ANY GARMENT UNION, LLC v. DRY CLEAN EXPRESS I, LLC (L-4367-18, UNION COUNTY AND STATEWIDE) ( 2022 )

NOT FOR PUBLICATION WITHOUT THE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-3169-20
ANY GARMENT UNION, LLC
and ELIZABETH BORBOLLA,
Plaintiffs-Appellants,
v.
DRY CLEAN EXPRESS I, LLC,
TANYA VASQUEZ, MATSAMY
VASQUEZ, PATRIOT BUSINESS
ADVISORS, LLC, LILIANE
TIETJEN, ANY GARMENT
CLEANERS 2, LLC, CARLOS
MARROQUIN, DRY CLEAN
SERVICES, LLC, SALMON,
RICCHEZZA, SINGER & TURCHI,
LLP, RONALD L. DAUGHERTY,
ESQ., ANY GARMENT
CLEANERS 3, LLC, and CHM
DRY CLEANING SERVICE, LLC,
Defendants-Respondents,
and
ROCCO P. PERATE and
BENEFICIAL BANK,
Defendants.
______________________________
Argued September 29, 2022 – Decided October 27, 2022
Before Judges Sumners, Geiger, and Berdote Byrne.
On appeal from the Superior Court of New Jersey, Law
Division, Union County, Docket No. L-4367-18.
Michael Confusione argued the cause for appellants
(Hegge & Confusione, LLC, attorneys; Michael
Confusione, of counsel and on the briefs).
James Bell argued the cause for respondents Dry Clean
Express I, LLC, Tanya Vasquez, Matsamy Vasquez,
Patriot Business Advisors, LLC, Liliane Tietjen, Any
Garment Cleaners 2, LLC, Carlos Marroquin, Dry
Clean Services, LLC, Any Garment Cleaners 3, LLC,
and CHM Dry Cleaning Service, LLC, (Bell & Bell
LLP, attorneys; James Bell, of counsel and on the
brief).
Matthew S. Marrone argued the cause for respondents
Salmon, Ricchezza, Singer & Turchi, LLP, and Ronald
L. Daugherty, Esq. (Goldberg Segalla, LLP, attorneys;
Matthew S. Marrone, of counsel and on the brief).
PER CURIAM
Plaintiffs Any Garment Union LLC (AGU) and Elizabeth Borbolla appeal
from Law Division orders that granted summary judgment dismissing their
remaining claims against defendants Dry Clean Express I, LLC (DCE I); Tanya
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Vasquez (Tanya)1; Matsamy Vasquez (Matsamy); Patriot Business Advisors
LLC (PBA); Liliane Tietjen; Any Garment Cleaners 2 LLC (AGC2); Carlos
Marroquin; Dry Clean Services LLC (DCS); Any Garment Cleaners 3 LLC
(AGC3); CHM Dry Cleaning Service LLC (CHM); Salmon, Ricchezza, Singer
& Turchi LLP (SRST); and Ronald L. Daugherty Esq. We affirm in part, reverse
in part, and remand for further proceedings and trial.
I.
We glean the following facts from the summary judgment record, viewing
them in the light most favorable to the non-moving plaintiffs. See Richter v.
Oakland Bd. of Educ., 246 N.J. 507, 515 (2021).
In February 2018, Borbolla agreed to purchase a dry cleaning and laundry
business in Union known as Any Garment Cleaner (the Union store) from its
owner, DCE I. DCE I was owned by Matsamy and Tanya. The initial terms of
the agreement were set forth in an offer to purchase (OTP) and addendum.
Borbolla agreed to remit a $100,000 deposit upon acceptance of the agreement
and the balance of $1,900,000 at closing. Paragraph three of the OTP provides:
In the event the closing does not take place by [April
15, 2018], either party may thereafter terminate this
1
Because two defendants share the same surname, we refer to them by their
first names. We intend no disrespect.
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agreement unless such party is responsible for the
delay. Upon such termination, if the delay was the fault
of the Buyer, the deposit shall be forfeited as provided
below, otherwise, it shall be returned to the Buyer.
Paragraph nine provides: "The Seller represents and warrants that it has good
and marketable title to the Assets being sold, and will satisfy all taxes, payroll,
liabilities and obligations of the business at or prior to Closing." Paragraph
eleven provides: "Seller shall indemnify and hold harmless Buyer from all
claims, liabilities, or obligations arising out of conduct of the Business prior to
Closing." Paragraph fourteen provides: "Both Buyer and Seller agree that any
information provided by Broker has not been verified by Broker and both parties
shall rely solely on their own due diligence and hold Broker harmless from all
claims regarding this transaction." Paragraph fifteen provides:
Buyer agrees that if it should fail or refuse to complete
this transaction within fourteen days after the Closing
date [April 15, 2018,] unless amended in writing, then
any funds on Deposit with the Broker will be forfeited
without notice, and, at the Broker's option, shall be split
50% to the Seller, and 50% to the Broker."
The addendum states: "A Definitive Purchase Offer, incorporating the
terms of this Offer to Purchase, shall be agreed to by the Buyer and the Seller.
Both parties shall work cooperatively and expeditiously to complete such
Definitive Purchase Offer." The addendum sets forth seven contingencies,
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which include "review and approval of financials" and "SBA financing approval
at acceptable terms." It also states that the "contingencies shall expire and the
Deposit shall become non-refundable without notice to the Buyer at [3:00 p.m.]
on [April 1, 2018]. The Deposit shall be refunded to the Buyer upon Buyer's
notification to the Seller in writing, via Broker, prior to said date, that the Buyer
is canceling this Offer."
PBA served as the broker for the transaction. Tietjen was a principal and
agent of PBA. PBA and Tietjen also served as agents of defendants and as
escrow agents for various other transactions involving defendants and their
affiliates.
SRST is a law firm that represented defendants in related litigation and
transactions. Daugherty is an attorney at SRST. Defendant Rocco P. Perate is
an attorney and employee of defendant Beneficial Bank. While this appeal was
pending, plaintiffs dismissed their claims against Perate and Beneficial Bank
with prejudice.
