Opinion
Civil Action No. 98-4040 (JBS)
April 23, 1999
Bonnie R. Golub, Esquire, WEIR PARTNERS, LLP, Raymond H. Lemisch, Esquire ADELMAN LAVINE GOLD AND LEVIN, P.C., for Plaintiffs.
Stephen Norman Weiss, Esquire, Lisa C. Wulwick, Esquire, GRAHAM JAMES, LLP Diane L. Gibson, Esquire, GRAHAM JAMES, LLP, for Defendants.
OPINION
This matter is before the court on the motion of defendants Atherton Capital Partners, L.P. ("Atherton Capital") and The Atherton Group Incorporated ("The Atherton Group") to dismiss Count III of the Complaint filed by plaintiffs Target Food Systems, Inc. ("Target"), Joseph Arking, Andrea Arking and Elliot Arking for failure to state a claim upon which relief can be granted, pursuant to Federal Rule of Civil Procedure 12(b)(6). Defendants contend that the court must dismiss plaintiffs' cause of action under the New Jersey Consumer Fraud Act ("CFA"), N.J.S.A. 56:8-1 through 8-20, because the CFA simply does not apply to the loan transaction between the parties. Because the court finds that plaintiffs have adequately pleaded a cause of action under the CFA, the court denies defendants motion to dismiss count III of the Complaint.
BACKGROUND
Target is a New Jersey corporation in the business of owning and operating thirteen Wendy's fast food restaurants (the "Restaurants"). (Compl. at ¶¶ 1, 9.) Atherton Capital is a California limited partnership engaged in commercial lending, and The Atherton Group is a California corporation and the general partner of Atherton Capital. (Id. at ¶¶ 4-5.)
Target had taken a business loan from Textron Financial Corporation ("Textron") in the sum of two million two hundred thousand dollars which was due and payable on September 30, 1996. (Id. at ¶ 10.) In January of 1996 Target's chief financial officer applied for a loan from Atherton Capital to satisfy Target's loan obligations to Textron. (Id. at ¶ 11.) Target paid to Atherton Capital the sum of $20,000 as a loan application fee. (Id. at ¶ 12.) Between January 10, 1996 and August 20, 1996, Target provided Atherton Capital will all documentation and information requested as necessary to make a loan determination. (Id. at ¶ 13.)
After conducting extensive due diligence, defendants issued a commitment letter to Target on August 20, 1996, in which defendants promised to lend Target one million five hundred thousand dollars repayable monthly with interest over ten years to refinance seven of the Restaurants. (Id. at ¶ 14.) Target accepted the terms of the commitment letter, and executed and returned a copy of the commitment letter to defendants on August 20, 1996. (Id. at ¶ 15.) Based on the commitment letter, Textron agreed to extend the time for payment on the balance of its loan to Target which would remain after receipt of the loan proceeds from defendants. (Id. at ¶ 16.)
Target contacted defendants on numerous occasions after August 20, 1996 concerning the status of its loan. (Id. at ¶ 17.) Defendants did not respond until September 16, 1996, only two weeks before Target's loan to Textron was due under the original schedule, and claimed that Target had misrepresented its financial history to defendants. (Id. at ¶ 18.) Atherton Capital sought to terminate the contract and return Target's loan application fee less sums expended by defendants. (Id. at ¶ 19.)
Target objected immediately and verified to defendants that all financial information submitted was complete and accurate in all respects. (Id. at ¶ 20.) Target also rejected defendants' attempts to terminate the contract. (Id.) Defendants conceded their position, and on September 20, 1996 provided Target for the first time with the proposed loan documents. (Id. at ¶ 21.) Defendants also provided Target with fifty additional documents to be prepared in conjunction with the loan documents. (Id. at ¶ 22.)
Defendants requested that all the various loan documents be completed and submitted to defendants by September 24, 1996, a period of only three and one-half days. (Id. at ¶ 23.) Target requested an extension from Atherton Capital and noted that it had now obtained an extension on its Textron loan. (Id. at ¶ 24.) Defendants agreed to extend the deadline for submission of the loan documents to October 4, 1996. (Id. at ¶ 25.) Target requested another extension from Atherton Capital on October 1, 1996, and defendants agreed to a final extension date of October 8, 1996. (Id. at ¶¶ 26-27.) Target claims to have been fully prepared to execute all of the loan documents on October 8, 1996 (Id. at ¶¶ 29-30), but, apparently, Target failed to submit all of the additional documents (See id. at ¶ 31.) Defendants refused either to extend the deadline or to close the loan transaction and fund the loan. (Id. at ¶¶ 31-32.) As a result of the foregoing, plaintiffs claim that they were forced to terminate their business operations and incurred severe damage to business and reputation, lost profits, and expenses. (Id. at ¶ 33.)
