DIRECT COAST TO COAST, LLC VS. JOSEPH PETERSON,ET AL. (L-6322-12, MIDDLESEX COUNTY AND STATEWIDE)

NOT FOR PUBLICATION WITHOUT THE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-1384-14T3
DIRECT COAST TO COAST, LLC
and SELECTIVE TRANSPORTATION
CORPORATION,
Plaintiffs-Appellants/
Cross-Respondents,
v.
JOSEPH PETERSON, individually and
as an agent of THE BANFIELD GROUP,
LLC,
Defendant-Respondent/
Cross-Appellant,
and
LISA MARIE HARRISON, individually
and as an agent of THE BANFIELD
GROUP, LLC and JERRY KETEL,
individually and as an agent of
THE BANFIELD GROUP, LLC,
Defendants.
____________________________________
Argued December 21, 2016
Before Judges Alvarez, Higbee and Manahan.
Telephonically reargued February 28, 2017 –
Decided May 22, 2017
Before Judges Alvarez, Accurso and Manahan.
On appeal from Superior Court of New Jersey,
Law Division, Middlesex County, Docket No.
L-6322-12.
Ronald Horowitz argued the cause for
appellant/cross-respondent.
Craig Rothenberg argued the cause for
respondent/cross-appellant.
PER CURIAM
Plaintiffs Direct Coast To Coast, LLC and Selective
Transportation Corporation appeal from a summary judgment
dismissing their complaint against defendant Joseph Peterson, as
well as orders denying their motions for reconsideration and for
counsel fees and costs as a condition of vacating a prior
default against Peterson and for obtaining the dismissal of his
counterclaims with prejudice. Defendant cross-appeals from the
denial of his motion to impose fees and costs on plaintiffs and
their counsel for pursuing frivolous litigation and violating
the rules of professional conduct. We affirm each of the
orders.
The essential facts are undisputed. Plaintiffs are
affiliated freight transportation companies located in New
Jersey. The Banfield Group, LLC was a freight transportation
broker located in Oregon with which plaintiffs did business for
several years.
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Defendant owned a majority interest in Banfield until the
end of 2008 when he entered into an agreement conveying his
interest to the company and a remaining member, who continued to
operate the business. The purchase price was payable over
several years, coinciding with a part-time employment agreement
for defendant, and defendant was provided a security interest in
Banfield's tangible and intangible assets. As part of the
transaction, Banfield and the remaining member agreed to defend,
indemnify and hold defendant harmless from any damages arising
out of the ownership or operation of the company going forward.
Defendant's security interest was evidenced by a UCC Financing
Statement filed with the State of Oregon. Defendant was
apparently Banfield's only secured creditor.
In 2009, Banfield began to fall behind in its payments to
plaintiffs for freight services. In January 2010, plaintiffs
sent demand notices to Banfield. Direct's notice advised if
payment of the full amount of $128,733.03 owed was not received
within five business days, Direct would eliminate the minimum
rates and discounts accorded Banfield and seek "full bureau
rates" for a total of $468,238.71. Selective sent a similar
notice advising if Banfield failed to pay the $17,872.96 it
owed, Selective would seek payment of $104,732.48. The
statements of account attached to those notices provided that
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the balances owed were incurred by Banfield in late 2009, months
after defendant sold his interest in the company.
In addition to not paying plaintiffs, Banfield also stopped
paying defendant. In late January 2010, Banfield surrendered
its assets to defendant, acknowledging he had "a first position
perfected security interest in all of the tangible and
intangible assets" of the company. In March 2010, defendant's
lawyer wrote to Banfield's creditors, including plaintiffs,
advising that defendant sold his interest in Banfield in
December 2008, had "a first perfected security interest in all
of the assets" of the company, and that following default by
Banfield, its assets were surrendered to him in lieu of
foreclosure. The letter also advised that the value of the
remaining assets was significantly less than the sums owed
defendant.
Following Banfield's demise, plaintiffs continued to do
business in 2010 and 2011 with defendant, through Auburn
Logistics, a company owned by defendant's brother. In early
2011, after learning that plaintiffs' counsel was attempting to
collect on Banfield's debts, defendant wrote to him twice.
Defendant advised plaintiffs' counsel of the sale of defendant's
interest in Banfield, and that Auburn had no responsibility for
Banfield's debts. In response, plaintiffs' counsel wrote to
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defendant at Auburn, advising if payment of $475,851.73 was not
received within ten days, "suit will be instituted in New Jersey
against you, your company and The Banfield Group, together with
all shippers and consignees."
Plaintiffs thereafter instituted separate suits in the Law
Division in Middlesex County against Banfield, Auburn and a
number of Banfield's consignees and shippers seeking the non-
discounted balances plaintiffs claimed were due from Banfield.
Plaintiffs sued Auburn on a theory of successor liability.
Although having threatened to sue defendant, plaintiffs did not
name him in those actions, despite their knowledge of his role
in Banfield and Auburn and did not identify him in their Rule
4:5-1 disclosures. Instead, they took defaults against Banfield
and Auburn for the non-discounted amounts plaintiffs claimed
Banfield owed and settled with several consignees and shippers,
recovering $67,000.
Plaintiffs concede they received additional information in
the course of discovery in the 2011 suits that defendant
allegedly diverted payments received from Banfield customers,
for services rendered by plaintiffs, to himself and withdrew
"substantial funds" from Banfield's bank accounts in 2010.
Notwithstanding, plaintiffs never sought to join defendant in
those actions or amend their Rule 4:5-1 disclosures to identify
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defendant as a person potentially liable to them on the basis of
those facts.
After the 2011 litigation ended, plaintiffs filed this
action in the Law Division against defendant "individually and
as an agent of The Banfield Group, LLC" to recover the default
judgments secured in the 2011 suits, less the sums recovered
from Banfield's customers in those actions. Plaintiffs obtained
a default judgment against defendant in January 2013 for
$515,779.21.
Defendant moved to vacate the default, claiming he had not
been served. Specifically, defendant claimed no one was present
at his Oregon home when he was allegedly served, as he and his
wife, the only two members of their household, were in
California celebrating a family birthday on the alleged date of
service. Following a plenary hearing at which both defendant
and the process server testified, the court concluded defendant
had not been served and vacated the default judgment.
Defendant filed an answer and counterclaim, and discovery
ensued with each side accusing the other of failing to produce
discovery. Defendant eventually moved for summary judgment
arguing the entire controversy doctrine barred plaintiffs'
claims against him, that the complaint was filed beyond the
eighteen-month statute of limitations imposed on interstate
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motor carriers seeking to recover charges for transportation or
services by 49 U.S.C. § 14705(a), that defendant did not owe
plaintiffs fiduciary duties as a matter of law and that he
should be awarded his counsel fees and costs as a sanction for
the bad faith of plaintiffs and their lawyer in pursuing the
action.
In a comprehensive written opinion, Judge Paley found
plaintiffs' failure to join defendant in the first of these
successive actions was inexcusable and caused defendant
substantial prejudice. See Hobart Bros. Co. v. Nat'l Union Fire
Ins. Co., 354 N.J. Super. 229, 242 (App. Div.), certif. denied,
175 N.J. 170 (2002). Specifically, the judge found on the
undisputed facts that plaintiffs were aware of defendant's
affiliation with Banfield since at least 2010, as reflected in
their demand letters, and had even threatened to sue defendant
before instituting the 2011 suits. The judge further found that
plaintiffs were aware in 2011 that defendant had taken a
security interest in all of Banfield's assets when he sold his
interest in the company in late 2008.
The court concluded that by holding back their claim
against defendant under those circumstances and suing him only
after recovering a default judgment against Banfield, plaintiffs
were seeking to deprive him of any meaningful opportunity to
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challenge the amount of the judgments and thus to capitalize on
their failure to exclude him from the prior lawsuits. See
Baureis v. Summit Trust Co., 280 N.J. Super. 154, 160 (App.