Borbolla remitted the $100,000 deposit, which was to be held in escrow
pending closing. PBA and Tietjen served as the escrow agents. The deadline
for closing was extended several times.
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Borbolla subsequently formed AGU and signed an asset purchase
agreement (APA) on behalf of AGU with DCE I that reaffirmed the essential
terms of the transaction outlined in the OTP, added additional terms, and set
July 27, 2018, as the tentative closing date. The APA states it is a valid and
binding agreement that "supersedes all prior agreements and understandings."
It also specifically addresses the $100,000 deposit, placing it in escrow.
Plaintiffs engaged in due diligence. Title and judgment searches revealed
liens and encumbrances affecting the marketability of title of the Union store
and real estate. In addition, investigation revealed a fraudulent conveyance
lawsuit involving the property on which the Union store is located. As a result,
the sale did not close, and the seller terminated the contract on September 27,
2018.
More specifically, a judgment search uncovered liens against CHM, the
former owner of the Union store. CHM sold the Union store to DCE I on January
15, 2015. The stated consideration for that transfer was the assumption by DCE
I of $1,053,000 in secured debt. At the time of the sale, DCE I also executed a
$1,361,132 consulting agreement with CHM's owner, Marroquin. Marroquin is
the brother of DCE I's owner, Matsamy.
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Two judgments against CHM were uncovered. On July 2, 2015, the
Division of Employer Accounts obtained judgment against CHM for $20,606.
On May 5, 2016, the United States of America obtained judgment against CHM
for $180,609. In addition, UCC financing statements were filed against CHM's
assets on November 17, 2006, March 19, 2013, and March 26, 2013.
The searches also uncovered six judgments against Marroquin. On April
8, 2009, September 10, 2013, and August 23, 2017, the United States of America
obtained judgments of $52,646, $62,697, and $27,691 against Marroquin. On
September 19, 2013, the Division of Taxation obtained judgment against
Marroquin for $29,390. On September 19, 2014, Blinds to Go obtained a
judgment against Marroquin for $911,413. Finally, on January 19, 2015, Green
Lago, LLC (Green Lago) obtained judgment against Marroquin for $542,250,
which was docketed on February 24, 2015.
The Green Lago judgment arose from Marroquin's failure to pay a
promissory note. On November 17, 2017, after still not being paid, Green Lago
filed a complaint, alleging that Marroquin and CHM's 2015 transfer of the Union
store to DCE I "was totally without adequate consideration and was made with
the intent and purpose to hinder, delay and defraud [Green Lago] from the
collection of the indebtedness owed by Marroquin." The complaint sought to
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void the conveyance as a fraudulent transfer. On July 26, 2018, a writ of
execution was issued against DCE I. On May 20, 2019, the Law Division
updated the writ of execution issued against Marroquin to account for post-
judgment interest. The amount then owed, including interest, was $931,881.
The court also ordered that DCE I "remit payment . . . owed to . . . Marroquin
under [the c]onsulting [a]greement . . . in an amount of no less than $931,881."
The full balance owed under the consulting agreement as of the court order was
$1,065,000. Finally, the court ordered that "in the event [DCE I] . . . sell[s] the
Union dry cleaning business, the balance owed on the [Green Lago] judgment
at that time shall be paid from the closing proceeds."
During the Green Lago dispute, notices of federal tax liens were sent to
Marroquin in the amount of $27,691 and $108,072, respectively.
Plaintiffs' concerns regarding the marketability of title resulted in the
closing date being mutually extended multiple times. Plaintiffs' counsel sought
clarification "regarding the liens and judgments against [Marroquin] and CHM."
DCE I's counsel, Daugherty, replied by stating that the request was "ridiculous."
Daugherty maintained "[t]he equipment and business ha[d] no liens on them,"
and that "Marroquin ha[d] nothing to do with th[e] sale." In his opinion, "there
[were] no risks." The parties could not resolve the issue, and on September 27,
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2018, Daugherty sent a letter terminating the agreement because of plaintiffs'
failure to close.
On October 18, 2018, plaintiffs' counsel contacted Tietjen, demanding
return of the $100,000 deposit. Tietjen responded that at DCE I's request, "the
funds were released."
On December 27, 2018, plaintiffs filed this action against defendants to
recover the deposit and for other relief. The complaint alleged breach of
contract against DCE I, Matsamy, Tanya, PBA, and Tietjen. It also asserted
causes of action under the New Jersey Racketeer Influenced and Corrupt
Organizations Act (RICO), N.J.S.A. 2C:41-1 to -6.2, civil conspiracy to commit
fraud, aiding and abetting fraud, unjust enrichment, and constructive trust
against all defendants. Lastly, it alleged breach of escrow and conversion
against PBA and Tietjen.
Defendants moved to dismiss plaintiffs’ claims for failure to state a claim
upon which relief could be granted pursuant to Rule 4:6-2(e). On July 5, 2019,
the court denied the motion in its entirety as to DCE I, Matsamy, Tanya, PBA,
Tietjen, CHM, SRST, and Daugherty.2 The court granted the motion in part,
dismissing the claims against AGC 2, AGC 3, and DCS for violating RICO, civil
2
The record does not reveal any ruling as to Marroquin.
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conspiracy to commit fraud, and aiding and abetting fraud, without prejudice.
Plaintiffs do not appeal from those rulings.
Defendants, except Marroquin, filed answers. Following discovery,
defendants moved for summary judgment. Trial was scheduled for May 17,
2021. SRST and Daugherty's motion was returnable on May 14, 2021. The
other defendants' motions were returnable on May 28, 2021. Plaintiffs opposed
the motions as untimely because they were returnable less than thirty days before
the scheduled trial date in violation of Rule 4:46-1. Plaintiffs asserted that
defendants did not establish good cause to excuse the late filings.
