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Metropolitan Foods, Inc. v. Authentic Mexican, Inc.

Superior Court of New Jersey, Appellate Division

August 8, 2013

METROPOLITAN FOODS, INC., d/b/a DRISCOLL FOODS, Plaintiff-Respondent/ Cross-Appellant,
v.
AUTHENTIC MEXICAN, INC., FRANK CASCIARI and KENNETH BOLSCH, Defendants, and M&S FINE FOODS, INC., MA HOLDINGS, INC., KIWI CONSULTANTS, LTD., BERNARD H. "BUZZ" LALONE, JR., and DEBORAH J. COLLYER, Defendants-Appellants/ Cross-Respondents.

NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION

Argued December 11, 2012

On appeal from the Superior Court of New Jersey, Law Division, Passaic County, Docket No. L-3144-09.

Gregory M. Gennaro argued the cause for appellants/cross-respondents.

Gregg A. Ilardi argued the cause for respondent/cross-appellant (Harwood Lloyd, LLC, attorneys; Mr. Ilardi, of counsel and on the briefs).

Before Judges Lihotz, Ostrer and Kennedy.

PER CURIAM

This multi-party commercial dispute started as a book account claim. Plaintiff Metropolitan Foods, Inc. (Metropolitan) claimed its customer, defendant Authentic Mexican, Inc. (Authentic), failed to pay for over $500, 000 in goods sold and delivered. Shortly after defaulting in its payments, Authentic entered into a corporate transaction with M&S Fine Foods, Inc. (M&S) to form a holding company, MA Holdings, Inc. (MA Holdings). Bernard H. La Lone, Jr., [1] a shareholder of M&S, spearheaded the transaction. M&S and Authentic each exchanged stock for shares in MA Holdings. MA Holdings was in turn owned by five shareholders, including La Lone and the two former principal owners of M&S. Kiwi Consultants, Ltd. (Kiwi) another entity connected to La Lone, provided a $200, 000 secured line of credit to Authentic. However, ultimately, Authentic filed for bankruptcy. So did M&S.

After initially suing Authentic and its personal guarantors (Old Defendants) on the book account, Metropolitan amended its complaint to add M&S, MA Holdings, Kiwi, La Lone, and Deborah J. Collyer, an M&S officer (defendants).[2] Metropolitan alleged defendants tortiously interfered with its contract with Authentic, and tortiously interfered with Metropolitan's prospective economic advantage. Metropolitan also alleged a fraudulent conveyance, and that defendants succeeded to Authentic's liability.

The trial court ultimately granted summary judgment, dismissing with prejudice the tortious interference claims against MA Holdings, La Lone, and Kiwi, finding the claim was unsupported by evidence. The court dismissed the claim against Collyer based on lack of personal jurisdiction. The court dismissed without prejudice the fraudulent conveyance and successor liability claims, because the court considered those claims stayed by the Bankruptcy Court. Metropolitan then voluntarily dismissed its claim against M&S. The court denied defendants' claim that they were entitled to fees because Metropolitan's claims were frivolous.

Defendants appeal from the denial of fees, and Metropolitan cross-appeals from the court's grant of summary judgment and dismissal on personal jurisdiction grounds. Having reviewed the parties' respective arguments in light of the facts and applicable law, we affirm.

I.

Metropolitan, a food service supplier, and Authentic, a food preparations manufacturer, had done business together for several years. However, in January 2009, Authentic ceased making timely payments although it continued to request and accept further deliveries. Authentic accumulated debt of over $500, 000.

Metropolitan filed its original complaint on July 20, 2009, against Old Defendants seeking to collect a debt of $581, 628.42. In addition to counts alleging breach of contract, book account debt, and "account stated, " Metropolitan asserted counts alleging unjust enrichment, promissory estoppel, and fraud related to representations regarding Authentic's finances. The claims against Casciari and Bolsch were based on their personal guarantees of Authentic's debt.

After the suit was filed and while Authentic was in financial distress, Authentic entered into negotiations regarding the formation of a holding company that would own both Authentic and M&S, a catalog and e-commerce specialty foods retailer. Authentic had been a supplier to M&S since 2008. According to La Lone, an investment banking firm determined that the fair market values of Authentic and M&S were roughly equal and suggested equal ownership in the new holding company, MA Holdings. Although M&S's principals learned that Authentic was delinquent in its payments to Metropolitan before the transaction was completed, La Lone claimed he was unaware that Metropolitan had already filed suit against Authentic, and Authentic had contemplated filing a bankruptcy petition as early as April and May 2009.

