS and the individual members of HTS. Rowen also asserts a breach of contract claim against HTS for HTS's breach of the Lease by assigning the Lease to a company that did not have a demonstrable net worth equal to or exceeding that of HTS. He also asserts a breach of contract claim against HTS for liability for rent. At some point following the assignment of the Lease, HTS and HT Systems failed to pay rent and other charges of more than $950,000, and Rowen claims that pursuant to the Lease, HTS remained primarily liable for the remainder of its term. Plaintiff also seeks to hold the individual defendants liable for breach of the Lease.
On September 9, 2009, defendant HT Systems was administratively terminated due to a filing of suggestion of bankruptcy and then subsequently dismissed by plaintiff on June 22, 2011. Additionally, on June 22, 2011, judgment by consent was entered against defendant Tan Holdings, LLC in favor of plaintiff, and defendant Hollywood Tans LLC was dismissed upon plaintiff's voluntary dismissal of all claims. Named defendants remaining in the case are: Hollywood Tanning Systems, Inc., ("HTS") (The Estate of) Ralph Venuto, Sr., Ralph Venuto, Jr., and David N. Rahn. The remaining defendants filed a motion for partial summary judgment seeking to dismiss plaintiff's claims of fraud and fraudulent conveyance, as well as plaintiff's claim that the individual members of HTS should be held liable as set forth in plaintiff's fourth amended complaint.*fn5 Plaintiff filed a cross motion for partial summary judgment arguing that judgment should be entered in its favor on its breach of contract claims.
A. Summary Judgment Standard
Summary judgment is appropriate where the Court is satisfied that "the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." Celotex Corp. v. Catrett, 477 U.S. 317, 330 (1986); Fed. R. Civ. P. 56(c).
An issue is "genuine" if it is supported by evidence such that a reasonable jury could return a verdict in the nonmoving party's favor. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). A fact is "material" if, under the governing substantive law, a dispute about the fact might affect the outcome of the suit. Id. In considering a motion for summary judgment, a district court may not make credibility determinations or engage in any weighing of the evidence; instead, the non-moving party's evidence "is to be believed and all justifiable inferences are to be drawn in his favor." Marino v. Industrial Crating Co., 358 F.3d 241, 247 (3d Cir. 2004)(quoting Anderson, 477 U.S. at 255). Initially, the moving party has the burden of demonstrating the absence of a genuine issue of material fact. Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986). Once the moving party has met this burden, the nonmoving party must identify, by affidavits or otherwise, specific facts showing that there is a genuine issue for trial. Id. Thus, to withstand a properly supported motion for summary judgment, the nonmoving party must identify specific facts and affirmative evidence that contradict those offered by the moving party. Anderson, 477 U.S. at 256-57. A party opposing summary judgment must do more than just rest upon mere allegations, general denials, or vague statements. Saldana v. Kmart Corp., 260 F.3d 228, 232 (3d Cir. 2001).
If review of cross-motions for summary judgment reveals no genuine issue of material fact, then judgment may be entered in favor of the party deserving of judgment in light of the law and undisputed facts. See Iberia Foods Corp. v. Romeo Jr., 150 F.3d 298, 302 (3d Cir. 1998) (citation omitted).
B. Plaintiff's Cross Motion for Partial Summary Judgment
Plaintiff's cross motion for partial summary judgment will be addressed first because it raises a threshold issue regarding which state's law should be applied to the Lease. As explained below, this issue was raised by the Court in its previous Opinion, yet it remains unaddressed by both parties in their motions. Thus, certain common law claims that turn on whether Ohio law, New Jersey law, or some other state's laws,*fn6 should be applied will be dismissed without prejudice, and the parties shall be granted leave to refile their motions which shall include a proper choice of law and venue analysis.
Plaintiff filed a cross motion for partial summary judgment on its breach of contract claims against defendant HTS (Counts One and Three). The contract at issue is the Lease agreement dated June 26, 2005 entered into between plaintiff's predecessor and HTS. Rowen acquired the Lease after purchasing the shopping mall where the HTS store was located, and Rowen and HTS became landlord and tenant, respectively.
In this Court's Opinion regarding the defendants' previous motion to dismiss plaintiff's breach of contract claims, the Court found that:
The Lease Agreement, however, contains a choice of law provision which indicates that Ohio law shall apply. Further, the Lease Agreement provides that the tenant "consents to venue and personal jurisdiction in any state or federal court in the State of Ohio, and a waiver of any right to trial by jury, in connection with any claim, allegation, cause of action or legal proceeding, with respect hereto." ...*fn7 Thus, it must be determined whether Ohio law applies to plaintiff's breach of contract claims and whether venue is proper in this Court for those claims.
Rowen Petroleum, 2009 WL 1085737, at *7 (Rowen I).
This Court then engaged in a brief discussion of choice of law issues and some of the underlying facts surrounding the contract at issue in this matter. Ultimately, this Court found that since the parties did not address the choice of law and venue provision in the Lease, and since it appeared that the application of Ohio law and venue in Ohio as to plaintiff's breach of contract claims was questionable, it denied without prejudice HTS's motion to dismiss the contract claim but advised that if HTS moved again to dismiss the claim, it should address the choice of law and venue issue. Id. at *8.
Although the defendant did not move again to dismiss plaintiff's contract claim, the plaintiff filed a motion for partial summary judgment asking the Court to rule in its favor. Regardless of who the movant is, the Court's previous Opinion makes clear that the choice of law and venue issues regarding the Lease should be expressly addressed by the parties. Id. The Court should not be left to guess whether the parties believe the provisions can be or are waived or whether the choice of law issue is moot because the law of the potential states involved is the same on the contract and contract-related issues. As we stated before, those issues should be researched and expressly addressed by the parties as a threshold matter.
Other than noting the general proposition that a federal court sitting in diversity applies the forum's substantive law, Plaintiff did not provide any choice of law or venue analysis and did not refer to the Court's previous Opinion. Instead, the plaintiff merely cited to New Jersey law. As such, the Court instructs again that before the breach of contract claim can be decided, the moving party must address the choice of law and venue issue and provide analysis as to which state's law applies to the breach of the Lease, and whether Ohio or New Jersey is the proper venue, as per the Court's instructions in its previous Opinion. See id.
Accordingly, plaintiff's cross motion for partial summary judgment on the breach of contract claim will be denied without prejudice with leave to re-file ...