Substantively, plaintiffs asserted that searches revealed outstanding
judgments, pending litigation, and unpaid taxes affected the marketability of
title. Plaintiffs argued their concerns regarding the marketability of title were
legitimate. Plaintiffs maintained that while "either side" could terminate the
transaction if closing did not occur on time, the APA was "quite clear" that
plaintiffs' deposit would not be forfeited under these circumstances. Plaintiffs
alleged that DCE I, Matsamy, Tanya, PBA, and Tietjen "totally disregarded" the
terms of the APA. Plaintiffs also alleged that Daugherty represented DCE I,
Matsamy, Tanya, CHM, and Marroquin in Green Lago's fraudulent transfer
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lawsuit and other cases, knew about, and was "concealing," the docketed
judgments, UCC financing statements, tax liens, and contested title.
Defendants argued that the deposit was non-refundable because plaintiffs
had failed to close by the OTP's July 6, 2018 deadline. Defendants contended
that even if the APA was controlling, plaintiffs' deposit was forfeited pursuant
to the APA's terms. Defendants specifically cited to Section 10.1.2 of the APA.
Defendants also stated that none of the liens that were discovered impacted the
assets plaintiffs were purchasing.
As to specific parties, defendants argued that AGC 2, AGC 3, DCS, CHM,
and Marroquin "ha[d] nothing to do with the failed Union [store] sale." They
also argued that "Daugherty never had possession or control over th[e] deposit,
[and] never instructed anybody to do anything with [it]." Defendants also
pointed out that Daugherty was not a party to the contract, but merely a
representative of his client. Finally, defendants argued the claims against
Matsamy, Tanya, and Tietjen must be dismissed because they were involved
only through their corporate entities, not in an individual capacity.
Following oral argument on May 14 and May 28, 2021, the trial court
issued oral decisions and orders that rejected plaintiffs' procedural and
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substantive arguments and granted summary judgment to defendants, dismissing
plaintiffs' remaining claims.
Regarding the timing of the motions, the court noted that while virtual
trials were being conducted, this action did not lend itself to a virtual format,
and the case would not be tried "in the near future."
As to SRST and Daugherty, the court stated:
[Daugherty’s] responsibility in this transaction was to
draft . . . an asset purchase agreement regarding the
business. And that’s what he did and that was the
beginning and the end of his involvement in this matter.
He never took the deposit . . . and he said he didn’t
represent these other parties in these other transactions.
In relation to the remaining defendants, the court stated that forfeiture of
the deposit was proper, and therefore, plaintiffs’ claims must be dismissed. The
court reasoned that the APA superseded only "prior agreements between the
seller and the purchaser." The OTP identified DCE I and Borbolla as the seller
and purchaser, while the APA identified DCE I and AGU as the seller and
purchaser. Because the purchasers were different in the two agreements, the
court reasoned that the OTP was not a "prior agreement[] between the purchaser
and seller." Therefore, the APA did not supersede the OTP.
The court reasoned that even if Borbolla signed the APA, she paid the
deposit pursuant to the OTP, "which specifically states [that it] is a legal, binding
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document [and] [e]ven if that statement was not included in the [OTP], the
document satisfies the requirement[s] of [a] legally, binding document." The
court found the OTP was enforceable and the deposit became non-refundable
when the sale did not close by July 6, 2018.3 The court noted that it had not
been shown any documents suggesting that DCE I was not "ready, able and
willing" to fulfill the agreement.
The court found the "heart" of plaintiffs' action was "a breach of contract
allegation." It noted that "[w]hile performing due diligence" plaintiffs' attorney
"noticed what he believed were certain financial irregularities." Because it
found there was no breach of contract, the court concluded it was "hard . . . to
find that there would be any of these other causes of action." According to the
court, there "can't be a conversion of the money if it was forfeited pursuant to
the agreement." The court also found there was no unjust enrichment if there
was no breach of contract since there was no wrongful taking of plaintiffs'
money. The court further found that "without a breach of contract the fraud and
the RICO [claims] are also completely defeated."
3
Contrary to the trial court's finding, the September 27, 2018 termination letter
states the termination is due to the buyer's failure to close on September 24,
2018.
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This appeal followed. Plaintiffs raise the following points for our
consideration:
POINT ONE
THE TRIAL COURT SHOULD HAVE DENIED THE
SUMMARY JUDGMENT MOTIONS AS
UNTIMELY.
POINT TWO
THE EVIDENCE SUBMITTED ON SUMMARY
JUDGMENT WAS SUFFICIENT TO PERMIT A
REASONABLE JURY TO FIND IN PLAINTIFFS'
FAVOR.
II.
Rule 4:46-2(c) provides that a motion for summary judgment shall be
granted "if the pleadings, depositions, answers to interrogatories and admissions
on file, together with the affidavits, if any, show that there is no genuine issu e
as to any material fact challenged and that the moving party is entitled to a
judgment or order as a matter of law." The court must "consider whether the
competent evidential materials presented, when viewed in the light most
favorable to the non-moving party, are sufficient to permit a rational factfinder
to resolve the alleged disputed issue in favor of the non-moving party." Brill v.
Guardian Life Ins. Co. of Am., 142 N.J. 520, 540 (1995).
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"To decide whether a genuine issue of material fact exists, the trial court
must 'draw[] all legitimate inferences from the facts in favor of the non -moving
party.'" Friedman v. Martinez, 242 N.J. 449, 472 (2020) (alteration in original)
(quoting Globe Motor Co. v. Igdalev, 225 N.J. 469, 480 (2016)). "The court's
function is not 'to weigh the evidence and determine the truth of the matter but
to determine whether there is a genuine issue for trial.'" Rios v. Meda Pharm.,
Inc., 247 N.J. 1, 13 (2021) (quoting Brill, 142 N.J. at 540). Summary judgment
"should ordinarily not be granted where an action or defense requires
determination of a state of mind or intent, such as claims of waiver, bad faith,
fraud or duress." Pressler & Verniero, Current N.J. Court Rules, cmt. 2.3.4 on
R. 4:46-2 (2023); see also Auto Lenders v. Gentilini Ford, 181 N.J. 245, 271-72
(2004).
Appellate courts review the trial court's grant or denial of a motion for
summary judgment de novo, applying the same standard used by the trial court.
Samolyk v. Berthe, 251 N.J. 73 (2022). We afford no deference to the trial
court's legal conclusions.