M&S's and Authentic's principals met in New York City at Authentic's offices to discuss the corporate transaction. Representing M&S were La Lone, M&S president Collyer, and former employee Grant Bates. Authentic was represented by its two owners, Bolsch and Casciari. M&S was based in Virginia, where La Lone and Collyer resided. After their meeting, Bolsch suggested they travel to New Jersey to meet principals of Metropolitan, Authentic's supplier.[3] The meeting lasted about thirty minutes and concluded with a brief tour of Metropolitan's Clifton facility. At the meeting with Metropolitan, La Lone disclosed the proposed corporate transaction involving Authentic.

La Lone certified that MA Holdings' formation documents were signed September 14, 2009, and filed in Virginia on or about September 21, 2009. MA Holdings was owned by five shareholders, including Bolsch and Casciari, who owned fifty percent, and La Lone and two others, who owned the other fifty percent. After the stock transfer took place, the four directors of the holding company were La Lone, Collyer, Bolsch, and Casciari.

La Lone asserted that he learned of Metropolitan's lawsuit against Authentic when Metropolitan's attorney wrote to him in late September 2009 demanding payment by MA Holdings. The attorney contended that La Lone had said in a previous conversation that MA Holdings would assume Authentic's debts. La Lone responded by denying that he made such a statement, and denying that MA Holdings would assume Authentic's debts. La Lone asserted that Authentic and M&S would continue to operate as independent entities.

The next month, Metropolitan unsuccessfully sought an order from the Civil Part, where its suit against Authentic was pending, to restrain Authentic from transferring its assets as part of the corporate transaction. The court scheduled a plenary hearing for December 2009, and an unsuccessful effort at mediation followed instead.

La Lone stated that "to keep Authentic operating and pay ongoing operating expenses and vendor purchases, in October 2009, I arranged through Kiwi Consultants, Ltd., of which I am the sole stockholder, through borrowing from an associate, a $200, 000 Grid Line of Secured Credit for Authentic."[4] Authentic executed a security agreement and filed a UCC-1 financing statement. Despite the lawsuit, Metropolitan continued to sell products to Authentic, albeit on strict payment terms. Authentic ultimately drew $65, 000 from the Kiwi credit line to pay for new shipments from Metropolitan. Between October and December 2009, La Lone and Metropolitan executives communicated regarding payment of shipments, and in an effort to reach a global settlement of Authentic's outstanding debt to Metropolitan. La Lone signed these emails as chairman of M&S, and not as an officer of Authentic. However, La Lone claimed M&S and Authentic remained separate entities and none of Authentic's assets were transferred to defendants.

In March 2010, Metropolitan amended its complaint to name defendants. Metropolitan alleged tortious interference with contract (count seven); tortious interference with prospective economic advantage (count eight); successor liability (count nine); and fraudulent conveyance (count ten). The next month, M&S filed for bankruptcy in the Eastern District of Virginia, but the petition was dismissed the following November.[5] In May 2010, Authentic filed a bankruptcy petition in the Southern District of New York. The Bankruptcy Court in New York stayed Metropolitan's ninth and tenth count, alleging successor liability and fraudulent conveyance.

Also in May 2010, defendants (excluding M&S, which was in bankruptcy) filed an answer, cross-claims against Old Defendants, and asserted Metropolitan's action against them was frivolous. Two months later, counsel on behalf of all defendants served Metropolitan with a "safe harbor" letter pursuant to Rule 1:4-8, stating they would seek fees and costs associated with their defense of the complaint, which they deemed frivolous, if Metropolitan did not dismiss its claims. The letter also asserted the court lacked personal jurisdiction and failed to properly serve Collyer.

Its Rule 1:4-8 request rejected, defendants moved to dismiss based on lack of personal jurisdiction and failure to state a claim. The court heard argument on October 12, 2010, the day scheduled for trial in the case. Judge Thomas J. LaConte denied the motion, and adjourned the trial, stating that the parties should be able to conduct discovery, in particular regarding personal jurisdiction over Collyer.[6]

Trial was then scheduled for November 29, 2010. Although there were unsuccessful efforts to mediate the dispute, no discovery was apparently conducted before that trial date. The date was adjourned again to February 28, 2011.

On December 3, 2010, the court granted a withdrawal motion by defendants' counsel, noting that the trial date would not be further adjourned, and absent the appearance of new counsel for the corporate parties, their answer would be stricken. ...


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