United States District Court, D. New Jersey
L. LINARES CHIEF JUDGE, UNITED STATES DISTRICT COURT.
matter comes before the Court by way of Defendants Edward J.
Kloss and Kloss Company's motion to dismiss Bank
Leumi's Complaint pursuant to Federal Rule of Civil
Procedure 12(b)(6) and New Jersey's Entire Controversy
Doctrine. (ECF No. 13). Plaintiff has submitted opposition,
(ECF No. 19), and Defendants have submitted a reply thereto,
(ECF No. 21). The Court has read the parties' submissions
and considers this matter without oral argument in accordance
with Federal Rule of Civil Procedure 78. For the reasons set
forth below, the Court grants Defendants' motion to
action arises out of a series of loans made by Bank Leumi to
Munire Furniture Company, Inc. ("Munire
Furniture"), which allegedly resulted in losses to Bank
Leumi of over $11 million. (Compl. ¶ 1). On March 11,
2011, Bank Leumi agreed to provide Munire Furniture with a
revolving line of credit of $15 million. (Compl. ¶ 15).
As part of the loan approval process, Munire Furniture
disclosed that it had an existing loan with a remaining
balance of $1.5 million from Kloss. (Compl. ¶ 15.). As a
pre-condition of the loan to Munire Furniture, Bank Leumi
required that Kloss enter into a subordination agreement to
forego any claims, demands, and "all interest"
accrued from the loan to Munire Furniture. (Compl.
¶¶ 17-18). At the time Kloss signed the
subordination agreement, "there was an additional
outstanding loan that Kloss had made to Munire Furniture in
the amount of $300, 000.00 with an interest rate of 25%"
that had not been disclosed. (Compl. ¶ 24). Kloss also
allegedly accepted interest payments on both of its loans to
Munire Furniture despite the clause in the subordination
agreement prohibiting Kloss from doing so. (Compl. ¶28).
November 12, 2013, Bank Leumi and Munire Furniture entered
into an amended credit agreement, which increased the credit
available to Munire Furniture from $15 million to $17
million. (Compl. ¶ 39). In order to secure this credit
increase, Kloss reaffirmed and ratified the subordination
agreement. (Compl. ¶ 40). Bank Leumi contends that, once
again, Kloss "knowingly failed to disclose" the
$300, 000 loan and an additional "temp loan" and
continued to accept interest payments on all loans. (Compl.
¶¶ 43, 46). Around January 2014, CoMetrics Lenders
Advisory Services, LCC found that Munire Furniture had
falsely reported its financial condition to Bank Leumi.
(Compl ¶¶ 52-53). Accordingly, Bank Leumi declared
the loan note due and demanded immediate payment in full of
the balance of $16, 990, 003.30. (Compl. ¶ 55).
September 18, 2014, Bank Leumi commenced an action in the
United States District Court for the District of New Jersey
against Munire Furniture and Munir Hussain-the president and
controlling shareholder of Munire Furniture-seeking damages
and a writ of replevin. (Compl. ¶ 56). That case is
currently stayed because Munire Furniture and Hussain filed
voluntary petitions for relief in the United States
Bankruptcy Court for the District of New Jersey. (Compl.
¶¶ 57-59). On November 3, 2014, Defendants filed
Proofs of Claim in the bankruptcy proceeding. (Compl. ¶
60). In their Proofs of Claim, Defendants disclosed the
existence of the $300, 000 loan and the acceptance of loan
repayments. (Compl. ¶¶ 61 63). Upon discovering
that Defendants accepted payments on the loans, Bank Leumi
"demanded that the Defendants reimburse it for the
improper payments that they had accepted." (Compl.
thereafter, Defendants filed a complaint in Passaic County
Superior Court against Bank Leumi, Hussain, and other
individuals, ("the Passaic Action"). (Compl. ¶
66). Defendants asserted that Bank Leumi was negligent in
failing to detect the fraud committed by Munire Furniture and
that it was unjustly enriched when it recovered monies from
Munire Furniture following the bankruptcy. (Compl. ¶
67). Bank Leumi filed a pre-answer motion to dismiss and, on
June 29, 2017, Judge Liliana S. De-Avila-Silebi granted Bank
Leumi's motion and dismissed the action against Bank
Leumi with prejudice. (Compl. ¶¶ 68 69).