We first address the timing of the motions. Rule 4:46-1 states that
"motions for summary judgment shall be returnable no later than [thirty] days
before the scheduled trial date, unless the court otherwise orders for good cause
A-3169-20
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shown . . . ." Here, the motions were not timely filed as they were returnable
three days before and eleven days after the scheduled trial date, respectively.
While the court did not expressly find good cause allowing the late filings, that
finding was implicit in its ruling.
The trial date was clearly affected by the impact of the COVID pandemic.
The trial court found that the trial would not go forward on the scheduled trial
date or soon thereafter given its complexity. The number of defendants and
causes of action did not lend themselves to a virtual trial. We concur. This case
would not have been tried until long after the scheduled trial date. Moreover,
defendants provided the twenty-eight-days' notice required by Rule 4:46-1.
Plaintiffs do not claim that they suffered additional costs due to the late filings.
Accordingly, they were not prejudiced by the untimely filings. We discern no
abuse of discretion in considering the merits of the motions.
Turning to the merits of the summary judgment motions, we reiterate that
the trial court found plaintiffs' remaining claims must be dismissed because the
deposit was nonrefundable under the terms of the OTP. The court determined
that the APA superseded only "prior agreements between the seller and the
purchaser." The OTP identified DCE I as the seller and Borbolla as the
purchaser, while the APA identified DCE I as the seller and AGU as the
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purchaser. On that basis, the court reasoned that the OTP was not a "prior
agreement[] between the purchaser and seller." Therefore, the APA did not
supersede it. The court went on to state that even though Borbolla signed the
APA, she paid the deposit pursuant to the OTP, which was a "legally binding
document." Accordingly, the deposit became non-refundable on the OTP’s July
6, 2018 closing deadline.
For the following reasons, we disagree in large part with the court's
findings, analysis, and decision. For purposes of clarity, we address each cause
of action separately.
The Governing Contract
We first address whether the OTP or APA governs the transaction.
"[C]ourts should interpret a contract considering 'the objective intent manifested
in the language of the contract in light of the circumstances surrounding the
transaction.'" Lederman v. Prudential Life Ins. Co. of Am., 385 N.J. Super. 324,
340 (App. Div. 2006) (alteration in original) (quoting Biovail Corp. Int'l v.
Hoechst Aktiengesellschaft, 49 F. Supp. 2d 750, 774 (D.N.J. 1999)). Intent is
not defined by the subjective expectations of the parties. Ibid. It is "revealed
by the language [of the contract]." Globe Motor, 225 N.J. at 483. "[W]ords and
phrases are not to be isolated but [instead should be] related to the context and
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the contractual scheme as a whole . . . ." Republic Bus. Credit Corp. v. Camhe-
Marcille, 381 N.J. Super. 563, 569 (App. Div. 2005) (quoting Newark
Publishers' Ass'n v. Newark Typographical Union, 22 N.J. 419, 426 (1956)); see
also Lederman, 385 N.J. Super. at 339 ("[T]he intention of the parties to [a]
contract [is] revealed by the [contractual] language . . . taken as an entirety."
(quoting Biovail, 49 F. Supp. 2d at 774)).
With these guiding principles in mind, we conclude that the APA
superseded the OTP. First, the language of the OTP itself contemplated a
subsequent agreement when stating that a definitive purchase order still needed
to be executed. The parties then executed the anticipated definitive purchase
order, i.e., the APA, which provided that it "embodie[d] the entire agreement
and understanding, and supersedes all prior agreements and understandings[]
between the [s]eller and the [p]urchaser relating to the subject matter hereof."
These contractual provisions reflect a clear intent for the APA to be controlling.
The fact that the OTP listed the purchaser as Borbolla and the APA listed
the purchaser as AGU does not alter this conclusion. In both agreements, th e
property, purchase price, deposit, and seller were the same. Moreover, at the
time that the OTP was signed, AGU did not exist yet. Borbolla formed it
afterward to finalize the transaction. She is the sole owner of AGU, and signed
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the APA in that capacity. Under these circumstances, it is abundantly clear that
the OTP and APA governed the same transaction between the same parties at
different times. Upon its execution, the APA superseded the OTP and governed
the transaction.
Breach of Contract
"To establish a claim for breach of contract, a plaintiff must provide proof
of 'a valid contract between the parties, the opposing party's failure to perform
a defined obligation under the contract, and a breach causing the claimant to
sustain[] damages.'" Nelson v. Elizabeth Bd. of Educ., 466 N.J. Super. 325, 342
(App. Div. 2021) (quoting EnviroFinance Grp., LLC v. Env't Barrier Co., 440
N.J. Super. 325, 345 (App. Div. 2015)). Generally, "the construction of a
contract is a question of law" and therefore "[t]he interpretation of a contract is
subject to de novo review by an appellate court." Kieffer v. Best Buy, 205 N.J.
213, 222-23 (2011) (quoting Jennings v. Pinto, 5 N.J. 562, 569-70 (1950)).
"Accordingly, we pay no special deference to [a] trial court's interpretation and
look at the contract with fresh eyes." Id. at 223.
We recognize that generally, "[a]n issue regarding interpretation of a
contract clause presents a purely legal question that it is particularly suitable for
decision on a motion for summary judgment." Pressler & Verniero, cmt. 5 on
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R. 4:46-2. However, when deciding legal issues, the trial court "cannot grant
summary judgment where material facts are in dispute." Driscoll Constr. Co. v.
State, Dep't of Transp., 371 N.J. Super. 304, 314 (App. Div. 2004).
Plaintiffs assert breach of contract against DCE I, Matsamy, Tanya, PBA,
and Tietjen. As an initial matter, the trial court correctly dismissed the breach
of contract claims against PBA and Tietjen. Neither were parties to the OTP or
APA. In contrast, DCE I was the identified seller in both the OTP and APA.
Matsamy signed the OTP and Matsamy and Tanya signed the APA on behalf of
DCE I.
