Apicella et al v. Hunter et al

BRIEF in Opposition

D.N.J.January 23, 2017

IN THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF NEW JERSEY STEVEN T. APICELLA, et al., Plaintiffs/Counter-Defendants, v. MICHAEL W. HUNTER, B. ERIC SIVERTSEN, and RANDALL N. SMITH, Defendants/Counter-Plaintiffs. : : : : : : : : : : : : CIVIL ACTION NO. 03:16-CV-03599-AET-LHG BRIEF BY DEFENDANTS/COUNTER-PLAINTIFFS B. ERIC SIVERTSEN AND RANDALL N. SMITH IN OPPOSITION TO PLAINTIFFS/COUNTER-DEFENDANTS’ MOTION TO DISMISS THE COUNTERCLAIMS AND FOR PARTIAL JUDGMENT ON THE PLEADINGS Jennifer Platzkere Snyder, Esquire (JPS-2254) Anne M. Aaronson, Esquire (AMA-1679) Claire A. Blewitt, Esquire (CAB-3779) DILWORTH PAXSON LLP 1500 Market Street, 3500E Philadelphia, PA 19102-2101 (215) 575-7000 (215) 575-7200 (facsimile) Counsel for B. Eric Sivertsen and Randall N. Smith Case 3:16-cv-03599-AET-LHG Document 32 Filed 01/23/17 Page 1 of 39 PageID: 744 119414199_4 i TABLE OF CONTENTS I. FACTUAL BACKGROUND..........................................................................3 II. PROCEDURAL HISTORY ............................................................................6 III. LEGAL ARGUMENT.....................................................................................7 A. Plaintiffs Are Not Entitled To Partial Judgment On The Pleadings. ....7 1. Because The Pleadings In This Case Are Not Yet Closed, The Motion Is Premature And Should Be Denied. ............................8 2. Because There Are Material Issues Of Fact Which Cannot Be Resolved At This Stage Of The Litigation, Facella’s Motion For Judgment Against Sivertsen Should Be Denied...................9 3. For Similar Reasons, The Motion For Judgment On The New Jersey Wage Payment Law Claims Should Be Denied. ...........11 B. The Counterclaims Set Forth Plausible Claims For Relief. ................13 1. Sivertsen And Smith’s Counterclaims Are Not Disguised Contribution Claims..................................................................15 2. Sivertsen And Smith’s Counterclaims Are Not Derivative Claims. ......................................................................................16 3. Because The Plaintiffs Owed Fiduciary Duties to Sivertsen And Smith, Counterclaim Count VI Should Not Be Dismissed. .....19 4. Because Sivertsen And Smith Have Sufficiently Placed The Plaintiffs On Notice Of The Precise Misconduct With Which They Are Charged, Counterclaim Counts II And III Should Not Be Dismissed.............................................................................22 5. Because Sivertsen And Smith Are Entitled To Enforce The Contracts, Counterclaim Counts I, Vii, And X Should Not Be Dismissed. .................................................................................27 a. Sivertsen and Smith sufficiently allege that they are beneficiaries of Aron’s employment agreement.............27 Case 3:16-cv-03599-AET-LHG Document 32 Filed 01/23/17 Page 2 of 39 PageID: 745 119414199_4 ii b. As Members of the LLC, Sivertsen and Smith are bound to the LLC Agreement and are entitled to enforce it......30 6. Because the “Litigation Privilege” Does Not Protect Claims That Intend to Publicize the Contents of the Complaint, Counterclaim Count VIII Should Not Be Dismissed. ..............31 IV. CONCLUSION..............................................................................................32 Case 3:16-cv-03599-AET-LHG Document 32 Filed 01/23/17 Page 3 of 39 PageID: 746 119414199_4 iii TABLE OF AUTHORITIES Cases Adami v. Cardo Windows, Inc., No. CIV. 12-2804 JBS/JS, 2013 WL 3821466 (D.N.J. July 23, 2013) ..............15 ASDI, Inc. v. Beard Research, Inc., 11 A.3d 749 (Del. 2010)......................................................................................19 Ashcroft v. Iqbal, 556 U.S. 662 (2009) ............................................................................................14 Badia v. Homedelivery Link, Inc., No. 2:12-CV-06920 WJM, 2014 WL 3619796 (D.N.J. July 22, 2014)..............15 Beard Research, Inc. v. Kates, 8 A.3d 573 (Del. Ch. 2010) .................................................................................19 Bell Atlantic Corp. v. Twombly, 550 U.S. 544 (2007) ..................................................................................... 13, 14 Bender v. Smith Barney, Harris Upham & Co., 901 F. Supp. 863 (D.N.J. 1994)...........................................................................31 Boyle v. D’Onofrio, 99 F. Supp. 2d 541 (D.N.J. 2000), aff’d, 254 F.3d 1077 (3d Cir. 2001).............25 Broadway Maint. Corp. v. Rutgers, State Univ., 447 A.2d 906 (N.J. 1982) ............................................................................. 28, 29 Brooklawn v. Brooklawn Housing Corp., 11 A.2d 83 (N.J. E. & A. 1940)...........................................................................29 Cameco, Inc. v. Gedicke, 157 N.J. 504, 724 A.2d 783 (1999) .....................................................................12 Cardio-Medical Assoc., Ltd. v. Crozer-Chester Medical Ctr., 536 F.Supp. 1065, 1072 (E.D. Pa.1982)................................................................8 Christidis v. First Pennsylvania Mortg. Trust, 717 F.2d 96 (3d Cir.1983) ............................................................................ 23, 26 Case 3:16-cv-03599-AET-LHG Document 32 Filed 01/23/17 Page 4 of 39 PageID: 747 119414199_4 iv Ciba-Geigy Corp. v. Sandoz Ltd., No. CIV. A. 92-4491(MLP), 1993 WL 668325 (D.N.J. June 17, 1993) ............15 Citigroup Inc. v. AHW Investment Partnership, 140 A.3d 1125 (Del. 2016)........................................................................... 16, 17 CMS Investment Holdings, LLC v. Castle, 2015 WL 3894021 (Del. Ch. June 23, 2015) ............................................... 19, 20 CoreStates Bank N.A. v. Huls America, Inc., 176 F.3d 187 (3d Cir. 1999) ..................................................................................7 DiLeo v. Ernst & Young, 901 F.2d 624 (7th Cir.1990) ................................................................................23 Dunkin’ Donuts Franchised Restaurants, LLC v. Claudia I, LLC, No. CIV.A. 12-2010, 2013 WL 3716525 (E.D. Pa. July 15, 2013)....................29 Dweck v. Nasser, 2012 WL 161590 (Del. Ch. Jan. 18, 2012) .........................................................21 El Paso Pipeline GP Co., L.L.C. v. Brinckerhoff, No. 103 (Del. Dec. 20, 2016) ....................................................................... 16, 17 Feldman v. Cutaia, 951 A.2d 727 (Del. 2008)....................................................................................18 Fidelity & Deposit Co. of Maryland v. Lutheran Home at Moorestown, Inc., No. CIVA09-0625(RMB/KMW), 2010 WL 715346 (D.N.J. Feb. 24, 2010) .......................................................................................................................8 Frederico v. Home Depot, 507 F.3d 188 (3d Cir. 2007) ................................................................................24 Gentile v. Rossette, 906 A.2d 91 (Del. 2006)......................................................................................18 Grimes v. Donald, 673 A.2d 1207 (Del. 1996)..................................................................................18 In re Advanta Corp. Sec. Lit., 180 F.3d 525 (3d Cir.1999) .................................................................................23 Case 3:16-cv-03599-AET-LHG Document 32 Filed 01/23/17 Page 5 of 39 PageID: 748 119414199_4 v In re Avandia Marketing, Sales Practices & Prod. Liability Litigation, 804 F.3d 633 (3d Cir. 2015) ................................................................................14 McTernan v. City of York, PA, 564 F.3d 636 (3d Cir. 2009) ................................................................................14 Mulheron v. Philadelphia Eagles, No. 12-1753 MAS TJB, 2013 WL 211349 (D.N.J. Jan. 18, 2013).......................9 NAF Holdings, LLC v. Li & Fung (Trading) Ltd., 118 A.3d 175 (Del. 2015)....................................................................... 