Div.), certif. denied, 141 N.J. 99 (1995) (concluding
particularized evaluation of successive action revealed risk of
substantial unfairness to the defendant, unreasonably fragmented
litigation of the same issues and posed an unfair burden on
judicial economy). The judge further found that intervening
events, notably the remaining member's personal bankruptcy,
"substantially prejudiced" defendant by depriving him of the
ability to obtain the benefit of his contractual
indemnification.
Judge Paley also concluded plaintiffs' claims were time-
barred because plaintiffs filed their complaint in September
2012, thirty-three months after the last services were provided.
The judge concluded the Interstate Commerce Commission
Termination Act of 1995 (ICCTA), 49 U.S.C. § 13501, barred the
claims because plaintiffs were attempting to recover for unpaid
freight charges notwithstanding that plaintiffs styled them as
constituting a breach of fiduciary duty. See 49 U.S.C. §
14705(a) ("A carrier providing transportation or service subject
to jurisdiction under chapter 135 must begin a civil action to
recover charges for transportation or service provided by the
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carrier within 18 months after the claim accrues."); Emmert
Indus. Corp. v. Artisan Assocs., Inc., 497 F.3d 982, 987, 989-90
(9th Cir. 2007) (holding the statute's plain language requires a
carrier to bring its claims to recover for transportation or
service within eighteen months of accrual and "necessarily
preempts" state law providing for a longer period of
limitation).
Finally, the judge found defendant did not owe any
fiduciary duties to plaintiffs because defendant was not under
any "duty to act for or give advice for the benefit of
plaintiffs on matters within the scope of their relationship."
See McKelvey v. Pierce, 173 N.J. 26, 57 (2002). Defendant was
not a director or officer at the time the debts accrued and only
retook control of Banfield's assets after the debts were accrued
pursuant to his perfected security interest. The judge found
plaintiffs had thus "failed to demonstrate the existence of any
fiduciary interest flowing to them."
Plaintiffs appeal, contending the court erred by holding
the action barred by the entire controversy doctrine, that 49
U.S.C. § 14705 "does not apply to bar any of the claims by
plaintiff, Direct, and only some of the claims by plaintiff,
Selective," that as a "corporate principal, defendant owed a
duty to bona fide creditors not to misappropriate corporate
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funds and, as a broker, not to comingle trust funds," that they
were entitled to their counsel fees and costs and that the case
was not ripe for summary judgment. We reject those arguments.
We review a grant of summary judgment using the same
standard that governs the trial court. Murray v. Plainfield
Rescue Squad, 210 N.J. 581, 584 (2012). Thus, we consider
"whether the evidence presents a sufficient disagreement to
require submission to a jury or whether it is so one-sided that
one party must prevail as a matter of law." Liberty Surplus
Ins. Corp., Inc. v. Nowell Amoroso, P.A., 189 N.J. 436, 445-46
(2007) (quoting Brill v. Guardian Life Ins. Co. of Am., 142 N.J.
520, 536 (1995)). Applying that standard here, we find no
reason to disturb Judge Paley's careful findings.
There is no dispute that plaintiffs were well aware of
defendant's role in Banfield, the entity that accrued the debts,
and Auburn, the entity plaintiffs sued in 2011 under a theory of
successor liability, at the time of the first suits. They admit
they threatened to sue defendant before instituting the 2011
litigation and confirmed in discovery facts they claim show
defendant diverted funds paid to Banfield by consignees and took
for himself funds in Banfield's bank account after assuming
control of the company in 2010 pursuant to the surrender of
assets. Plaintiffs' claims that defendant breached fiduciary
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duties to them are inextricably interwoven with the claims they
brought in the 2011 litigation against Banfield and its
customers.
It is further undisputed that the original freight charges
owed by Banfield to Direct totaled $121,389.38,1 and that Direct
obtained a default judgment against Banfield for $475,851.73,
including "loss-of-discount and/or non-payment penalties . . .
of $354,462.35, almost three times the actual amount of the
alleged debt." Likewise, although Banfield only owed Selective
$13,870.54, Selective obtained a default judgment against it for
$95,521.10, including loss-of-discount and/or non-payment
penalties of $81,650.56.