Defendants argue if the APA controls, plaintiffs' deposit was forfeited
pursuant to Section 10.1.2 of the APA, which provides the agreement "may be
terminated . . . [b]y the [s]eller if there has been a breach of any covenant,
representation [or] warranty of the [p]urchaser, provided that the [s]eller shall
give written notice of such breach and such breach shall not be cured within ten
(10) days of the notice." In turn, Section 12.1.3 states "[i]n the event that . . .
this [a]greement is terminated in accordance with Section 10.1.2 by reason of a
default by [p]urchaser . . . the [e]scrow [a]gent shall deliver the [d]eposit
[m]onies to [s]eller."
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Defendants have not demonstrated that plaintiffs breached any "covenant,
representation [or] warranty" of the APA. Rather, defendants have asserted that
plaintiffs "refused to close." This basis for termination is governed Section
10.1.4, not Section 10.1.2. Section 10.1.4 provides that "either party" can
terminate the agreement in the event closing does not occur by the stated
deadline. Section 10.2 then states that "[i]n the event that this [a]greement shall
be terminated [] in accordance with Section 10.1.1 or 10.1.4 . . . [p]urchaser
shall receive the immediate return of the [d]eposit [m]onies." If the agreement
is breached by the failure to return the deposit, Section 10.2 states "the non-
breaching party may pursue all remedies available to it in law and equity." Since
the sale did not close because of the unresolved marketability of title issues, and
not due to any breach by the buyer, these sections required the deposit monies
to be returned to the buyer. Accordingly, plaintiffs had the right to pursue their
claim to the deposit.
Matsamy and Tanya argue they were involved in the transaction through
the LLC, not in an individual capacity. They contend that the breach of contract
claim is viable only against the LLC.
Generally, the debts, obligations, and liabilities of a limited liability
company are not the debts, obligations, and liabilities of its members or
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managers. N.J.S.A. 42:2C-30(a). Nevertheless, the power to look beyond the
corporate form is well established. Stochastic Decisions, Inc. v. DiDomenico,
236 N.J. Super. 388, 393 (App. Div. 1989). Piercing the corporate veil is an
equitable remedy whereby "the protections of corporate formation" are forfeited.
Verni ex rel. Burstein v. Harry M. Stevens, Inc., 387 N.J. Super. 160, 199 (App.
Div. 2006). "[T]he purpose of the doctrine of piercing the corporate veil is to
prevent an independent corporation from being used to defeat the ends of justice,
to perpetrate fraud, to accomplish a crime, or otherwise to evade the l aw."
Richard A. Pulaski Const. Co., Inc. v. Air Frame Hangars, Inc., 195 N.J. 457,
472 (2008) (quoting State, Dept. of Env't Prot. v. Ventron Corp., 94 N.J. 473,
500 (1983)).
"The issue of piercing the corporate veil is submitted to the factfinder,
unless there is no evidence sufficient to justify disregard of the corporate form."
Verni, 387 N.J. Super. at 199. Before piercing the corporate veil, "evidence
must first establish an independent basis to hold the corporation liable." Sean
Wood, L.L.C. v. Hegarty Group, Inc., 422 N.J. Super. 500, 518 (App. Div.
2011). Failure to observe formalities is a significant factor in determining
whether to pierce a corporation's veil. See, e.g., Canter v. Lakewood of
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Voorhees, 420 N.J. Super. 508, 519 (App. Div. 2011) (discussing failure to
observe corporate formalities).
A different standard applies to limited liability companies. N.J.S.A.
42:2C-30 provides that "[t]he failure of a limited liability company to observe
any particular formalities relating to the exercise of its powers or management
of its activities is not a ground for imposing liability on the members or
managers for the debts, obligations, or other liabilities of the company."
Nevertheless, personal liability of a member or manager of a limited liability
company can be established where extraordinary circumstances, such as fraud
or injustice, warrant piercing the corporate veil.
In addition to alleging that Matsamy and Tanya breached the contract,
plaintiffs claim Matsamy and Tanya engaged in civil conspiracy to commit fraud
and aiding and abetting fraud. To establish a claim of actionable fraud, "a
plaintiff must demonstrate that: (1) defendant made a material misrepresentation
or omission of fact; (2) knowing the misrepresentation to be false or
the omission to be material, and intending the other party to rely on it; and (3)
the other party did in fact rely on the misrepresentation or omission to its
detriment." Zorba Contractors, Inc. v. Hous. Auth., 362 N.J. Super. 124, 139
(App. Div. 2003) (quoting Varacallo v. Mass. Mut. Life Ins. Co., 332 N.J. Super.
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31, 43 (App. Div. 2000)). "The representation may consist of a present intention
to act or not act in the future." Stochastic, 236 N.J. Super. at 395-96. "This
intention may be derived from circumstantial evidence." Id. at 396.
There are genuine issues of material fact in dispute with respect to these
claims that preclude summary judgment. In 2015, Green Lago obtained
judgment against Marroquin for $542,250. The judgment remained unpaid, and
in 2017, Green Lago filed a complaint to set aside CHM and Marroquin's
allegedly fraudulent transfer of the Union store to DCE I. Matsamy and Tanya
were both named as defendants in that action, and Matsamy was deposed. These
facts were not disclosed to plaintiffs. Defendants assert that the Green Lago
litigation did not "threaten[] the assets being sold under the 2018 asset purchase
agreement." However, on May 20, 2019, the Law Division entered an order in
aid of Green Lago's collection efforts, which required DCE I to "remit payment
. . . owed to . . . Marroquin" under the parties' consulting agreement and stated
that in the event DCE I "sell[s] the Union dry cleaning business, the balance
owed on the [Green Lago] judgment at that time shall be paid from the closing
proceeds." The order also updated the amount due on the judgment to $931,881
to account for interest. Several other sizable judgments against CHM and
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Marroquin were not disclosed, which could also impact marketability of the
Union store.
Additionally, UCC financing statements were filed against CHM's assets.