16, 17, 18 Phillips v. County of Allegheny, 515 F.3d 224 (3d Cir. 2008) ......................................................................... 13, 14 Readyminds v. Ceridian Corp., No. CIV.A. 10-1654(JLL), 2010 WL 2989986 (D.N.J. July 26, 2010)....... 27, 28 Relying on Klein v. General Nutrition Companies, Inc., 186 F.3d 338 (3d Cir. 1999) ................................................................................24 Rolo v. City Investing Co. Liquidating Trust, 155 F.3d 644 (3d Cir.1998) .................................................................... 22, 23, 26 Seligson v. Plum Tree, Inc., 61 F.R.D. 343 (E.D. Pa. 1973) ............................................................................25 Seville Indus. Machinery v. Southmost Machinery, 742 F.2d 786, 791 (3d Cir.1984) .........................................................................23 Sikirica v. Nationwide Insurance Co., 416 F.3d 214 (3d Cir. 2005) ..............................................................................7, 9 Solid Host, NL v. Namecheap, Inc., 652 F.Supp.2d 1092, 1119 (C.D.Cal.2009).........................................................29 Southmark Prime Plus, L.P. v. Falzone, 776 F. Supp. 888 (D. Del. 1991) ...........................................................................8 United Products Corp. v. Admiral Tool & Mfg. Co., 122 F.Supp.2d 560 (2000) ...................................................................................26 Case 3:16-cv-03599-AET-LHG Document 32 Filed 01/23/17 Page 6 of 39 PageID: 749 119414199_4 vi WPG Subsidiary Holdings I, LLC v. City of Elizabeth, New Jersey, No. 15-cv-7876, 2016 WL 3844207 (D.N.J. July 15, 2016)...............................13 Statutes 6 Del. C. § 18-101(7)...............................................................................................30 Other Authorities Wright and Miller, FEDERAL PRACTICE AND PROCEDURE 3d § 1368 at 251 (2004)........................................................................................................... 7, 9, 13 Rules and Regulations Fed. R. Civ. P. 8(a)...................................................................................................13 Fed. R. Civ. P. 12(b)(6)............................................................................... 10, 13, 32 Fed. R. Civ. P. 12(c).................................................................................. 7, 8, 10, 32 Case 3:16-cv-03599-AET-LHG Document 32 Filed 01/23/17 Page 7 of 39 PageID: 750 The best defense is a good offense, so the saying goes. This is the tactic that Plaintiffs are pursuing through their instant Motion. Rather than proceed in an orderly course through discovery, they attempt to force their own convoluted revisionist history on the Court in an effort to compel a judgment in their favor at this premature stage of the litigation. To add insult to injury, rather than accept responsibility for their own actions, Plaintiffs seek to preclude Defendants B. Eric Sivertsen and Randall N. Smith from asserting their own independent claims for liability triggered by their filing of the lawsuit in this Action. As Plaintiffs’ requests are inconsistent with the Federal Rules of Civil Procedure and governing Third Circuit law, their Motion should be denied in its entirety. First, their Motion for Partial Judgment on the Pleadings is inappropriate for two reasons. Contrary to Plaintiffs’ representations, the pleadings in this matter are not yet closed - as Sivertsen and Smith filed a Third-Party Complaint which has yet to be answered. Moreover, there are unresolved material questions of fact relating to the parties’ roles in the now-bankrupt RCC Consultants Inc. (“RCC”), including who among them had decision-making authority, and who was involved in the actual decision for certain wages to not be paid. Indeed, Sivertsen and Smith-the only independent directors of RCC-have expressly denied having a decision-making role with respect to non-payment of salaries, and Sivertsen has Case 3:16-cv-03599-AET-LHG Document 32 Filed 01/23/17 Page 8 of 39 PageID: 751 119414199_4 2 expressly denied functioning as RCC’s treasurer. Such key questions of fact cannot be resolved at this stage, particularly when discovery has not even started. Second, the Motion to Dismiss the Counterclaims must be denied for at least six reasons. Sivertsen and Smith have adequately pled facts on which each of their ten claims could prevail. First, none of the Counterclaims are, as Plaintiffs contend, “disguised contribution claims” - as the relief sought is not at all related to the potential liability that could be imposed on them if Plaintiffs prevail. Second, the claims are direct, not derivative, because they belong to Sivertsen and Smith personally and they have alleged damages separate from any injury to RCC. Third, because Plaintiffs were managers of RCC Holdings, LLC (“LLC”), and Sivertsen and Smith are members in that LLC, Plaintiffs owe Sivertsen and Smith fiduciary duties - duties which Plaintiffs breached by failing to run RCC in accordance with the governing LLC Agreement. Fourth, Sivertsen and Smith have pled fraud with sufficient particularity and causation because their allegations placed Plaintiffs on notice of the precise misconduct with which they are charged, and how that misconduct caused Sivertsen and Smith’s injuries. Fifth, Sivertsen and Smith are third-party beneficiaries of plaintiff Carl Robert Aron’s employment agreement, and they are entitled to enforce the LLC Agreement by virtue of their membership in it. Finally, Plaintiffs’ primary allegations in their Complaint were Case 3:16-cv-03599-AET-LHG Document 32 Filed 01/23/17 Page 9 of 39 PageID: 752 119414199_4 3 made for the sole purpose of discrediting Sivertsen and Smith and are not protected by the “litigation privilege.” I. FACTUAL BACKGROUND While the details of events that led to this litigation are set forth in Sivertsen and Smith’s Answer and Counterclaims, the key facts relevant to the pending Motion are as follows. RCC is an entity that is proceeding in Chapter 11 in the United States Bankruptcy Court for the District of New Jersey, Case No. 15-18274 (MBK). At all relevant times, RCC was headquartered in Woodbridge, New Jersey, and operated through several regional and home-based offices throughout the country. Plaintiffs Steven T. Apicella, Carl Robert Aron, John A. Facella, Robert A. Lopez, Gregory A. Munchrath, Nagah M. Ramadan were all officers of RCC and members of its affiliated LLC. (Counterclaims ¶¶ 10, 11, 18, 19, 26, 27, 33, 34, 39, 40, 46, 47) 1. Additionally, Plaintiff Cherrill Edwina Shea, Aron’s wife, was RCC’s de facto assistant general counsel. (Id. ¶¶ 51, 54). Defendants Sivertsen and Smith were independent members of the board of directors of RCC and a member of its LLC. (Id. ¶¶ 4, 7). Defendant Michael W. Hunter was the President and CEO of RCC and a member of its LLC. (Id. ¶ 14). 