In Count III of the Complaint, plaintiffs allege that Target is a consumer under the CFA and that the transaction between Target and defendants is covered by the CFA. (Id. at ¶¶ 43-44.) Furthermore, plaintiffs allege that defendants perpetrated a fraud in violation of the CFA by failing to complete the loan transaction. (Id. at ¶ 46.)
DISCUSSION
A. Standards for Rule 12(b)(6) Motions to Dismiss
A Rule 12(b)(6) motion to dismiss for failure to state a claim upon which relief may be granted must be denied "unless it appears beyond doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief." Scheuer v. Rhodes, 416 U.S. 232, 236 (1974). A district court must accept any and all reasonable inferences derived from those facts. Unger v. National Residents Corp. v. Exxon Co., U.S.A., 761 F. Supp. 1100, 1107 (D.N.J. 1991); Gutman v. Howard Sav. Bank, 748 F. Supp. 254, 260 (D.N.J. 1990).
It is not necessary for the plaintiff to plead evidence, and it is not necessary to plead the facts that serve as the basis for the claim.Bogosian v. Gulf Oil Corp., 561 F.2d 434, 446 (3d Cir. 1977); In re Midlantic Corp. Shareholder Litigation, 758 F. Supp. 226, 230 (D.N.J. 1990). The question before the court is not whether the plaintiff will ultimately prevail; rather, it is whether he can prove any set of facts in support of his claims that would entitle him to relief. Hishon v. King Spalding, 467 U.S. 69, 73 (1984). "Although the Federal Rules of Civil Procedure do not require a claimant to set forth an intricately detailed description of the asserted basis for relief, they do require that the pleadings give the defendant fair notice of what the plaintiff's claim is and the grounds upon which it rests." Baldwin County Welcome Center v. Brown, 466 U.S. 147, 150 n. 3 (1984) (quoting Conley v. Gibson, 355 U.S. 41, 47 (1957)).
Therefore, in deciding a motion to dismiss, a court should look to the face of the complaint and decide whether, taking all of the allegations of fact as true and construing them in a light most favorable to the nonmovant, plaintiff's allegations state a legal claim. Markowitz v. Northeast Land Co., 906 F.2d at 103. Only the allegations in the complaint, matters of public record, orders, and exhibits attached to the complaint matter, and that is all that will be taken into consideration.Chester County Intermediate Unit v. Pennsylvania Blue Shield, 896 F.2d 808, 812 (3d Cir. 1990).
B. Motion to Dismiss Count III of the Complaint
In seeking dismissal of plaintiffs' third count for failure to state a claim, defendants assert that the CFA encompasses only consumer-oriented commercial transactions involving the marketing or sale of merchandise to the public. (Defs.' Br. at 4.) Defendants claim that it is the character of the transaction which determines standing as a consumer under the CFA, that a business entity must use "economic goods, and so diminish or destroy their utilities." (Id. at 4-5.) Specifically, defendants argue that Target does not qualify as a "consumer" under the CFA because it would not have consumed the loan proceeds, but instead Target would have merely appropriated the proceeds to Textron. (Id. at 5.)
In response, plaintiffs claim that the CFA is broad enough to include the sale of consumer credit. (Pls.' Br. at 5.) Furthermore, plaintiffs assert that Target, as a business entity, qualifies as a consumer under the CFA and that plaintiffs would have consumed defendants' loan by funding its Restaurants' operations. (Id. at 6-7.)
The New Jersey Consumer Fraud Act "is intended to protect consumers `by eliminating sharp practices and dealings in the marketing of merchandise and real estate.'" Lemelledo v. Beneficial Management, 150 N.J. 255, 263 (1997) (quoting Channel Cos. v. Britton, 167 N.J. Super. 417, 418 (App. Div. 1979)). The CFA provides:
The act, use or employment by any person of any unconscionable commercial practice, deception, fraud, . . . or the knowing concealment . . . of any material fact with intent that others rely upon such concealment . . . in connection with the sale or advertisement of any merchandise . . . is declared to be an unlawful practice. . . .