The financing statements potentially encumbered the Union store's assets, which
were part of the sale. See N.J.S.A. 12A:9-310(a) (providing a financing
statement is used "to perfect [a] security interest"). Finally, there were sizable
outstanding federal and state tax liens against CHM and Marroquin, which
potentially affect the Union store's assets. See 26 U.S.C. § 6321 ("If any person
liable to pay any tax neglects or refuses to pay the same after demand, the
amount . . . shall be a lien in favor of the United States upon all property and
rights to property, whether real or personal, belonging to such person."); see also
N.J.S.A. 54:44-2 ("[A New Jersey tax] debt . . . shall be a lien 4 on all the property
of the debtor."). Plaintiffs allege defendants, through counsel, steadfastly
refused to provide information or clarification about the liens upon request.
Whether Matsamy and Tanya knew about and concealed these tax liens is
unclear, but there is sufficient evidence in the record to raise a factual dispute
4
N.J.S.A. 54:44-2 further states that the lien is not enforceable against an
"innocent purchaser for value in the usual course of business." Whether
Borbolla would have qualified as such a purchaser is not relevant here. Viewed
in the light most favorable to plaintiffs, the tax judgment was undisclosed, and
defendants refused to provide related information or clarification upon request.
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for trial. Matsamy and Tanya knew about the Green Lago litigation but did not
disclose it.
In conclusion, the record contains evidence that DCE I may be liable for
breach of contract. The record also contains circumstantial evidence that
Matsamy and Tanya may have participated in a fraud against the buyer, thereby
providing a potential basis to pierce the corporate veil and impose individual
liability upon them. Since there are material facts in dispute and Matsamy and
Tanya have not shown they are entitled to judgment as a matter of law, summary
judgment should not have been granted to them dismissing the fraud-based
claims.
Breach of Escrow
Plaintiffs assert a breach of escrow claim against PBA and Tietjen. "A
fiduciary relationship is created by and inherent in the nature of an escrow
agreement." Innes v. Marzano-Lesnevich, 224 N.J. 584, 598 (2016) (quoting
Colegrove v. Behrle, 63 N.J. Super. 356, 366 (App. Div. 1960)). "An escrow
agreement imports a legal obligation on the part of the [escrow agent] to retain
[] money or documents until the performance of a condition or the happening of
an event, at which time the money or documents are to be delivered in
accordance with the terms of the agreement." Colegrove, 63 N.J. Super. at 365.
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"[L]iability attaches to [an escrow agent] if he improperly parts with his
deposit." Cooper v. Bergton, 18 N.J. Super. 272, 277 (App. Div. 1952).
Here, even assuming DCE I was entitled to the deposit under Sections
10.1.2 and 12.1.3, the escrow agreement provides:
Notwithstanding [Sections 10.1.2 and 12.1.3] . . . the
[e]scrow [a]gent shall not make delivery of the
[d]eposit monies . . . unless it has first received the
written approval of both parties hereto. If any
controversy should arise among the parties to this
Agreement . . . [e]scrow [a]gent shall not be required to
determine the same . . . but rather [e]scrow agent shall
await the settlement or resolution of any such
controversy by final, appropriate legal proceedings.
By immediately releasing the $100,000 security deposit upon the seller's
request, PBA and Tietjen may have breached this provision. Moreover, there is
evidence suggesting that Tietjen should not be protected by PBA's corporate
status. As stated above, piercing the corporate veil can be established through
a showing of fraud. Here, Tietjen represented that she would hold the escrow
funds according to the terms of the APA and would be neutral in that role. There
are material facts in dispute as to whether this representation was false,
intentional, and detrimentally relied upon.
Tietjen is the principal of PBA and has a direct financial stake in the
business. The OTP provided PBA would keep fifty percent of the deposit if it
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was forfeited, and plaintiffs allege this division of funds occurred. Moreover,
Tietjen's deposition in the Green Lago litigation indicated she has known
Marroquin since 2006, and has brokered multiple deals on his and Matsamy's
behalf. This relationship places material facts in dispute as to whether Tietjen
disregarded the APA's clear terms to benefit herself and her clients. This
arguably rendered her previous representation of neutrality intentionally false.
See Stochastic, 236 N.J. Super. at 395 (stating that the intent to make a
fraudulent representation "may be derived from circumstantial evidence").
Given these disputed material facts, Tietjen should not have been released from
personal liability.
Conversion
Plaintiffs allege PBA and Tietjen converted the deposit monies.
"Conversion is an intentional exercise of dominion or control over a chattel
which so seriously interferes with the right of another to control it that the actor
may justly be required to pay the other the full value of the chattel." Meisels v.
Fox Rothschild LLP, 240 N.J. 286, 304 (2020) (quoting Chi. Title Ins. Co. v.
Ellis, 409 N.J. Super. 444, 456 (App. Div. 2009)). "[C]onversion applies to
money, provided that 'the money ha[s] belonged to the injured party and that it
be identifiable.'' Ibid. (quoting Ellis, 409 N.J. Super. at 455-56).
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PBA and Tietjen may have violated Section 12.1.4 of the APA by
releasing plaintiffs' deposit before there was "resolution of [the] controversy by
final, appropriate legal proceedings." There are disputed facts as to whether the
deposit should have been returned to plaintiffs pursuant to Sections 10.4.1 and
10.2. Because PBA and Tietjen’s actions may have deprived plaintiffs of their
contested right to these funds, the conversion claims against PBA and Tietjen
should not have been dismissed.
Constructive Trust
Plaintiffs seek imposition of a constructive trust against all defendants.
"A constructive trust is a remedial device through which the 'conscience of
equity' is expressed." Thompson v. City of Atl. City, 386 N.J. Super. 359, 375
(App. Div. 2006). It is imposed "when a person has acquired possession of or
title to property under circumstances which, in good conscience, will not allow
the property's retention." Id. at 375-76. "[A] court must find that a 'wrongful
act' caused the property to come into the hands of the recipient and that the
recipient will be 'unjustly enriched' if it is not returned." Id. at 376 (quoting
Flanigan v. Munson, 175 N.J. 597, 608 (2003)). "In that circumstance, the court
of equity converts the recipient into a trustee and requires that he account for
the res in whatever manner the court deems fair and just." Ibid.A-3169-20
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Plaintiffs do not allege that CHM, Marroquin, SRST, Daugherty, AGC 2,
AGC 3, or DCS ever took possession of the deposit. Consequently, there are no
material facts in dispute precluding summary judgment as to these defendants.
However, the trial court incorrectly dismissed the constructive trust claim as to
DCE I, Matsamy, Tanya, PBA, and Tietjen. There are sufficient material facts
in dispute as to whether these defendants committed a wrongful act by taking
the deposit and were unjustly enriched by keeping it. On remand, the court shall
consider whether a constructive trust should be imposed against DCE I,
Matsamy, Tanya, PBA, and Tietjen.
Unjust Enrichment
Plaintiffs allege unjust enrichment against all defendants. "The doctrine
of unjust enrichment rests on the equitable principle that a person shall not be
allowed to enrich himself unjustly at the expense of another." Goldsmith v.
Camden Cnty. Surrogate's Off., 408 N.J. Super. 376, 382 (App. Div. 2009)
(quoting Assocs. Com. Corp. v. Wallia, 211 N.J. Super. 231, 243 (App. Div.
1986)). "To establish a claim for unjust enrichment, 'a [party] must
[demonstrate] both that [the opposing party] received a benefit and that retention
of that benefit . . . would be unjust.'" Iliadis v. Wal-Mart Stores, Inc., 191 N.J.
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88, 110 (2007) (quoting VRG Corp. v. GKN Realty Corp., 135 N.J. 539, 554
(1994)).
Again, CHM, Marroquin, SRST, Daugherty, AGC 2, AGC 3, and DCS
never took possession of the deposit. Consequently, the claim of unjust
enrichment fails against them. In relation to DCE I, Matsamy, Tanya, PBA, and
Tietjen, however, we are conclude there are material facts in dispute as to
whether these defendants were unjustly enriched by retaining the deposit.
satisfied that the events fit squarely within the doctrine of unjust enrichment.
See Kutzin v. Pirnie, 124 N.J. 500, 518 (1991) (discussing whether retaining a
deposit unjustly enriched the defendants).
Civil Conspiracy to Commit Fraud
Plaintiffs alleged civil conspiracy to commit fraud against all defendants.
The trial court dismissed the claim as to AGC 2, AGC 3, and DCS. A civil
conspiracy occurs when "two or more persons act[] in concert to commit an
unlawful act, or to commit a lawful act by unlawful means, the principal element
of which is an agreement between the parties to inflict a wrong against or injury
upon another, and an overt act that results in damage." Banco Popular North
America v. Gandi, 184 N.J. 161, 177 (2005).
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Because civil conspiracy requires "an underlying wrong," we have
recognized that a claim of civil conspiracy to commit fraud is untenable if the
underlying claim of fraud fails. Rezem Fam. Assocs. v. Borough of Millstone,
423 N.J. Super. 103, 122 (App. Div. 2011) (quoting Banco,184 N.J. at 177-78).
Here, there is no evidence that CHM or Marroquin committed fraud in
relation to the instant transaction. They were not involved in the deal and did
not receive any portion of the deposit. As stated above, however, there are
material disputed facts as to whether DCE I, Matsamy, Tanya, PBA, and Tietjen
intentionally made material misrepresentations or omissions. There is also
evidence that these parties acted in concert and split the deposit amongst
themselves.
We also find there is a genuine factual issue as to whether SRST and
Daugherty participated in this alleged fraud. Plaintiffs have presented evidence
that SRST and Daugherty represented Marroquin and Matsamy during the 2015
Green Lago litigation and thus knew about the $542,250 judgment entered
against Marroquin. As stated above, this judgment may have affected the
marketability of the Union store and its assets. Plaintiffs contend SRST and
Daugherty did not disclose the judgment or provide information regarding the
litigation when requested to do so. Plaintiffs contend that in a series of emails,
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Daugherty insisted that there were "no open issues" or "liens or encumbrances"
affecting marketability, and repeatedly pressured plaintiffs to close on
transaction. There are genuine issues of material fact in dispute with respect to
these claims that preclude summary judgment.
Aiding and Abetting Fraud
Plaintiffs asserted an aiding and abetting fraud claim against all
defendants. The trial court dismissed this claim as to AGC 2, AGC 3, and DCS.
To prove that a defendant was aiding and abetting fraud, the following elements
must be met:
(1) the party whom the defendant aids must perform a
wrongful act that causes an injury; (2) the defendant
must be generally aware of his role as part of an overall
illegal or tortious activity at the time that he provides
the assistance; [and] (3) the defendant must knowingly
and substantially assist the principal violation.
[State, Dep't of Treasury ex rel. McCormac v. Qwest
Commc'ns Int'l, Inc., 387 N.J. Super. 469, 483-84 (App.
Div. 2006) (quoting Tarr v. Ciasulli, 181 N.J. 70, 84
(2004)).]
For the same reasons given for civil conspiracy to commit fraud, the
aiding and abetting fraud claim was properly dismissed as to CHM and
Marroquin, but should not have dismissed as to DCE I, Matsamy, Tanya, PBA,
Tietjen, SRST, and Daugherty.
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RICO
Lastly, plaintiffs asserted RICO claims against all defendants. The trial
court initially dismissed the RICO claims as to AGC 2, AGC 3, and DCS.
"The RICO Act, generally, makes it a crime for a person to be employed
by or associated with 'an enterprise' and to engage or participate or become
involved in the business of the enterprise 'through a pattern of racketeering
activity.'" State v. Ball, 141 N.J. 142, 151 (1995) (quoting N.J.S.A. 2C:41-2(b)
and 2(c)). "The Act also makes it a crime for a person to conspire to engage in
such conduct." Ibid. (citing N.J.S.A. 2C:41-2(d)).
"Racketeering activity" includes "fraudulent practices." Mayo, Lynch &
Assocs., Inc. v. Pollack, 351 N.J. Super. 486, 495 (App. Div. 2002) (citing
N.J.S.A. 2C:41-1(a)(1)(o)). "A 'pattern of racketeering activity' requires
'[e]ngaging in at least two incidents of racketeering conduct' that 'embrace
criminal conduct' and are interrelated." Ibid. (quoting N.J.S.A. 2C:41-1(d)(1)
and (2)). "Under [RICO] an 'enterprise' includes 'any . . . group of individuals
associated in fact although not a legal entity . . . .'" Ibid. (quoting N.J.S.A.