1 References to the Counterclaims portion of Sivertsen and Smith’s Answer, Affirmative Defenses, Counterclaims and Crossclaims shall be cited to as “Counterclaims ¶ __.” References to the Answer portion of that pleading shall be cited to as “Answer ¶ __.” Case 3:16-cv-03599-AET-LHG Document 32 Filed 01/23/17 Page 10 of 39 PageID: 753 119414199_4 4 Hunter, Sivertsen and Smith, as the three members of RCC’s board of directors, participated in quarterly board meetings each year. (Id. ¶ 122). Smith served as chairman of the board. (Id. ¶ 7). Typically, three of the quarterly meetings were held telephonically, given that the attendees lived in different areas of the country, with one meeting held in New Jersey each year, which the participants attended in person. (Id ¶ 124.). Hunter, as President and CEO, generally led the board meetings, with Third-Party Defendant Richard F. Morelli, Executive Vice President and CFO, reporting on RCC’s financial status. (Id. ¶ 125). Plaintiff Apicella took the minutes of the board meetings, which were subsequently approved by the board within one week after each meeting. (Id.). Independent directors Sivertsen and Smith were not informed, nor was their advice sought, with respect to personnel decisions at RCC, including the hiring, firing or compensation of any employee. (Id. ¶ 126). All RCC personnel decisions were handled by Hunter and RCC’s officers, including the Plaintiffs here. (Id. ¶ 127). At the October 10, 2014 meeting of RCC’s board, Hunter described to Sivertsen and Smith the efforts being taken to resolve RCC’s financial difficulties and reported that, in order for RCC to continue to meet its obligations, the officers of RCC - including the Plaintiffs - had elected to forgo payment of a portion of their own compensation while they took action to increase collection of receivables and make other business adjustments. (Id. ¶ 147). None of RCC’s officers sought Case 3:16-cv-03599-AET-LHG Document 32 Filed 01/23/17 Page 11 of 39 PageID: 754 119414199_4 5 Sivertsen or Smith’s advice or consent regarding the officers’ decision to forgo payment of their own compensation, nor did Sivertsen or Smith participate in any discussions regarding the officers’ decision to forgo their own compensation. (Id. ¶ 148). Rather, Sivertsen and Smith were simply informed of the officers’ decision after the fact, as a fait accompli, and interpreted the officers’ decision as a sign of their confidence in the likely success of their efforts to resolve RCC’s then-current financial issues. (Id.). Neither Sivertsen nor Smith had any reason to question the officers’ decision, as the financial information presented to them showed that RCC had sufficient viable receivables outstanding to cover the deferred compensation. (Id. ¶ 150). Notably, at no time in October 2014 and continuing until early April 2015 were Sivertsen and Smith aware that RCC had failed to pay certain non-officer employees their full wages, nor pay the officers their voluntarily deferred compensation. Neither Hunter, Morelli or any other officer so advised them or expressed any concern about the ongoing viability of RCC. (Id. ¶¶ 151-52). It was not until April 4, 2015, that Sivertsen and Smith learned of the true financial condition of RCC, when Hunter informed them - for the first time - that certain payroll obligations to non-officer employees had not been made. (Id. ¶ 157). At that time, Sivertsen and Smith also learned - for the first time - that the RCC officers had never received the compensation they had elected to defer Case 3:16-cv-03599-AET-LHG Document 32 Filed 01/23/17 Page 12 of 39 PageID: 755 119414199_4 6 months earlier and that RCC would need to file for Chapter 11 relief in order to resolve its financial difficulties. (Id.). Needless to say, this news came as quite a surprise to Sivertsen and Smith, given the prior assurances made to them about the amount of and ability to collect the outstanding accounts receivable. (Id. ¶ 158). Morelli conceded that he and Hunter should have told Sivertsen and Smith sooner about RCC’s financial condition. (Id. ¶ 159). Once armed with this knowledge, Sivertsen and Smith diligently worked with bankruptcy counsel retained by RCC in order to gather the information and documentation needed to initiate a Chapter 11 case on behalf of RCC. (Id. ¶ 160). II. PROCEDURAL HISTORY Despite having already filed personal claims seeking payment of their alleged outstanding wages in connection with RCC’s Chapter 11 case, Plaintiffs initiated this action against Hunter, Sivertsen and Smith on June 20, 2016 (Dkt. No. 1), and thereafter amended their complaint (“Complaint”) on September 22, 2016 (Dkt. No. 4). Sivertsen and Smith answered the Complaint on October 17, 2016 and filed Counterclaims against all of the Plaintiffs. (Dkt. No. 8). Sivertsen and Smith also filed a Third-Party Complaint against Morelli and two other RCC employees, which has yet to be answered. (Dkt. No. 11). On December 21, 2016, Plaintiffs filed the instant Motion. Case 3:16-cv-03599-AET-LHG Document 32 Filed 01/23/17 Page 13 of 39 PageID: 756 119414199_4 7 III. LEGAL ARGUMENT A. Plaintiffs Are Not Entitled To Partial Judgment On The Pleadings. Federal Rule of Civil Procedure 12(c) provides, in pertinent part, that “[a]fter the pleadings are closed but within such time as not to delay the trial, any party may move for judgment on the pleadings.” However, judgment on the pleadings should only be granted if the movant clearly establishes that there are no material issues of fact to resolve and that movant is entitled to judgment as a matter of law. Sikirica v. Nationwide Ins. Co., 416 F.3d 214, 220 (3d Cir. 2005). The court must view the facts presented in the pleadings and the inferences to be drawn therefrom in the light most favorable to the nonmoving party. Id. Federal courts have followed a fairly restrictive standard in ruling on motions for judgment on the pleadings. Wright and Miller, FEDERAL PRACTICE AND PROCEDURE 3d § 1368 at 222-23 (2004). Hasty or imprudent use of this summary procedure violates the policy in favor of ensuring to each litigant a full and fair hearing on the merits of his or her claim or defense. Thus it is necessary for the moving party to show a clear right to a judgment on the pleadings. See CoreStates Bank N.A. v. Huls America, Inc., 176 F.3d 187 (3d Cir. 1999). The party opposing the motion has the benefit of all possible favorable assumptions. Wright and Miller, FEDERAL PRACTICE AND PROCEDURE 3d § 1368 at 237 (2004). Although Rule 12(c) provides for the summary disposition of a party's claims on Case 3:16-cv-03599-AET-LHG Document 32 Filed 01/23/17 Page 14 of 39 PageID: 757 119414199_4 8 the merits before discovery, such motions are disfavored at such an early juncture. See Cardio-Medical Assoc., Ltd. v. Crozer-Chester Medical Ctr., 536 F.Supp. 1065, 1072 (E.D. Pa.1982); Southmark Prime Plus, L.P. v. Falzone, 776 F. Supp. 888, 891 (D. Del. 1991). 1. Because The Pleadings In This Case Are Not Yet Closed, The Motion Is Premature And Should Be Denied. As a procedural matter, the Motion should be denied because it has been filed too soon. Federal Rule of Civil Procedure 12(c) provides that “[a]fter the pleadings are closed but within such time as not to delay the trial, any party may move for judgment on the pleadings.” Fed. R. Civ. P. 12(c) (emphasis added). As noted above, Sivertsen and Smith filed a Third-Party Complaint, to which the Third-Party Defendants have yet to answer or otherwise respond. The District of New Jersey has taken a conservative approach in determining when the pleadings are closed for the purposes of a 12(c) motion. In Fidelity & Deposit Co. of Maryland v. Lutheran Home at Moorestown, Inc., this Court took up the question of “whether a Rule 12(c) motion is premature when filed before answers to other crossclaims and third-party complaints in the same case.” No. CIVA09-0625(RMB/KMW), 2010 WL 715346, at *1 (D.N.J. Feb. 24, 2010). Noting a split in authority outside of this Circuit, the Court explained that “the most prudent course is to deny the motion without prejudice, allowing F & O to refile once the pleading stage of this litigation is entirely concluded.” Id.; see also Case 3:16-cv-03599-AET-LHG Document 32 Filed 01/23/17 Page 15 of 39 PageID: 758 119414199_4 9 Mulheron v. Philadelphia Eagles, No. 12-1753 MAS TJB, 2013 WL 211349, at *4 (D.N.J. Jan. 18, 2013) (finding Lutheran’s reasoning persuasive and denying a motion under Rule 12(c)). Accordingly, the Motion should, at a minimum, be denied without prejudice with instructions not to refile it until after all of the pleadings in this case are closed. 