N.J.S.A. 56:8-1.1. Virtually any business entity qualifies as a "person" under the CFA. See N.J.S.A. 56:8-1(d); Dreier Co. v. Unitronix Corp., 218 N.J. Super. 260 (App.Div. 1986). Thus, the true issues (essentially a two-part test for standing under the CFA) are (1) whether the loan transaction between Target and Atherton Capital qualifies as "merchandise" for purposes of the CFA and (2) whether Target "consumed" that merchandise.
Merchandise is defined under the CFA as "any objects, wares, goods, commodities, services or anything offered, directly or indirectly to the public for sale." Lemelledo, 150 N.J. at 263-64, N.J.S.A. 56:8-1(c). Relying on the broad language of the CFA, New Jersey courts have found that consumer lending qualifies as merchandise under the CFA. See, e.g.,Lemelledo, 150 N.J. at 265 (concluding that "terms [of CFA] apply to the offering, sale, or provision of consumer credit."); Tuxedo Beach Club Corp. v. City Fed. Sav. Bank, 749 F. Supp. 635, 649 n. 13 (D.N.J. 1990) (noting that other states have applied similar consumer fraud statutes to loan transactions). Thus, plaintiffs have satisfied the merchandise requirement under CFA standing by alleging that the defendants committed fraud in failing to complete the loan transaction with Target, because consumer loans are merchandise under the CFA. (See Compl. at ¶¶ 44-46.)
The court will proceed to the next issue under CFA standing, whether Target consumed the loan proceeds. "It is clear that a corporation may qualify as a person within the [CFA] when it finds itself in a consumer oriented situation." Lithuanian Commerce Corp. v. Sara Lee Hosiery, 179 F.R.D. 450, 469 (D.N.J. 1998). The term consumer, which is not defined by the CFA, is generally recognized by New Jersey courts as "one who uses (economic) goods, and so diminishes or destroys their utilities." Hundred East Credit Corp. v. Eric Schuster Corp., 212 N.J. Super. 350, 355 (App. Div. 1986) (quoting Webster's New Int'l Dictionary, (2d ed.)). In City Check Cashing, Inc. v. Nat'l State Bank, 244 N.J. Super. 304 (App.Div. 1990), the New Jersey Superior Court stated: "In the transaction here, plaintiff essentially was buying cash from the defendant at wholesale to sell to its check-cashing customers at retail. Plaintiff did not diminish or destroy the utility of the cash and therefore did not consume it." Id. at 309. Thus, it is important to examine the transaction in its entirety to determine whether the merchandise was consumed. See Lithuanian Commerce, 179 F.R.D. at 169-70.
In the instant case, plaintiffs have alleged that Target is a consumer within the purview of the CFA. (See Compl. at ¶ 43.) This allegation must be accepted as true for the present motion. Plaintiffs may have difficulty mounting evidence to prove that they consumed the loan proceeds, and the sufficiency of their claim under the CFA will likely be tested on summary judgment. Indeed, plaintiffs may encounter difficulty regarding defendants' allegation that plaintiffs are sophisticated and that the loan transaction was both unique and complicated, taking it out of the CFA's purview. However, plaintiffs have stated a CFA claim under the standard for a motion to dismiss. Plaintiffs' allegations, viewed in a light must favorable to plaintiff, satisfy the standing requirements of the CFA. Thus, defendants motion to dismiss is hereby denied.
CONCLUSION
For the foregoing reasons, Defendants' motion to dismiss pursuant to Fed.R.Civ.P. 12(b)(6) is denied. The accompanying order is entered.
O R D E R
This matter having come before the Court upon the motion of defendants to dismiss Count III of plaintiffs' complaint for failure to state a claim upon which relief may be granted pursuant to Fed.R.Civ.P. 12(b)(6); and the court having considered the submissions of the parties; and for the reasons stated in the Opinion of today's date;
It is this day of April, 1999, hereby ORDERED that defendants' motion to dismiss under Fed.R.Civ.P. 12(b)(6) hereby is DENIED as to Count III of the Complaint.