2C:41-1(c)).
The RICO Act establishes both criminal penalties, N.J.S.A. 2C:41-3, and
civil remedies, N.J.S.A. 2C:41-4, for conduct that violates N.J.S.A. 2C:41-2.
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"Any person damaged in his business or property by reason of a violation of
N.J.S.A. 2C:41-2 may sue therefor in any appropriate court and shall recover
threefold any damages he sustains and the cost of suit, including a reasonable
attorney's fee, cost of investigation and litigation." N.J.S.A. 2C:41-4(c).
"In order to establish standing to institute a civil action under RICO, it
must be shown that 'plaintiff's harm was proximately caused by the RICO
predicate acts alleged, i.e., that there was a direct relationship between plaintiff's
injury and defendant's conduct." Interchange State Bank v. Veglia, 286 N.J.
Super. 164, 178 (App. Div. 1995) (quoting First Nationwide Bank v. Gelt
Funding Corp., 27 F.3d 763, 769 (2d Cir. 1994)). "This requires a showing not
only that the defendant's alleged RICO violation was the 'but for' cause or cause-
in-fact of his injury, but also that the violation was the legal or proximate cause."
Ibid. (citing Holmes v. Sec. Inv. Prot. Corp., 503 U.S. 258, 265 (1992)). "If a
plaintiff is harmed only in an indirect way by the predicate acts, the plaintiff
does not have standing to pursue a RICO claim." Id. at 180 (citing Prudential
Ins. Co. of Am. v. U.S. Gypsum Co., 828 F. Supp. 287, 296 (D.N.J. 1993));
accord Franklin Med. Assocs. v. Newark Pub. Sch., 362 N.J. Super. 494, 514-
15 (App. Div. 2003). In Veglia, we noted "[t]he 'general rule in fraud cases . . .
is that you are liable only to an intended victim." 286 N.J. Super. at 182 (quoting
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In re EDC, 930 F.2d 1275, 1279 (7th Cir. 1991)). "The victim need not be the
primary victim, only an intended victim." Ibid. (citing EDC, 930 F.2d at 1279).
Plaintiffs allege at least two fraudulent actions. First, they allege the 2015
transfer from CHM and Marroquin to DCE I, Matsamy, and Tanya was
fraudulent because the purpose of the transaction was to avoid paying the Green
Lago judgment. Plaintiffs also assert that the instant transaction was fraudulent.
We conclude there is a genuine issue of material fact as to whether these
transactions were fraudulent, however, not all the defendants were involved in
both transactions.
CHM and Marroquin were involved in the 2015 transfer only. And, while
SRST and Daugherty represented certain defendants during the 2017 Green
Lago litigation, there is no evidence that SRST and Daugherty facilitated the
2015 transfer. As a result, these defendants did not engage in a "pattern of
racketeering." Additionally, plaintiffs were not the intended victims of the 2015
fraudulent conveyance. Therefore, plaintiffs do not have standing to pursue a
RICO claim against CHM, Marroquin, SRST, and Daugherty. Accordingly, the
RICO claims against CHM, Marroquin, SRST, and Daugherty were properly
dismissed.
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We reach a similar conclusion as to DCE I, Matsamy, Tanya, PBA, and
Tietjen, even though they were involved in both transactions.5 If proven at trial,
the evidence supports "two incidents" of "fraudulent practices" among a "group
of individuals." Again, however, plaintiffs were not the intended victims of the
2015 fraudulent conveyance. Nor were plaintiffs the intended victims of the
other events that preceded the 2018 OTP that affected marketability of title.
Therefore, plaintiffs do not have standing to pursue RICO claims against DCE
I, Matsamy, Tanya, PBA, and Tietjen. Accordingly, the RICO claims against
DCE I, Matsamy, Tanya, PBA, and Tietjen were properly dismissed.
III.
We summarize our rulings as follows. We affirm the dismissal of the
breach of contract claims against PBA and Tietjen and reverse the dismissal of
the breach of contract claims against DCE I, Matsamy, and Tanya.
We reverse the dismissal of the breach of escrow and conversion claims
against PBA and Tietjen.
5
During her deposition in the Green Lago litigation, Tietjen admitted
"involvement" in the 2015 transfer. While there may be a disputed material fact
as to whether her involvement was fraudulent, this does not end our analysis.
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We affirm the dismissal of the civil conspiracy to commit fraud claims
against CHM and Marroquin and reverse the dismissal of those claims against
DCE I, Matsamy, Tanya, PBA, Tietjen, SRST, and Daugherty.
We affirm the dismissal of the aiding and abetting claims against CHM
and Marroquin and reverse the dismissal of those claims against DCE I,
Matsamy, Tanya, PBA, Tietjen, SRST, and Daugherty.
We affirm the dismissal of unjust enrichment claims against CHM,
Marroquin, SRST, Daugherty, AGC 2, AGC 3, and DCS, and reverse the
dismissal of those claims against DCE I, Matsamy, Tanya, PBA, and Tietjen.
We affirm the dismissal of the constructive trust claims against CHM,
Marroquin, SRST, Daugherty, AGC 2, AGC 3, and DCS, and reverse the
dismissal of those claims against DCE I, Matsamy, Tanya, PBA, and Tietjen.
On remand, we direct the trial judge to consider whether a constructive trust
should be imposed against DCE I, Matsamy, Tanya, PBA, and Tietjen.
We affirm the dismissal of the RICO claims against CHM, Marroquin,
DCE I, Matsamy, Tanya, PBA, Tietjen, SRST, and Daugherty.
In so ruling, we express no opinion as to the ultimate merit of plaintiffs'
remaining causes of action. That determination will be made by the factfinder.
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Affirmed in part, reversed in part, and remanded for further proceedings
consistent with this opinion and trial. We do not retain jurisdiction.
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