2. Because There Are Material Issues Of Fact Which Cannot Be Resolved At This Stage Of The Litigation, Facella’s Motion For Judgment Against Sivertsen Should Be Denied. Even if the Motion is not procedurally premature, there are disputed material issues of fact pertaining to Facella’s claim under the Massachusetts Wage Payment Law such that the Motion should be denied. Judgment on the pleadings should only be granted if the movant clearly establishes that there are no material issues of fact to resolve and that the movant is entitled to judgment as a matter of law. Sikirica, 416 F.3d at 220. “An issue of fact is deemed to be material if the outcome of the case might be altered by the resolution of the issue one way rather than another.” Wright and Miller, FEDERAL PRACTICE AND PROCEDURE 3d § 1368 at 251 (2004). “Thus, the plaintiff may not secure a judgment on the pleadings when the answer raises issues of fact that, if proved, would defeat recovery.” Id.; Lake v. Aetna Life Ins. Co., 54 F. Supp. 3d 331, 335 (D.N.J. 2014). Case 3:16-cv-03599-AET-LHG Document 32 Filed 01/23/17 Page 16 of 39 PageID: 759 119414199_4 10 Facella bases his motion solely on that on the fact that the Massachusetts’ Wage Payment Law imposes personal liability on the president and treasurer of a corporation, and his unsupported allegation in the Complaint that Sivertsen was the treasurer of RCC. (Brief at 12)2. However, whether Sivertsen had the title of treasurer or performed the role of treasurer is highly disputed. First, Sivertsen repeatedly denied in the Answer that he was the treasurer of RCC. (See Answer ¶¶ 28, 44). Specifically, in his answer to paragraph 28 of the Complaint, Sivertsen stated he “never functioned” as the treasurer of RCC. (Answer ¶ 28). Additionally, the answer to paragraph 44 of the Complaint states that: “Sivertsen and Smith specifically deny that Sivertsen acted as an Executive Vice President, Secretary or Treasurer of RCC.” (Answer ¶ 44) (emphasis added). Indeed, in his brief in support of this Motion, Facella even concedes that Sivertsen denies performing the treasurer function. (Brief at 12 n.12). Moreover, in an action before the Texas Workforce Commission filed by a non-officer employee of RCC against several of the Plaintiffs and Sivertsen, 2 References to Plaintiffs’ Memorandum of Law in Support of their Motions to Dismiss Counterclaims Pursuant to Fed. R. Civ. P. 12(b)(6) and for Partial Judgment on the Pleadings Pursuant to Fed. R. Civ. P. 12(c), will be cited as “Brief at __.” Case 3:16-cv-03599-AET-LHG Document 32 Filed 01/23/17 Page 17 of 39 PageID: 760 119414199_4 11 Sivertsen was found not to be liable for the employee’s unpaid wages.3 Notably, the Commission concluded that “Sivertsen was not made aware of the day to day operations of the company’s business” and he “did not become aware of the nonpayment of wages issue for the employees until April 2015.” (Ex. 1 at 7.) For all of these reasons, a material dispute exists as to whether Sivertsen functioned as the treasurer of RCC, which precludes entry of judgment in Facella’s favor. 3. For Similar Reasons, The Motion For Judgment On The New Jersey Wage Payment Law Claims Should Be Denied. Similarly, there are disputed material issues of fact pertaining to New Jersey Wage Payment Law claims brought by the other Plaintiffs - Ramadan, Lopez, Apicella, Aron and Shea. These factual disputes prevent them from carrying their high burden under Fed. R. Civ. P. 12(c). These Plaintiffs base their Motion solely on the fact that the New Jersey Wage Payment Law imposes personal liability on a corporate employer’s directors and controlling officers. (Brief at 12-13). However, there is a material issue of fact regarding who the corporate employer’s controlling officers are. Sivertsen and Smith clearly allege that four of these Plaintiffs were controlling officers of RCC, (Counterclaims ¶ ¶ 9-56), with Shea (Aron’s wife) being a co-conspirator with 3 See the November 17, 2016 Texas Payday Law Decision in the case of Melissa R. Marshall v. Michael W. Hunter et al., Texas Workforce Commission Case No. 15-052103-3, a true and correct copy of which is attached to the January 23, 2017 Declaration of Jennifer Platzkere Snyder as Exhibit 1. Case 3:16-cv-03599-AET-LHG Document 32 Filed 01/23/17 Page 18 of 39 PageID: 761 119414199_4 12 them as to payroll decisions. (Id. ¶ 236). As controlling officers, these Plaintiffs made the decision to willingly forgo their salaries, without any input from Sivertsen or Smith. (Answer ¶¶ 26, 48, 53, 68). The Answer and Counterclaims allege that all decision making authority regarding the employee compensation rested with these officers, and not with Sivertsen and Smith. (Id.) Accordingly, a dispute of fact exists as to who were the controlling officers of RCC who can be held liable for payroll deficiencies. It is Sivertsen and Smith’s position that these Plaintiffs cannot recover for a wrong that they instituted, managed, and over which they had complete control. As a further matter, in the Counterclaims, Sivertsen and Smith alleged that these Plaintiffs breached their fiduciary duties by failing to keep Sivertsen and Smith apprised as to the true financial condition of RCC. If such allegation is proven, then no wages are actually owed to the Plaintiffs for time periods in which they were in breach of such duties. See Cameco, Inc. v. Gedicke, 724 A.2d 783, 791 (N.J. 1999) (finding that if an employee breaches his or her fiduciary duty to employer then “the employee may forfeit the right to compensation.”). The ultimate issue in Plaintiffs’ Complaint, as well as Sivertsen and Smith’s Counterclaims and Crossclaim, is who was responsible for the wages not being paid. Given the factual disputes regarding who functioned in what capacity, it is inappropriate for the Court to decide this significant question at this time, Case 3:16-cv-03599-AET-LHG Document 32 Filed 01/23/17 Page 19 of 39 PageID: 762 119414199_4 13 especially considering that no discovery has been taken. See Wright and Miller, FEDERAL PRACTICE AND PROCEDURE 3d § 1368 at 237 (2004) (stating that motions for judgment on the pleadings are disfavored before discovery). For all of these reasons, the Motion for Partial Judgment on the Pleadings should be denied on the New Jersey claims as well. B. The Counterclaims Set Forth Plausible Claims For Relief. In reviewing a motion to dismiss pursuant to Federal Rule of Civil Procedure 12(b)(6), a district court must “accept all factual allegations as true, construe the complaint in the light most favorable to the plaintiff, and determine whether, under any reasonable reading of the complaint, the plaintiff may be entitled to relief.” Phillips v. Cty. of Allegheny, 515 F.3d 224, 233 (3d Cir. 2008) (quotation omitted). The notice pleading standard of Federal Rule of Civil Procedure 8(a) does not require that a complaint contain detailed factual allegations. WPG Subsidiary Holdings I, LLC v. City of Elizabeth, New Jersey, No. 15-cv-7876, 2016 WL 3844207, *3 (D.N.J. July 15, 2016). All that is needed is “‘a short and plain statement of the claim showing that the pleader is entitled to relief,’ in order to ‘give the defendant fair notice’” of the claims asserted. Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007) (quotation omitted). “The issue is not whether a plaintiff will ultimately prevail but whether the claimant is entitled to Case 3:16-cv-03599-AET-LHG Document 32 Filed 01/23/17 Page 20 of 39 PageID: 763 119414199_4 14 offer evidence to support the claims.” In re Avandia Mktg., Sales Practices & Prod. Liab. Litig., 804 F.3d 633, 638 (3d Cir. 2015) (quotation omitted). To survive a motion to dismiss, the factual allegations in the complaint must “‘state a claim to relief that is plausible on its face.’ A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009). Explaining the Twombly standard, the Third Circuit concluded that a complaint “may not be dismissed merely because it appears unlikely that the plaintiff can prove those facts or will ultimately prevail on the merits …. The Supreme Court’s Twombly formulation of the pleading standard ‘does not impose a probability requirement at the pleading stage,’ but instead ‘simply calls for enough facts to raise a reasonable expectation that discovery will reveal evidence’ of the necessary element.’” McTernan v. City of York, PA, 564 F.3d 636, 646 (3d Cir. 2009) (citations omitted). Stated differently, the court must deny a motion to dismiss “‘if, in view of what is alleged, it can reasonably be conceived that the plaintiffs … could, upon a trial, establish a case which would entitle them to … relief[.]’” Phillips, 515 F.3d at 233 (quoting Twombly, 550 U.S. at 563 n.8). Case 3:16-cv-03599-AET-LHG Document 32 Filed 01/23/17 Page 21 of 39 PageID: 764 119414199_4 15 1. Sivertsen And Smith’s Counterclaims Are Not Disguised Contribution Claims. Contrary to Plaintiffs’ unsupported characterization - which they raise at the start of their Brief and reiterate throughout it - Sivertsen and Smith have not alleged contribution claims nor are the Counterclaims contribution claims “in disguise.” (Brief at 15). “A claim for contribution is one in which one liable party attempts to recover from another potentially liable party for its share of the cost.” Ciba-Geigy Corp. v. Sandoz Ltd., No. CIV. A. 92-4491(MLP), 1993 WL 668325, at *6 (D.N.J. June 17, 1993). Importantly, none of the Counterclaims seek to recover Sivertsen or Smith’s share of the cost of potential liability on Plaintiffs’ claims from Plaintiffs. Instead, Sivertsen and Smith allege ten distinct causes of action, with distinctly drawn bases for damages. Indeed, were the Court to entertain Plaintiffs’ theory, it would essentially be banning counterclaims from ever being pled in cases that involve wage claims. This is not the law, as counterclaims are readily permitted in wage claim cases, including in the District of New Jersey. See e.g., Badia v. Homedelivery Link, Inc., No. 2:12-CV-06920 WJM, 2014 WL 3619796, at *1 (D.N.J. July 22, 2014); Adami v. Cardo Windows, Inc., 299 F.R.D. 68 (D.N.J. 2014). Plaintiffs must know this since they have not cited any law in support of this theory, in any event, this Court should reject Plaintiffs’ characterization as a basis for dismissal. Case 3:16-cv-03599-AET-LHG Document 32 Filed 01/23/17 Page 22 of 39 PageID: 765 119414199_4 16 2. Sivertsen And Smith’s Counterclaims Are Not Derivative Claims. Contrary to Plaintiffs’ characterization, Sivertsen and Smith seek to bring the Counterclaims personally against the Plaintiffs and have pled an injury separate from any injury suffered by RCC. As such, the Counterclaims are permissible direct claims rather than derivative of rights of RCC, a Delaware corporation. All parties agree that Delaware law applies to this question. Under Delaware law, whether a claim can be brought as a direct claim (as opposed to a derivative action) depends on whether the plaintiff can (a) bring the claims personally, and (b) state a claim that does not involve injury to the corporation, but rather belongs personally to the plaintiff. Citigroup Inc. v. AHW Investment Partnership, 140 A.3d 1125, 1125 (Del. 2016). Citing Tooley v. Donaldson, Lufkin & Jenrette, Plaintiffs assert that “whether a claim is direct or derivative ‘must turn solely on the following questions: (1) who suffered the alleged harm (the corporation or the suing stockholders individually); and (2) who would receive the benefit of any recover or other remedy (the corporation or the stockholders individually)?” (Brief at 19). However, Plaintiffs misapply Delaware law. As the Delaware Supreme Court has reiterated at least three times since 2015, Tooley is only to be applied in a very narrow set of circumstances. See Citigroup Inc, 140 A.3d 1125; NAF Holdings, LLC v. Li & Fung (Trading) Ltd., 118 A.3d 175 (Del. 2015); El Paso Pipeline GP Case 3:16-cv-03599-AET-LHG Document 32 Filed 01/23/17 Page 23 of 39 PageID: 766 119414199_4 17 Co., L.L.C. v. Brinckerhoff, No. 103, 2016, 2016 WL 7380418 (Del. 2016). In fact, the Delaware Supreme Court rejected the contention that Tooley was “intended to be a general statement requiring all claims, whether based on a tort, contract, or statutory cause of action (e.g., antitrust), to be brought derivatively whenever the corporation of which the plaintiff is a stockholder suffered the alleged harm.” NAF Holdings, LLC, 118 A.3d at 179-80. Before evaluating a claim under Tooley, and as Sivertsen and Smith note above, “a more important initial question has to be answered: does the plaintiff seek to bring a claim belonging to her personally or one belonging to the corporation itself?” Citigroup Inc., 140 A.3d at 1125. Here, Sivertsen and Smith assert Counterclaims for Breach of Contract, Fraud, Intentional Misrepresentation, Civil Conspiracy, Breach of Fiduciary Duty, Aiding and Abetting, Breach of the Implied Covenant of Good Faith and Fair Dealing, and Libel/Defamation. Each one of these Counterclaims belongs to Sivertsen and Smith personally. In fact, the Delaware Supreme Court recently held that Tooley does not apply to claims for breach of commercial contract or fraud/intentional misrepresentation. See NAF Holdings, LLC, 118 A.3d at 179-80; El Paso Pipeline GP Co., L.L.C. 2016, 2016 WL 7380418, at *9; Citigroup Inc., 140 A.3d at 1139-40. Even if Tooley applies to the Counterclaims, it does not preclude them. Plaintiffs argue that because the corporation (RCC) was injured, the claims at issue Case 3:16-cv-03599-AET-LHG Document 32 Filed 01/23/17 Page 24 of 39 PageID: 767 119414199_4 18 are automatically derivative. However, the Delaware Supreme Court has rejected such a rationale. See NAF Holdings LLC, 118 A.3d at 179-80 (rejecting the defendant's contention that Tooley was “intended to be a general statement requiring all claims, whether based on a tort, contract, or statutory cause of action (e.g., antitrust), to be brought derivatively whenever the corporation of which the plaintiff is a stockholder suffered the alleged harm.”). In fact, Delaware courts “have long recognized, that the same set of facts can give rise to both a direct claim and a derivative claim.” Gentile v. Rossette, 906 A.2d 91, 99 n.19 (Del. 2006) (quoting Grimes v. Donald, 673 A.2d 1207, 1212 (Del. 1996)) (emphasis added). The test is that if all of the stockholders “are harmed and would recover pro rata in proportion with their ownership of the [company] solely because they are [interest holders], then the claim is derivative in nature,” otherwise their claims will be direct. See Feldman v. Cutaia, 951 A.2d 727, 733 (Del. 2008). Here, Sivertsen and Smith have alleged damages that are unique to each of them. As pled in the Counterclaims, their alleged damages derive from: (1) being named “defendants in the Officer Complaint, and, subsequently, the Collective Action,” from which “Sivertsen and Smith have suffered and will suffer significant damages in the form of defense costs and potential liability for actions taken by RCC;” (2) their roles of part-owner of TAG, which was not paid by RCC due to Plaintiffs’ disloyal scheme; and (3) “the loss of $8 million of funds invested into Case 3:16-cv-03599-AET-LHG Document 32 Filed 01/23/17 Page 25 of 39 PageID: 768 119414199_4 19 RCC by investors that had been solicited by Sivertsen and Smith” resulting in significant reputational damage. (Counterclaims ¶¶ 212, 223, 234, 245, 255, 264, 280, 287, 293, 307). The harm alleged in the Counterclaims would not affect all RCC shareholders or LLC members because the injuries described are personal to Sivertsen and Smith. Indeed, other RCC shareholders and LLC members will not share in the recovery at all, let alone pro rata in proportion to their ownership. Therefore, the claims are direct and should not be dismissed. 