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Neal v. Asta Funding, Inc.

United States District Court, D. New Jersey

February 8, 2019

ASTA FUNDING, INC., Defendant.



         This action, stayed by prior order of the Court, is one of many arising from a dispute between the plaintiff, Mr. Neal (and persons or entities associated with him), and the defendant, ASTA Funding, Inc. ("ASTA"). It comes before the Court on ASTA's motion (DE 82) to dismiss the first amended complaint for failure to state a claim, pursuant to Rule 12(b)(6), Fed. R. Civ. P.[1]This action is brought by Neal in his alleged capacity as an employee of ASTA; the only relief sought is reinstatement of prior employment. Because prior rulings establish that Neal was not an employee of ASTA, the motion to dismiss the first amended complaint is granted. See Section II.B.2. Because further amendment would be futile, that dismissal is with prejudice. See Section II.B.3.

         I. BACKGROUND

         I briefly summarize items of the complex procedural history that are particularly relevant to the motion to dismiss now before the Court.

         A. This Action and the Stay

         On June 3, 2013, Neal filed this action against ASTA and a number of ASTA employees, alleging that he was improperly discriminated and retaliated against for whistleblowing activity. (DE 1) The claims arose under, inter alia, the Dodd-Frank and Sarbanes Oxley statutes.[2]

         ASTA moved to dismiss the original complaint, arguing that any such claims could be pursued only in a then-pending arbitration. (DE 25) Neal, on the other hand, sought to stay the pending arbitration, contending that all claims, including these, belonged in court. Most pertinently, Neal asserted that the arbitration clause in the underlying ITS Agreement extended only to NWS, an entity with which he was affiliated, and not to him personally.[3]

         The arbitrator, pursuant to his power to determine his own jurisdiction, ruled preliminarily that Neal was personally subject to the arbitration clause in the ITS Agreement. On December 4, 2013, 1 held that there was an insufficient basis to stay the arbitration as against Neal:

ASTA initiated arbitration on July 26, 2012, well over a year ago. (Docket No. 25-1 at 26). NWS and ASTA remain embroiled in the ongoing arbitration. The arbitrator has now determined that Neal is individually subject to the arbitration agreement, and has consolidated ASTA's claims against Neal with the other claims. Consolidation Order. Neal acknowledges that, as of July 26, 2013, "tens of thousands of pages of discovery ha[d] been exchanged by the parties as well as several hundred thousand emails and four depositions have occurred." Docket No. 11-1 at 4. Neal has fully participated in the arbitrations as NWS's representative. See, e.g., Docket No 42-1 (Exhibit 8) ("Respondent's Motion for Omnibus Relief"). [A footnote cites Neal's signing of a motion in the arbitration for omnibus relief as "Managing Partner, New World Solutions, for the Respondent-Counterclaimant, New World Solutions, Inc."]

(Opinion (as amended Jan. 6, 2014), DE 48 at 9) I thus denied Neal's motion to stay the arbitration, and stayed this action pending the outcome of the arbitration. (See id; Order, DE 45.)

         B. Declaratory Judgment Action

         On November 18, 2013 (slightly preceding my ruling in this action, summarized immediately above), Neal filed another complaint in this Court. In it, he sought, inter alia, a declaratory judgment that he was not personally subject to the arbitration clause in the ITS Agreement and could not be compelled to arbitrate. ("DJ Action", 13cv6981) Other actions and motions seeking to enjoin, stay, confirm, or vacate decisions of the arbitrator followed. (Many are summarized more fully in 13cv6981 DE 167.)

         As noted above, the arbitrator had already found that the ITS Agreement's arbitration clause extended to Neal personally. I recognized, however, that the issue of the arbitrator's jurisdiction over Neal would inevitably be contested in this court in connection with any future motion to confirm or vacate any arbitration award. Therefore, on March 7, 2014, after directing the parties to relevant case law, I authorized them to take expedited discovery relevant to the issue of the arbitrator's jurisdiction over Neal. (13cv6981 DE 44, 167, 168 at 17-18)

         C. Arbitrator's Jurisdiction Award and Final Award

         On March 5, 2014, the arbitrator issued a Partial Final Award, which constituted his final and definitive ruling as to the parties over whom he possessed jurisdiction. With the benefit of a full record, the arbitrator confirmed his earlier ruling that he had jurisdiction over the contracting parties, ASTA and NWS. He also confirmed his earlier ruling that he had jurisdiction over two individuals, Mr. Neal and Robert Coyne, on theories of veil-piercing/alter ego and equitable estoppel. (Jurisdiction Award, DE 82-7)

         On April 2, 2014, the arbitrator entered his Nonconfidential Final Summary Award. (Nonconfidential Award, see 13cv6981 DE 132 at 2)[4] In that final award, the arbitrator found that "NWS committed multiple material breaches" of the ITS Agreement. (Id.) He confirmed and reincorporated his prior finding that the corporate veil of NWS (technically, NWS-DE and NWS-WY), should be pierced because Neal and Coyne disregarded corporate formalities and treated it as an alter ego or a mere financial conduit. Neal and Coyne, he found factually, "committed common law and consumer fraud" and violated the Federal Computer Fraud and Abuse Act ("CFA") and the New Jersey Computer Related Offenses Act ("NJCROA"). (Id. at 2-3) The major components of the damages award were these: the arbitrator awarded ASTA damages in excess of $2.9 million against NWS, Neal and Coyne, jointly and severally, and an additional $230, 000 against NWS and Neal only.[5] (Id. at 6)

         D. Motions to Confirm or Vacate Arbitration Award

         The arbitration award was the subject of cross-motions to confirm or vacate.[6] On June 30, 2016, I granted summary judgment granting the motion to confirm and denying the motions to vacate the award. (Confirmation Decision (13cv6981 DE 167); Order (13cv6981 DE 168).)

         As to the entity defendant, NWS, confirmation was not contested. I confirmed the $3 million award as against NWS. (Id.)

         As to Neal, I upheld the arbitrator's Jurisdiction Award. I first affirmed the arbitrator's authority to determine his own jurisdiction. (Confirmation Decision at 25-29) I upheld the arbitrator's finding, based on the record before him, that the ITS Agreement between ASTA and NWS, which contained the arbitration clause, bound Neal individually. The parties submitted cross-motions for summary judgment.[7] Setting aside deference to the arbitrator's reasoning, I made an independent determination that Neal was bound by the arbitration clause in the ITS Agreement, and therefore was bound by the arbitration award. (Id. at 29-38) I then confirmed the award as against Neal individually. (Id. at 38-40)

         In a non-precedential decision dated November 8, 2018, the U.S. Court of Appeals for the Third Circuit affirmed this court's Confirmation Decision. (13cv6981 DE 184, 185, reported as Neal v. ASTA Funding, Inc., ___ F. App'x ___, 2018 WL 5877237 (3d Cir. Nov. 8, 2018), cert, petition filed, Jan. 30, 2019.)

         E. The First Amended Complaint in This Action

         The first amended complaint in this action was filed on June 26, 2018. Neal has now dropped the individual defendants, but continues to assert claims against ASTA. Neal alleges that he was an employee of ASTA, and that he reported illegal or unethical activities internally. ASTA, he says, retaliated against him, in violation of Dodd-Frank and SOX.

         Neal estimates that between 2006 and 2012 he made 100 reports to ASTA (but not the authorities) of illegal and unethical activity. (1AC ¶¶ 262-64)

         Neal alleges that he learned and reported to senior ASTA personnel that there had been improper collections of accounts amounting to $100, 000, but that ASTA took no steps to remedy the situation. (1AC ¶¶ 58-61) He also discovered and reported that ASTA was improperly calculating accrued post-judgment interest. (1AC ¶¶ 62-82) Surveying accounts with negative balances, Neal discovered and reported that customers were owed refunds, which ASTA had not paid. (1AC ¶¶ 83-95) The dates of these events are not alleged clearly, but they seem to have occurred in 2006 and thereafter.

         In 2009, Neal alleges, he discovered a discrepancy in 6, 500 payments totaling $1.5 million which had been received from a third-party receiver in connection with "the state bankruptcy of Mann Bracken/Axiant." (1AC ¶ 96) His efforts to obtain accurate information from the receiver were fruitless, and ASTA declined to file suit for fear of exposing the incorrect balances in its own systems. (1AC ¶¶ 96-140)

         Apparently in approximately 2005-07, Neal identified 50, 000 accounts, serviced by third party collectors, that were improperly collected or improperly treated by ASTA. Neal told responsible persons at ASTA that refunds should issue and that ASTA's systems should be corrected. (1AC ¶¶ 141-57)

         In 2008, in response to a lawsuit against ASTA, Neal determined that the company was incorrectly merging pre- and post-chargeoff interest. This resulted in improper compounding of interest when judgment was obtained. ASTA never vacated the judgments or took other corrective action. (1AC ¶¶ 158-80)

         In 2007, ASTA acquired the "Great Seneca" portfolio, but later learned from the seller that principal, interest, and fees had been improperly aggregated. Neal informed ASTA that they were collecting improper balances, but the company did nothing to correct it. (1AC ¶¶ 181-95)

         Beginning in 2008, Neal identified reconciliation issues with third party servicers. ASTA did nothing to correct them. (1AC ¶¶ 195-207)

         Beginning in 2007, ASTA implemented a system for transmitting debtor files to third parties. Neal identified flaws which resulted in the same accounts being sent to multiple third parties for collection. (1AC ¶¶ 208-18)

         In 2008, Neal suggested implementing a system to ensure that the dollar amounts of judgments corresponded to what was requested in complaints. ASTA did not implement the system. (1AC ¶¶ 219-32)

         Beginning in 2007, Neal determined that ASTA was improperly calculating the statute of limitations in certain states and was filing suit after it had expired. (1AC ¶¶ 233-47)

         In 2010, the CEO participated in a wire fraud scheme whereby a person's salary was diverted to another to assist in the concealment of assets in a divorce. (1AC ¶¶ 248-61)

         In the period 2011-12, ASTA retaliated against Neal in various ways, including "setting him up" for termination. Ultimately, in 2012, ASTA allegedly terminated Neal's employment. (1AC ¶¶ 265-72)

         The First Amended Complaint asserts two causes of action:

(1) Violation of the Dodd-Frank Wall Street Reform and Consumer Protection Act, 12 U.S.C. § 5567 the ("Dodd-Frank" count) (1AC ¶¶ 273-78)
(2) Violation of the Sarbanes Oxley Act, 18 U.S.C. § 1514A (the "SOX" count) (1AC¶¶ 279-86)

         The requested relief is narrow: under Dodd-Frank and SOX, Neal seeks "reinstatement with the same seniority status that the employee would have had, but for the discharge or discrimination." (1AC p.22, Request for Relief)


         A. ...

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