Leumi then filed this action against Defendants, alleging
that Defendants breached the terms of the subordination and
affirmation agreements as well as claims of fraud, fraudulent
inducement, and declaratory judgment against Defendants, and
claims of aiding and abetting, unjust enrichment, and
tortious interference (all in the alternative) against Kloss
Company. (Compl. ¶¶ 70-129). Defendants now move to
dismiss Bank Leumi's Complaint under the entire
of the Entire Controversy Doctrine . . . does not 'defeat
the subject matter jurisdiction of a federal court."
Rycoline Prods., Inc. v. C & W Unlimited, 109
F.3d 883, 886 (3d Cir. 1997) (quoting Livera v. First
Nat'l State Bank of N.J., 879 F.2d 1186, 1190 (3d
Cir. 1989)). Rather, an affirmative defense based on the
doctrine "could properly be the grounds for a motion to
dismiss for failure to state a claim upon which relief can be
granted pursuant to Fed R. Civ. P. 12(b)(6)."
Id. at 886.
withstand a motion to dismiss for failure to state a claim, a
"complaint must contain sufficient factual matter,
accepted as true, to 'state a claim to relief that is
plausible on its face.'" Ashcroft v. Iqbal,
556 U.S. 662, 678 (2009) (quoting Bell Atl. Corp. v.
Twombly, 550 U.S. 544, 570 (2007)). "A claim has
facial plausibility when the plaintiff pleads factual content
that allows the court to draw the reasonable inference that
the defendant is liable for the misconduct alleged."
Id. at 678 (citing Twombly, 550 U.S. at
556). "The plausibility standard is not akin to a
'probability requirement,' but it asks for more than
a sheer possibility that a defendant has acted
unlawfully." Id. (quoting Twombly, 550
U.S. at 556).
determine the sufficiency of a complaint under
Twombly and Iqbal in the Third Circuit, the
Court must take three steps. "First, it must 'tak[e]
note of the elements a plaintiff must plead to state a
claim.' Second, it should identify allegations that,
'because they are no more than conclusions, are not
entitled to the assumption of truth.' Finally,
'[w]hen there are well-pleaded factual allegations, a
court should assume their veracity and then determine whether
they plausibly give rise to an entitlement for relief."
Connelly v. Lane Constr. Corp., 809 F.3d 780, 787
(3d Cir. 2016) (quoting Iqbal, 556 U.S. at 675, 679)
(citations omitted). "In deciding a Rule 12(b)(6)
motion, a court must consider only the complaint, exhibits
attached to the complaint, matters of public record, as well
as undisputedly authentic documents if the complainant's
claims are based upon these documents." Mayer v.
Belichick, 605 F.3d 223, 230 (3dCir. 2010).
entire controversy doctrine is an affirmative defense that is
waived unless pleaded or otherwise raised in a timely manner.
Paramount Aviation Corp. v. Agusta,178 F.3d 132,
137 (3d Cir. 1999). Like traditional res judicata,
the entire controversy doctrine is intended to prevent
piecemeal litigation by requiring the assertion of all claims
arising from a single controversy in one action.
Prevratil v. Mohr,145 N.J. 180, 190 (1996). The
doctrine "bars a subsequent action only when a prior
action based on the same transactional facts has been tried
to judgment or settled." Allstate N.J. Ins. Co. v.
Cherry Hill Pain and Rehab Inst.,389 N.J.Super. 130,
140 (App. Div. 2006) (quoting Arena v. Borough of
Jamesburg,309 N.J.Super. 106, 111 (App. Div. 1998)).
The doctrine's purposes are to "encourage
comprehensive and conclusive litigation determinations, to
avoid fragmentation of litigation, and to promote party
fairness and judicial economy and efficiency."
K-Land Corp. No. 28 v. Landis Sewerage Auth., 173
N.J. 59, 70 (2002) (quoting Pressler, Current N.J.
Rules, comments 1 & 2 on R. 4:30A (2002)). In
applying the doctrine, "the central consideration is
whether the claims . . . arise from related facts or the same
transaction or series of transactions." DiTrolio v.
Antiles,142 N.J. 253, 267 (1995). The doctrine is an
equitable one, based on ...