Although claiming they had no obligation to name defendant
in the 2011 litigation, plaintiffs continue to assert that
defendant is precluded from challenging the amount of the
judgments against Banfield in this suit, presumably because of
their contention that defendant was in privity with Banfield.
See Olivieri v. Y.M.F. Carpet, Inc., 186 N.J. 511, 521 (2006)
(noting for the doctrine of collateral estoppel to foreclose
1
Plaintiffs admitted defendant's allegation in his statement of
material facts in support of his motion for summary judgment
that "[a]ccording to the spreadsheet attached to Direct's 2011
Complaint, the original amount owed is $121,389.38" not the
$128,733.03 demanded before suit was filed.
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relitigation of an issue, the party asserting the bar must show,
among other things, that "the party against whom the doctrine is
asserted was a party to or in privity with a party to the
earlier proceeding"). Accordingly, we find no error in the
trial court's conclusion that this is precisely the sort of
successive litigation the entire controversy was designed to
prohibit. See 700 Highway 33 L.L.C. v. Pollio, 421 N.J. Super.
231, 236-37 (App. Div. 2011) (holding once a court determines a
Rule 4:5-1(b)(2) disclosure should have been made in the first
of successive actions, it must decide whether the party's
failure to make the disclosure was "inexcusable," and whether
the undisclosed party's ability to defend the successive action
has been substantially prejudiced).
Had plaintiffs joined defendant in the 2011 suits,
defendant could have asserted his claim that plaintiffs were not
authorized to assess penalties for late payment2 against Banfield
and asserted cross-claims or third-party claims for contractual
indemnification, which the subsequent bankruptcy of the personal
indemnitor made impossible in this action. There appearing on
2
Plaintiffs admitted that Direct sent several letters to
Banfield between 2004 and 2007 agreeing to provide it "a 77%
discount on any freight Direct picks up from The Banfield Group
and is billed to the Banfield Group," none of which "contained
any provisions authorizing Direct to assess Banfield penalties
for late payment."
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the undisputed facts no reason other than litigation strategy
for plaintiffs to have held back their claims against defendant,
we agree with Judge Paley that to permit this suit to go forward
would impose substantial unfairness upon defendant and
unreasonably fragment the litigation contrary to the fair
demands of judicial economy. See Baureis, supra, 280 N.J.
Super. at 159. Plaintiffs' claim that defendant was aware of
the first action and thus should have intervened in order to
protect his interest is without merit. See id. at 163-64 ("We
are aware of no principle which would require a party to
intervene in a pending lawsuit in order to prevent later
litigation against it.").
Plaintiffs' argument that their claims are not barred by
the statute of limitations because they "do not seek freight
transportation charges from [defendant]," elevates form over
substance and provides further support for the court's holding
that the case is barred by the entire controversy doctrine
because inextricably intertwined with the 2011 litigation.
There can be no dispute that plaintiffs in this action seek to
hold defendant responsible for the judgments entered against
Banfield for freight transportation charges. Their argument
that 49 U.S.C. § 14705 "does not apply to bar any of the claims
by plaintiff, Direct, and only some of the claims by plaintiff,
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Selective," is based on their claim that Direct did not act as a
"motor carrier" and "many of Selective's shipments were
intrastate."
Plaintiffs, however, contended in the 2011 litigation that
both Selective and Direct were motor carriers and admitted the
same in this suit in response to defendant's statement of
undisputed material facts.3 Although conceding that Selective is
a motor carrier, plaintiffs assert "its transportation for
Banfield was mostly in New Jersey" and thus the federal statute
of limitations would not apply. In their reply brief,
plaintiffs assert that "at bare minimum, both [p]laintiffs are
entitled to over $11,000 of unpaid freight transportation
charges," noting "[o]f course, these are [d]efendant's
3
In their reply brief, plaintiffs assert that although Direct is
concededly a freight forwarder and a freight forwarder is a
motor carrier under the ICCTA, "not all shipments tendered to a
freight forwarder are actually transported by the freight
forwarder (i.e. it is brokered to another motor carrier)."
Plaintiffs thus insist that "Direct's pursuit of unpaid freight
transportation charges from its customer Banfield, and against
its customer's principal herein" as a freight forwarder are not
inconsistent positions. We add the emphasis to note the
inconsistency between this statement and plaintiffs' assertion
that they are not seeking unpaid freight charges against
Banfield. Plaintiffs have also not attempted to identify among
the many hundreds of pages of invoices in the record which ones
reflect Direct acting only as a "broker" or those that reflect
charges for intrastate travel.
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calculations based on the discounted basis and not the non-
discounted basis which is permitted under federal law."
It bears emphasizing that plaintiffs have sued defendant on
judgments totaling over $500,000, that they have insisted
elsewhere in their papers that their claims are not for unpaid
freight charges, that federal law does not control their cause
of action against defendant and that this is not a successive
action to those they failed to join defendant to in 2011. As
plaintiffs concede that the federal statute of limitations bars
at least part of their claim and have made no effort to quantify
how much survives beyond asserting that "at bare minimum, both
[p]laintiffs are entitled to over $11,000 of unpaid freight
transportation charges," we cannot conclude on this record that
the trial court erred in finding their claim barred by 49 U.S.C.
§ 14705. See State v. Hild, 148 N.J. Super. 294, 296 (App. Div.
1977) (noting a court is not obligated to search the record to
substantiate an argument advanced in an appellate brief).
Plaintiffs' claims that defendant "as a corporate principal
owed a duty to bona fide creditors not to misappropriate
corporate funds and, as a broker, not to comingle trust funds,"
ignores the undisputed evidence in the record that defendant
sold his interest in Banfield at the end of 2008 and only retook
control in 2010 pursuant to the agreement to surrender assets to
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him as Banfield's only secured creditor. Plaintiffs have not
cited any authority to suggest that a secured creditor in
possession of a perfected security interest as defendant here
owes a fiduciary duty to unsecured creditors such as plaintiffs.
Accordingly, we need not consider the claim further. See Weiss
v. Cedar Park Cemetery, 240 N.J. Super. 86, 102 (App. Div. 1990)
(noting the failure to adequately brief an issue permits the
court to treat it as waived).
Plaintiffs' claim for counsel fees and costs as a condition
of vacating a prior default against Peterson and for obtaining
the dismissal of his counterclaims with prejudice; and
defendant's cross-appeal from the denial of his motion to impose
fees and costs on plaintiffs and their counsel for pursuing
frivolous litigation and violating the rules of professional
conduct require only brief comment. It is well established that
"fee determinations by trial courts will be disturbed only on
the rarest of occasions, and then only because of a clear abuse
of discretion." Rendine v. Pantzer, 141 N.J. 292, 317 (1995).
The court vacated the default judgment entered against
defendant here following a plenary hearing in which it
determined defendant was never served. Accordingly, there was
no basis for imposing on defendant the obligation of plaintiffs'
fees as a condition of vacating the judgment under Rule 4:50-1.
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See Reg'l Constr. Corp. v. Ray, 364 N.J. Super. 534, 543 (App.
Div. 2003). As for securing the dismissal of defendant's
counterclaims, Judge Paley declined to find the claims were
frivolous or brought in bad faith. Defendant's claim for
frivolous litigation sanctions is barred by the failure to
observe the Rule's requirements. See Trocki Plastic Surgery
Ctr. v. Bartkowski, 344 N.J. Super. 399, 406 (App. Div. 2001),
certif. denied, 171 N.J. 338 (2002). In no event could we find
Judge Paley abused his considerable discretion in declining to
award either party fees on this record. See Packard-Bamberger &
Co. v. Collier, 167 N.J. 427, 444 (2001).
The parties' remaining arguments, to the extent we have not
addressed them, lack sufficient merit to warrant discussion in a
written opinion. See R. 2:11-3(e)(1)(E).
Affirmed.
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