3. Because The Plaintiffs Owed Fiduciary Duties to Sivertsen And Smith, Counterclaim Count VI Should Not Be Dismissed. Under Delaware law, a plaintiff sets forth a claim for breach of fiduciary duty by alleging that a duty existed and that it was breached. Beard Research, Inc. v. Kates, 8 A.3d 573, 601 (Del. Ch. 2010), aff'd sub nom. ASDI, Inc. v. Beard Research, Inc., 11 A.3d 749 (Del. 2010). Sivertsen and Smith met this pleading standard, having alleged that, as managers of an LLC of which Sivertsen and Smith were members, Plaintiffs owed them fiduciary duties under the LLC Agreement and breached those duties. (Counterclaim ¶ 261). “Under traditional principles of equity, a manager of an LLC would qualify as a fiduciary of that LLC and its members.” CMS Investment Holdings, LLC v. Castle, 2015 WL 3894021 at *19 n. 104 (Del. Ch. June 23, 2015) (emphasis added). The Court of Chancery held that, in order for a member to owe fiduciary Case 3:16-cv-03599-AET-LHG Document 32 Filed 01/23/17 Page 26 of 39 PageID: 769 119414199_4 20 duties to the other members of an LLC, the member at issue must be “vested with discretionary power to manage the business of the LLC.” Id. at *19. Those vested with such power include “high level officer[s]” and those “responsible for running [the operations of the Company].” Id. One does not need to be on the Board of Managers to owe fiduciary duties to an LLC and its members. Rather, all that is required is that the “level of knowledge and control … supports a reasonable inference that [the member] was vested with discretionary power to manage the business of the LLC.” Id. Sivertsen and Smith have alleged facts in the Counterclaims to demonstrate how they are members of the LLC and how the Plaintiffs constituted managers who owed them fiduciary duties. For example, Munchrath, as Senior Vice President of RCC, was a member of RCC’s executive management team and was responsible for the operations of RCC’s Southwest region. (Counterclaims ¶¶ 39- 40). Lopez, as Vice President and General Manager-Information Technology, was a member of RCC’s executive management team and was responsible for RCC’s internal information systems. (Counterclaims ¶¶ 33-34). Ramadan, as Executive Vice President and Chief Quality Officer of RCC, was a member of RCC’s executive management team and was responsible for the operations of RCC’s Northeast Region. (Counterclaims ¶¶ 46-47). Apicella, as Vice President and Assistant Secretary of RCC, was an officer and a member of RCC’s executive Case 3:16-cv-03599-AET-LHG Document 32 Filed 01/23/17 Page 27 of 39 PageID: 770 119414199_4 21 management team and was responsible for filing financial and tax reports on behalf of RCC (Counterclaims ¶¶ 10-11). Facella, as the Senior Vice President of Business Development of RCC, was a member of RCC’s executive management team and worked on projects in New Jersey and New York. (Counterclaims ¶¶ 26- 27). Aron, as Executive Vice President and Senior Advisor to the Board of Directors, was a member of RCC’s executive management team. (Counterclaims ¶¶ 18-19). Sivertsen and Smith also alleged that “[e]ach region of RCC’s business was operated by the Vice President in charge of the region, who had the authority and responsibility for RCC’s operations in the region.” (Counterclaims ¶ 28). In addition, they alleged that each of the Plaintiffs were Class C holders of the LLC - since the C class was comprised of all of RCC’s officers. (Counterclaims ¶ 111). Certainly Sivertsen and Smith sufficiently pled that Plaintiffs constituted managers who owed them, as members of the LLC, fiduciary duties. Next, Sivertsen and Smith sufficiently pled that the Plaintiffs breached their duties. “A breach of fiduciary duty occurs when a fiduciary commits an unfair, fraudulent, or wrongful act.” Dweck v. Nasser, 2012 WL 161590, at *17 (Del. Ch. Jan. 18, 2012). The Plaintiffs were required to operate RCC in accordance with the LLC Agreement, to put the interests of RCC ahead of their own, to refrain from doing anything that would harm RCC for their own advantage, and to conscientiously perform their oversight responsibilities to ensure that RCC was Case 3:16-cv-03599-AET-LHG Document 32 Filed 01/23/17 Page 28 of 39 PageID: 771 119414199_4 22 operated properly. Sivertsen and Smith have sufficiently pled that Plaintiffs breached that duty by, inter alia: o Knowing and failing to inform Sivertsen and Smith that non-officer employees of RCC were not being paid despite performing work for the company; o Knowing and failing to inform Sivertsen and Smith that the RCC officers who had forgone payment of their own wages had not been repaid by RCC; o Knowing and failing to inform Sivertsen and Smith that RCC officers and employees were creating and submitting premature and estimated invoices to TD Bank in order to obtain funding from TD Bank that would permit RCC to have sufficient funds to make payroll and pay other obligations; and o Providing inaccurate information regarding the amount and ability to collect outstanding accounts receivable in his respective region that was then presented to Sivertsen and Smith during board meetings with the intent that Sivertsen and Smith rely on such inaccurate information. (Counterclaims ¶ 263). For all of these reasons, Sivertsen and Smith should be permitted to proceed to discovery on Counterclaim Count VI. 4. Because Sivertsen And Smith Have Sufficiently Placed The Plaintiffs On Notice Of The Precise Misconduct With Which They Are Charged, Counterclaim Counts II And III Should Not Be Dismissed. “The purpose of Rule 9(b) is to provide notice of the ‘precise misconduct’ with which defendants are charged” in order to give them an opportunity to respond meaningfully to a complaint, “and to prevent false or unsubstantiated charges.” Rolo v. City Investing Co. Liquidating Trust, 155 F.3d 644, 658 (3d Cir.1998). To satisfy Rule 9(b), a plaintiff must “plead with particularity the ‘circumstances’ of the alleged fraud.” Rolo, 155 F.3d at 658. Rule 9(b) “requires Case 3:16-cv-03599-AET-LHG Document 32 Filed 01/23/17 Page 29 of 39 PageID: 772 119414199_4 23 plaintiffs to plead ‘the who, what, when, where, and how: the first paragraph of any newspaper story.’” In re Advanta Corp. Sec. Lit., 180 F.3d 525, 534 (3d Cir.1999) (quoting DiLeo v. Ernst & Young, 901 F.2d 624, 627 (7th Cir.1990)). Plaintiffs need not, however, plead the ‘date, place or time’ of the fraud, so long as they use an ‘alternative means of injecting precision and some measure of substantiation into their allegations of fraud.’” Rolo, 155 F.3d at 658 (citing Seville Indus. Machinery v. Southmost Machinery, 742 F.2d 786, 791 (3d Cir.1984)). Indeed, the Third Circuit has cautioned that courts should “apply the rule with some flexibility and should not require plaintiffs to plead issues that may have been concealed by the defendants.” Rolo, 155 F.3d at 658 (citing Christidis v. First Pennsylvania Mortg. Trust, 717 F.2d 96, 99 (3d Cir.1983)). Here, Sivertsen and Smith have unquestioningly met the Advanta pleading standard for fraud and intentional misrepresentation claims by setting out the first paragraph of their newspaper story: • WHO: Apicella, Aron, Munchrath, Lopez, Ramadan, Facella • HOW: Provided false information, or omitted material information • WHAT: Regarding RCC’s accounts receivable, payment of RCC’s payroll obligation, and financial reports that were presented to Sivertsen and Smith as directors • WHERE: At RCC Board meetings Case 3:16-cv-03599-AET-LHG Document 32 Filed 01/23/17 Page 30 of 39 PageID: 773 119414199_4 24 • WHEN: From March 2014 through May 1, 2015. Plaintiffs seek dismissal on the theory that Sivertsen and Smith did not allege with particularity which of them made the fraudulent statements or omissions. (Brief at 23). Relying on Klein v. General Nutrition Companies, Inc., 186 F.3d 338 (3d Cir. 1999), Plaintiffs note that the Third Circuit said “it is not enough to attribute a statement to a company’s ‘management.” Id. However, Klein is distinguishable from the present facts and its holding is inapplicable. A review of its predicate facts is instructive. The plaintiffs in Klein filed a class- action lawsuit against GNC, Inc. and several officers, alleging that the investors received fraudulent information about the company's first-quarter earnings. Id. at 345. In the complaint, plaintiffs attributed the false statements to “GNC's management” but did not identify any officers or other company employees by name as having made the affirmative statements. Id. The Third Circuit granted a motion to dismiss by the defendant officers because “[t]he complaint fails to attribute the statement to any specific member of GNC management.” Id. While Klein applied Rule 9(b) in the securities fraud context, the Third Circuit later extended that reasoning to common law fraud claims in Frederico v. Home Depot, 507 F.3d 188 (3d Cir. 2007), such as have been pled here. Unlike Klein and Frederico, Sivertsen and Smith specifically name each of the Plaintiffs who were involved in each alleged fraudulent act or omission. Case 3:16-cv-03599-AET-LHG Document 32 Filed 01/23/17 Page 31 of 39 PageID: 774 119414199_4 25 (Counterclaims at ¶¶ 215, 216, 217, 218, 219, 220, 221, 225, 226, 227, 228, 229, 230, 232, 233). It cannot be clearer who they believe was involved in the fraud and misrepresentation. The Counterclaims do not generically refer to “management” as in Klein and, therefore, have sufficiently pled the “who” for the inquiry. Moreover, Rule 9(b) does not require a plaintiff to allege the “precise words” of a fraudulent act but, rather, just “adequately describe the nature and subject of an alleged misrepresentation.” Boyle v. D'Onofrio, 99 F. Supp. 2d 541, 547 (D.N.J. 2000), aff’d, 254 F.3d 1077 (3d Cir. 2001). Sivertsen and Smith meet this standard, having put Plaintiffs on sufficient notice of the precise misconduct with which they are charged (withholding information presented to the board and presenting false information as to receivables), identifying who made the false statements (Apicella, Aron, Munchrath, Lopez, Ramadan and Facella), and showing that this fraud caused Sivertsen and Smith’s injuries. Contrary to Plaintiffs’ argument, Sivertsen and Smith have alleged the particulars of the false statements or omissions. Rule 9(b), understood in the context of the liberal federal rules of pleading, requires no more. See e.g. Seligson v. Plum Tree, Inc., 61 F.R.D. 343, 347 (E.D. Pa. 1973) (“Nor do we require plaintiffs to perform the impossible. They have alleged fraud with as much specificity as they are able to without further discovery …. Further particularities may be explored by both sides during Case 3:16-cv-03599-AET-LHG Document 32 Filed 01/23/17 Page 32 of 39 PageID: 775 119414199_4 26 discovery. Rule 9(b), understood in the context of the liberal federal rules of pleading, requires no more.”); United Products Corp. v. Admiral Tool & Mfg. Co., 122 F.Supp.2d 560 (2000) (concluding that allegations of “what the fraud was, when it occurred, who committed it, and how it adversely affected Plaintiffs” made prior to discovery, “are more than sufficient for Rule 9(b) purposes”). To the extent this Court believes that Sivertsen and Smith have not sufficiently alleged who made which statements, it is only because that information was concealed by the Plaintiffs. As explained above, the Third Circuit has cautioned that courts should “apply the rule with some flexibility and should not require plaintiffs to plead issues that may have been concealed by the defendants.” Rolo, 155 F.3d at 658 (citing Christidis, 717 F.2d at 99). Finally, and contrary to Plaintiffs’ position, Sivertsen and Smith have sufficiently alleged how the misrepresentations and omissions caused them to be injured in a variety of ways - including that bankruptcy might have been avoided. Specifically, they alleged that “[b]ut for the false representations and material omissions of each of Apicella, Aron, Munchrath, Lopez, Ramadan and Facella regarding the collectability of RCC’s accounts receivable and the payment of RCC’s payroll obligations, Sivertsen and Smith would have known RCC’s true financial condition and would have taken action to address RCC’s financial problems, including by pursuing Chapter 11 relief before RCC failed to make its Case 3:16-cv-03599-AET-LHG Document 32 Filed 01/23/17 Page 33 of 39 PageID: 776 119414199_4 27 payroll obligations.” (Counterclaim ¶ 211) (emphasis added). Nowhere did Sivertsen or Smith allege that bankruptcy was the only option. Rather, a multitude of options would have been available to them had the fraud not occurred and, but for that fraud, Sivertsen and Smith were injured. These allegations are sufficient to allow Counterclaim Counts II and III to survive dismissal and proceed to discovery. 5. Because Sivertsen And Smith Are Entitled To Enforce The Contracts, Counterclaim Counts I, Vii, And X Should Not Be Dismissed. a. Sivertsen and Smith sufficiently allege that they are beneficiaries of Aron’s employment agreement. “In order to survive a motion to dismiss for failure to state a breach of contract claim, the plaintiff must demonstrate: first, the existence of the contract, whether express or implied; second, the breach of an obligation imposed by that contract; and third, the resultant damage to the plaintiff.” Ready & Motivated Minds, LLC, d/b/a Readyminds v. Ceridian Corp., No. CIV.A. 10-1654 (JLL), 2010 WL 2989986, at *3 (D.N.J. July 26, 2010). Sivertsen and Smith can meet all three of these elements. First, the contract at issue is Aron’s written employment agreement with RCC. They alleged that “Aron was hired by RCC to serve as the Senior Advisor to RCC’s board of directors, and, by signing the Aron Employment Contract, Aron expressly agreed to perform his duties as Senior Advisor to RCC’s board of directors.” Case 3:16-cv-03599-AET-LHG Document 32 Filed 01/23/17 Page 34 of 39 PageID: 777 119414199_4 28 (Counterclaims ¶ 198). They also alleged that, in this role, “Aron’s responsibilities included providing ‘advice and assistance in connection with strategic initiatives and such other matters as the [board of directors] may determine consistent with your position.” (Id. ¶ 200). They also alleged that Aron breached the employment agreement by, as discussed above, failing to provide them with truthful information regarding RCC’s financial condition and that they suffered in injury as a result of Aron’s breach of his contract. The key question is whether Sivertsen and Smith are third party beneficiaries of Aron’s written employment agreement who have an independent right to enforce it. Under New Jersey law, “[t]he principle that determines the existence of a third party beneficiary status focuses on whether the parties to the contract intended others to benefit from the existence of the contract, or whether the benefit so derived arises merely as an unintended incident of the agreement.” Broadway Maint. Corp. v. Rutgers, State Univ., 447 A.2d 906, 909 (N.J. 1982). This concept dates back to at least 1940, when New Jersey’s Court of Errors and Appeals stated the essential proposition: The determining factor as to the rights of a third party beneficiary is the intention of the parties who actually made the contract. They are the persons who agree upon the promises, the covenants, the guarantees; they are the persons who create the rights and obligations which flow from the contract .... Thus, the real test is whether the contracting parties intended that a third party should receive a benefit which might be enforced in the courts; Case 3:16-cv-03599-AET-LHG Document 32 Filed 01/23/17 Page 35 of 39 PageID: 778 119414199_4 29 and the fact that such a benefit exists, or that the third party is named, is merely evidence of this intention. Brooklawn v. Brooklawn Housing Corp., 11 A.2d 83 (N.J. E. & A. 1940). The contractual intent to recognize a right to performance in the third person is the key. If that intent does not exist, then the third person is only an incidental beneficiary, having no contractual standing. Broadway Maint. Corp., 447 A.2d at 909. Given that the question is one of intent, third party beneficiary claims are usually not appropriate for resolution via motion to dismiss. See Dunkin’ Donuts Franchised Restaurants, LLC v. Claudia I, LLC, No. CIV.A. 12-2010, 2013 WL 3716525, at *5 (E.D. Pa. July 15, 2013); Solid Host, NL v. Namecheap, Inc., 652 F.Supp.2d 1092, 1119 (C.D. Cal.2009). Here, it seems clear that Sivertsen and Smith, as members of RCC’s board of directors, were intended beneficiaries of Aron’s employment agreement. Indeed, the very first sentence of the employment agreement states that Aron would be an advisor to the members of the Board of Directors of RCC. While a plain reading of the employment agreement certainly suggests that the parties intended Sivertsen and Smith to benefit from Aron’s contract, the parties’ intent cannot be fully determined without discovery. Accordingly, the Motion should be denied as to Counterclaim Count I and the parties should be permitted to take discovery. Case 3:16-cv-03599-AET-LHG Document 32 Filed 01/23/17 Page 36 of 39 PageID: 779 119414199_4 30 b. As Members of the LLC, Sivertsen and Smith are bound to the LLC Agreement and are entitled to enforce it. Similarly, Sivertsen and Smith have alleged sufficient facts to show that they have standing to enforce the LLC Agreement as against the Plaintiffs and enforce their contractual breaches as well as breaches of duties of good faith and fair dealing. Plaintiffs cannot undermine Sivertsen and Smith’s allegation of standing to bring these claims, even with a “No Third Party Beneficiaries” clause in the LLC Agreement. (Brief at 29). As a matter of Delaware corporate law, “[a] member or manager of a limited liability company or an assignee of a limited liability company interest is bound by the limited liability company agreement whether or not the member or manager or assignee executes the limited liability company agreement.” 6 Del. C. § 18- 101(7). Therefore, since Sivertsen and Smith are members of the LLC and are bound by the LLC Agreement, they have standing to enforce it. Plaintiffs are likewise bound to the LLC Agreement, given that they were required to operate RCC in accordance with the LLC Agreement. Sivertsen and Smith also alleged that “[a]s officers and members of RCC Holdings LLC under the LLC Agreement, each of the Officers agreed that he would not do anything to deprive the others or any other member of RCC Holdings, LLC of the benefits of the ownership of RCC Holdings LLC.” (Counterclaims ¶ 298). Thus, the LLC Case 3:16-cv-03599-AET-LHG Document 32 Filed 01/23/17 Page 37 of 39 PageID: 780 119414199_4 31 Agreement placed an independent duty on the Plaintiffs vis-à-vis each and every other member of the LLC, including Sivertsen and Smith. As with Aron’s employment agreement, Sivertsen and Smith have pled sufficient facts to demonstrate a plausible claim for relief. At the very least, material questions of fact exist as to whether Sivertsen and Smith have standing to enforce the LLC Agreement - questions which should not be resolved at this preliminary stage of litigation. Accordingly, Counterclaim Counts VII and X should proceed. 6. Because the “Litigation Privilege” Does Not Protect Claims That Intend to Publicize the Contents of the Complaint, Counterclaim Count VIII Should Not Be Dismissed. “Under New Jersey law, the purposeful dissemination of defamatory allegations contained in a pleading, for purposes of obtaining publicity of the allegation, causes the otherwise privileged allegations to lose their protected status when published.” Bender v. Smith Barney, Harris Upham & Co., 901 F. Supp. 863, 871 (D.N.J. 1994). Sivertsen and Smith alleged that Plaintiffs made specific claims in their Complaint despite knowing them to be false, for the purpose of discrediting Sivertsen and Smith and avoiding the blame for wrongful conduct caused by Plaintiffs themselves. Since Sivertsen and Smith have pled facts on which a claim for libel or defamation could prevail, Counterclaim Count VIII should survive the Motion and proceed to discovery. Case 3:16-cv-03599-AET-LHG Document 32 Filed 01/23/17 Page 38 of 39 PageID: 781 119414199_4 32 IV. CONCLUSION The pleadings have not closed, and discovery has not even started. Accordingly it is premature for this Court to entertain Plaintiff’s Motion for Partial Judgment on the Pleadings, and, in any event, significant material issues of fact preclude entry of the requested judgment in Plaintiffs’ favor. Further, Sivertsen and Smith have pled sufficient facts to demonstrate ten plausible counterclaims against the Plaintiffs, each of which are independent direct claims that are neither derivative of RCC’s claims nor disguised contribution claims. For these reasons, and those set forth in greater detail above, Plaintiffs’ Motion to Dismiss Counterclaims Pursuant to Federal Rule of Civil Procedure 12(b)(6) and for Partial Judgment on the Pleadings Pursuant to Fed. R. Civ. P. 12(c) must be denied and the parties should proceed to discovery on all claims. Date: January 23, 2017 /s/ Jennifer Platzkere Snyder Jennifer Platzkere Snyder, Esquire (JPS-2254) Anne M. Aaronson, Esquire (AMA-1679) Claire A. Blewitt, Esquire (CAB-3779) DILWORTH PAXSON LLP 1500 Market Street, 3500E Philadelphia, PA 19102-2101 (215) 575-7000 (215) 575-7200 (facsimile) Counsel for B. Eric Sivertsen and Randall N. Smith Case 3:16-cv-03599-AET-LHG Document 32 Filed 01/23/17 Page 39 of 39 PageID: 782 119414199_4 35 IN THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF NEW JERSEY STEVEN T. APICELLA, et al., Plaintiffs/Counter-Defendants, v. MICHAEL W. HUNTER, B. ERIC SIVERTSEN, and RANDALL N. SMITH, Defendants/Counter-Plaintiffs. : : : : : : : : : : : : CIVIL ACTION NO. 03:16-CV-03599-AET-LHG DECLARATION OF JENNIFER PLATZKERE SNYDER Jennifer Platzkere Snyder, Esquire makes the following Declaration under the penalty of perjury pursuant to 28 U.S.C. § 1746 that the following is true and correct: 1. I am a partner in the law firm of Dilworth Paxson LLP, counsel to Defendants B. Eric Sivertsen and Randall N. Smith. I make this Declaration in support of Defendants/Counter-Plaintiffs B. Eric Sivertsen and Randall N. Smith’s Opposition to Plaintiffs/Counter-Defendants’ Motion to Dismiss the Counterclaims and for Partial Judgment on the Pleadings 2. Attached to this Declaration as Exhibit 1 is a true and correct copy of the November 17, 2016 Texas Payday Law Decision in the case of Melissa R. Marshall v. Michael W. Hunter et al., Texas Workforce Commission Case No. 15-052103-3. Date: January 23, 2017 /s/ Jennifer Platzkere Snyder Jennifer Platzkere Snyder, Esquire (JPS-2254) Case 3:16-cv-03599-AET-LHG Document 32-1 Filed 01/23/17 Page 1 of 15 PageID: 783 EXHIBIT 1 Case 3:16-cv-03599-AET-LHG Document 32-1 Filed 01/23/17 Page 2 of 15 PageID: 784 Case 3:16-cv-03599-AET-LHG Document 32-1 Filed 01/23/17 Page 3 of 15 PageID: 785 Case 3:16-cv-03599-AET-LHG Document 32-1 Filed 01/23/17 Page 4 of 15 PageID: 786 Case 3:16-cv-03599-AET-LHG Document 32-1 Filed 01/23/17 Page 5 of 15 PageID: 787 Case 3:16-cv-03599-AET-LHG Document 32-1 Filed 01/23/17 Page 6 of 15 PageID: 788 Case 3:16-cv-03599-AET-LHG Document 32-1 Filed 01/23/17 Page 7 of 15 PageID: 789 Case 3:16-cv-03599-AET-LHG Document 32-1 Filed 01/23/17 Page 8 of 15 PageID: 790 Case 3:16-cv-03599-AET-LHG Document 32-1 Filed 01/23/17 Page 9 of 15 PageID: 791 Case 3:16-cv-03599-AET-LHG Document 32-1 Filed 01/23/17 Page 10 of 15 PageID: 792 Case 3:16-cv-03599-AET-LHG Document 32-1 Filed 01/23/17 Page 11 of 15 PageID: 793 Case 3:16-cv-03599-AET-LHG Document 32-1 Filed 01/23/17 Page 12 of 15 PageID: 794 Case 3:16-cv-03599-AET-LHG Document 32-1 Filed 01/23/17 Page 13 of 15 PageID: 795 Case 3:16-cv-03599-AET-LHG Document 32-1 Filed 01/23/17 Page 14 of 15 PageID: 796 Case 3:16-cv-03599-AET-LHG Document 32-1 Filed 01/23/17 Page 15 of 15 PageID: 797 IN THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF NEW JERSEY STEVEN T. APICELLA, et al., Plaintiffs/Counter-Defendants, v. MICHAEL W. HUNTER, B. ERIC SIVERTSEN, and RANDALL N. SMITH, Defendants/Counter-Plaintiffs. : : : : : : : : : : : : CIVIL ACTION NO. 03:16-CV-03599-AET-LHG ORDER NOW, this ____ day of ________________, 2017, upon consideration of Plaintiffs/Counter-Defendants’ Motion to Dismiss the Counterclaims and for Partial Judgment on the Pleadings filed December 21, 2016, and upon consideration of the briefs of the parties, IT IS ORDERED that the Motion is DENIED. BY THE COURT: J. Case 3:16-cv-03599-AET-LHG Document 32-2 Filed 01/23/17 Page 1 of 1 PageID: 798 119414199_4 33 IN THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF NEW JERSEY STEVEN T. APICELLA, et al., Plaintiffs/Counter-Defendants, v. MICHAEL W. HUNTER, B. ERIC SIVERTSEN, and RANDALL N. SMITH, Defendants/Counter-Plaintiffs. : : : : : : : : : : : : CIVIL ACTION NO. 03:16-CV-03599-AET-LHG CERTIFICATE OF SERVICE I hereby certify that a true and correct copy of the foregoing Brief by Defendants/Counter-Plaintiffs B. Eric Sivertsen and Randall N. