SUMAN GARLAPATI VS. PRANEETH KUMAR KAMISHETTY (C-000036-20, MIDDLESEX COUNTY AND STATEWIDE) ( 2021 )

NOT FOR PUBLICATION WITHOUT THE
APPROVAL OF THE APPELLATE DIVISION
This opinion shall not "constitute precedent or be binding upon any court ." Although it is posted on the
internet, this opinion is binding only on the parties in the case and its use in other cases is limited. R. 1:36-3.
SUPERIOR COURT OF NEW JERSEY
APPELLATE DIVISION
DOCKET NO. A-4417-19
SUMAN GARLAPATI and
3R BIO PHARMA, LLC,
Plaintiffs-Appellants,
v.
PRANEETH KUMAR
KAMISHETTY,
Defendant-Respondent.
_________________________
Submitted September 22, 2021 – Decided October 19, 2021
Before Judges Gooden Brown and Gummer.
On appeal from the Superior Court of New Jersey,
Chancery Division, Middlesex County, Docket No.
C-000036-20.
Archer & Greiner, PC, attorneys for appellants (Patrick
Papalia and Michael J. Forino, on the briefs).
Lewis Brisbois Bisgaard & Smith, LLP, attorneys for
respondent (Jonathan M. Preziosi and Afsha Noran, of
counsel and on the brief).
PER CURIAM
Plaintiffs Suman Garlapati and 3R Bio Pharma, LLC (3R) appeal from the
June 25, 2020 Chancery Division order dismissing their complaint against
defendant Praneeth Kumar Kamishetty for failure to join an indispensable party
in accordance with Rule 4:28-1. We affirm in part and reverse in part.
We glean these facts from the record. Garlapati and Kamishetty are both
members of 3R, a biopharmaceutical consulting limited liability company with
its principal place of business in North Brunswick, New Jersey. 3R provides
"services to customers in the areas of drug safety, pharmacovigilance, regulatory
affairs, quality, and clinical and non-clinical developments, among other
things." 3R is organized under a partnership agreement 1 executed by Garlapati
and Kamishetty, with Garlapati holding a forty percent ownership interest and
Kamishetty holding a thirty-five percent ownership interest in 3R.2 Both serve
as "[m]anaging [p]artners" under the partnership agreement.
Vigilare Biopharma Private Limited (Vigilare), a private limited company
located in Telangana, India, is 3R's global implementation partner under a
business outsourcing agreement providing that 3R should "explore" projects at
1
Although 3R's organizing agreement is an operating agreement pursuant to
N.J.S.A. 42:2C-2, the parties refer to it as a partnership agreement, so we use
their terminology to avoid confusion.
2
The remaining member of 3R is not a party to this appeal.
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the "[g]lobal level" and Vigilare "shall execute those projects in Hyderabad,
[India]." Vigilare's operations include "[b]usiness [p]rocess [o]utsourcing,
[m]edical [p]rocess outsourcing, [p]harmacovigilance," and other technical-
based services in the biopharma, microbiology, medical, and biotechnology
fields. Garlapati and Kamishetty each hold a forty percent membership interest
in Vigilare, with Kamishetty acting as the managing director.
The outsourcing agreement governing the relationship between 3R and
Vigilare includes a choice of law and forum selection clause that provides "all
actions, proceedings or litigation relating to th[e] agreement shall be instituted
and prosecuted solely within . . . India" and "all matters or issues collateral [to
the agreement] shall be exclusively governed and construed and interpreted in
accordance with the laws of . . . India." Additionally, the agreement contains a
"[m]ediation/[a]rbitration" clause specifying that "[a]ny controversy or claim
arising out of or relating to th[e a]greement or the [s]ervices (including any such
matter involving any . . . agent of [3R]) shall be submitted first to voluntary
mediation, and if mediation is not successful, then to binding arbitration."
On February 11, 2020, plaintiffs filed a seven-count complaint against
Kamishetty in the Middlesex County Superior Court. Generally, plaintiffs
alleged Kamishetty "diverted customers and prospective customers of 3R" to
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"an Indian company owned by [his] brother-in-law," "allowed Vigilare to issue
false and fraudulent invoices to 3R" and converted the payments to "non-
business-related expenses," and caused Vigilare to deliver "substandard" work,
resulting in 3R losing a significant amount of its annual revenue.
The complaint, which did not name Vigilare as a party, contained causes
of action for: (1) breach of fiduciary duties based on Kamishetty causing
Vigilare "to issue false and fraudulent invoices to 3R," "converting" and
"misusing" the payments, and "driving clients away from 3R" (count one); (2)
member oppression in violation of N.J.S.A. 42:2C-48 by virtue of Kamishetty
acting "abusively, oppressively, and unfairly toward [p]laintiffs," frustrating
"Garlapati's reasonable expectations as a minority member and plac[ing] his
investment in 3R . . . at serious risk" (count two); (3) conversion and
disgorgement based on Kamishetty "fraudulently" inducing 3R to pay Vigilare
invoices "for services that were never rendered," and then utilizing the proceeds
"for personal and non-business reasons" (count three); (4) tortious interference
by Kamishetty "driving away" customers and diverting business from 3R (count
four); (5) unjust enrichment by Kamishetty misusing funds paid by 3R to
Vigilare "on false and fraudulent invoices" (count five); (6) unfair competition
by Kamishetty "diver[ting] . . . projects" and "driv[ing] customers and business
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away from 3R" (count six); and (7) fraud and misrepresentation by Kamishetty
causing Vigilare "to issue false and fraudulent invoices to 3R" and induce
reliance on the misrepresentations (count seven).
Kamishetty moved to dismiss the complaint pursuant to Rule 4:6-2(f) for
failure to join Vigilare as an indispensable party as provided by Rule 4:28-1.
Kamishetty asserted further that because the claims against him allege he acted
wrongfully in his capacity as Director of Vigilare, the claims are subject to the
choice of law, forum selection, and mediation/arbitration clauses in the
outsourcing agreement. Plaintiffs opposed the motion and cross-moved for
leave to file an amended complaint "reasserting the initial claims against
Vigilare and Kamishetty," adding Vigilare as a defendant, and adding non-
contract-based claims. According to plaintiffs, because the forum selection
clause bars only claims "arising out of or relating" to the contract or services
performed thereunder, by adding non-contract-based claims, the forum selection
clause would not apply. Further, plaintiffs asserted the forum selection clause
is inapplicable to Kamishetty "because he is not an individual party to the
[outsourcing a]greement."
In a written opinion, the motion judge rejected plaintiffs' contentions,
agreed Vigilare was "an indispensable party to this litigation" as defined under
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Rule 4:28-1, and determined "the mediation/arbitration clause" which, "on its
face [was] enforceable," controlled. Accordingly, the judge dismissed plaintiffs'
initial complaint "without prejudice to allow . . . the matter[] to proceed to
mediation/arbitration [in India] pursuant to the terms of the [o]utsourcing
[a]greement." The judge also determined because the "[a]mended [c]omplaint
allegations [were] within the terms of the mediation/arbitration clause," it
"would be futile to permit the filing of an amended complaint." The judge
entered a memorializing order on June 25, 2020.
In this ensuing appeal, plaintiffs do not contest the "court's dismissal of
claims between 3R . . . and . . . Vigilare . . . or its ruling that such claims should
be litigated in India under the arbitration and jurisdiction clause[s] contained in
the agreement." Additionally, plaintiffs do not contest the denial of their cross-
motion for leave to amend the complaint. However, plaintiffs maintain the
entire complaint should not have been dismissed and raise the following points
for our consideration:
POINT I: THE TRIAL COURT ERRED IN
DISMISSING GARLAPATI’S CLAIMS
REGARDING THE OPPRESSIVE AND DISLOYAL
TORTIOUS ACTIONS THAT KAMISHETTY
UNDERTOOK IN HIS PERSONAL CAPACITY,
AND IN DISMISSING GARLAPATI’S CLAIM FOR
RELIEF UNDER THE NEW JERSEY REVISED
UNIFORM LIMITED LIABILITY ACT, N.J.S.A.
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42:2C-48(5), AS SUCH CLAIMS CAN ONLY BE
DECIDED IN NEW JERSEY.
POINT II: THE INDIA MEDIATION,
ARBITRATION AND FORUM SELECTION
CLAUSES IN THE CONTRACT BETWEEN 3R BIO
PHARMA, LLC AND VIGILARE BIOPHARMA
PRIVATE LTD. ARE INAPPLICABLE TO
KAMISHETTY’S PERSONAL MISCONDUCT AND
HIS FAILURE TO FULFILL THE DUTIES THAT HE
OWED TO 3R BIO PHARMA, LLC AND
GARLAPATI AS A MEMBER OF THIS DOMESTIC
COMPANY.
POINT III: THE TRIAL COURT ERRED IN
DISMISSING GARLAPATI’S CLAIMS
REGARDING RESPONDENT’S PERSONAL
MISCONDUCT UNDER RULE 4:28-1, AS
VIGILARE BIOPHARMA PRIVATE LTD. IS NOT
AN INDISPENSABLE PARTY WITH REGARD TO
THOSE CLAIMS.
POINT IV: THE TRIAL COURT OVERLOOKED
GARLAPATI’S CLAIMS CONCERNING
KAMISHETTY’S PERSONAL MISCONDUCT AND
DREW ILLOGICAL CONCLUSIONS FROM
EXTRINSIC FACTS ALLEGED IN GARLAPATI’S
UNFILED PROPOSED AMENDED COMPLAINT.
"Our review of the trial court's dismissal order in this context is de novo."
Flinn v. Amboy Nat'l Bank, 436 N.J. Super. 274, 287 (App. Div. 2014). We
"'apply a plenary standard of review from a trial court's decision to grant a
motion to dismiss'" and "'[owe] no deference to the trial court's conclusions.'"
Gonzalez v. State Apportionment Comm'n, 428 N.J. Super. 333, 349 (App. Div.
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2012) (quoting Rezem Fam. Assocs., LP v. Borough of Millstone, 423 N.J.
Super. 103, 114 (App. Div. 2011)).
A dismissal motion under Rule 4:6-2(f) for "failure to join a party without
whom the action cannot proceed" is governed by Rule 4:28-1(a). Under Rule
4:28-1(a),
[a] person who is subject to service of process shall be
joined as a party to the action if (1) in the person's
absence complete relief cannot be accorded among
those already parties, or (2) the person claims an
interest in the subject of the action and is so situated
that the disposition of the action in the person's absence
may either (i) as a practical matter impair or impede the
person's ability to protect that interest or (ii) leave any
of the persons already parties subject to a substantial
risk of incurring double, multiple, or other inconsistent
obligations by reason of the claimed interest.
"If a person should be joined . . . but cannot be served with process, the
court shall determine whether it is appropriate for the action to proceed among
the parties before it, or should be dismissed, the absent person being thus
regarded as indispensable." R. 4:28-1(b). In making the determination, the
court should consider "the extent to which a judgment rendered in the person's
absence might be prejudicial to that person or those already parties"; "the extent
to which, by protective provisions in the judgment, by the shaping of relief, or
other measures, the prejudice can be lessened or avoided"; "whether a judgment
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rendered in the person's absence will be adequate"; and "whether the plaintiff
will have an adequate remedy if the action is dismissed for nonjoinder." Ibid."Indispensability is usually determined from the point of view of the absent
party and in consideration of whether or not his rights and interests will be
adversely affected." Pressler & Verniero, Current N.J. Court Rules, cmt. 3.1 on
R. 4:28-1 (2021).
Based on our de novo review, we conclude the judge's dismissal of
plaintiffs' complaint in its entirety was premature, overbroad, and overlooked
the implications of pertinent provisions of the New Jersey Revised Uniform
Limited Liability Company Act (NJ RULLCA), N.J.S.A. 42:2C-1 to -94. The
NJ RULLCA provides judicial recourse for minority members who have been
"oppressed" by the majority members. See N.J.S.A. 42:2C-48(a)(5). Under
New Jersey law, "oppression has been defined as frustrating a [member's]
reasonable expectations" and "is usually directed at a minority [member]
personally." Brenner v. Berkowitz, 134 N.J. 488, 506 (1993). Thus, where a
minority member's reasonable expectations have been frustrated by the majority
members, the minority member has been oppressed and has a genuine claim for
judicial recourse under the NJ RULLCA.
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Furthermore, the NJ RULLCA permits a member to "maintain a direct
action against another member, a manager, or the limited liability company to
enforce the member's rights and otherwise protect the member's interests."
N.J.S.A. 42:2C-67(a). The NJ RULLCA also allows, in certain circumstances,
members to maintain derivative actions "to enforce a right of a limited liability
company." N.J.S.A. 42:2C-68. Additionally, under the NJ RULLCA, members
of a member-managed limited liability company (LLC) owe the company and
other members fiduciary duties of loyalty and care. N.J.S.A. 42:2C-39(a). The
duty of loyalty includes duties "to account to the company" for benefits derived
"from the appropriation of a company opportunity; to refrain from dealing with
the company . . . on behalf of a person having an interest adverse to the company;
and to refrain from competing with the company." 3 N.J.S.A. 42:2C:39(b). The
duty of care in a member-managed LLC is "to refrain from engaging in grossly
negligent or reckless conduct, intentional misconduct, or a knowing violation of
law." N.J.S.A. 42:2C-39(c). And although an LLC's operating agreement may
alter these fiduciary duties, it may not eliminate them. N.J.S.A. 42:2C-11(d)(2),
(3).
3
Notably, 3R's partnership agreement permits each partner to "have other
business interests" and "engage in any other business" "whether competitive
with the [p]artnership or otherwise."
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Plaintiffs concede the judge's dismissal of the contract-related claims
between 3R and Vigilare was proper and agree the outsourcing agreement
governs the dispute between 3R and Vigilare and, thus, should be resolved in
India in accordance with the forum selection and mediation/arbitration clauses.
Indeed, the claims contained in counts three, five, and seven each stem from 3R
allegedly paying fraudulent invoices at Kamishetty's behest for services never
rendered by Vigilare and Kamishetty misappropriating the proceeds. Under
Rule 4:28-1, Vigilare is an indispensable party whose presence is necessary to
protect its interests, but joinder is not feasible due to the forum selection and
mediation/arbitration clauses in the outsourcing agreement.
On the other hand, plaintiffs contend the judge erred in concluding
Vigilare was an indispensable party for the purpose of adjudicating their
"[p]ersonal and NJ RULLCA [c]laims" against Kamishetty, leaving them
"without legal recourse" to have such claims adjudicated in New Jersey as
provided under the NJ RULLCA. According to plaintiffs, some claims
concerned "Kamishetty's personal misconduct," acting in his individual capacity
as a member of 3R. Specifically, plaintiffs assert Kamishetty breached his
fiduciary duties and engaged in member oppression under the partnership
agreement by virtue of his "diversion of customers and prospective customers."
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Additionally, according to plaintiffs, Kamishetty's actions "also give rise to [the]
common-law claims . . . [of] tortious interference and unfair competition" with
3R's business relationships. Plaintiffs contend "Vigilare need not be involved"
for an adjudication of "these claims . . . under the NJ RULLCA" because
"Vigilare has no ownership interest in 3R . . . and no right to assert an interest
in disputes among its members."
Plaintiffs' argument has some merit. Although the judge correctly
determined several of plaintiffs' claims were against Kamishetty in his capacity
as managing director of Vigilare, some arguably were not. In addition to
Kamishetty's position as managing director of Vigilare, he also had a separate
relationship with plaintiffs, which was governed by the partnership agreement.
However, on this limited record, we cannot determine whether these claims
derive from Kamishetty's separate relationship under the partnership agreement
or his relationship as a managing director or agent of Vigilare under the
outsourcing agreement.
Without deciding the merits of the allegations, it is plausible plaintiffs
asserted these claims against Kamishetty in his capacity as a member-manager
of 3R and not as the managing director of Vigilare. If so, Vigilare would not be
an indispensable party to these claims, and the claims would not be subject to
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the forum selection and mediation/arbitration clauses of the outsourcing
agreement. Therefore, we remand the matter to the Chancery Division to
determine whether these claims are exclusively related to contractual dealings
between 3R and Vigilare or survive dismissal based on Kamishetty's role as a
member-manager of 3R and the attendant application of the NJ RULLCA. These
issues, and any other relevant questions the judge identifies on remand, should
be determined on an expanded record developed, at the judge's discretion, with
additional submissions from the parties, including clarification from plaintiffs
as to which parts of the complaint they believe survive dismissal .
Affirmed in part, reversed in part, and remanded for further proceedings
consistent with this opinion. We do not retain jurisdiction.
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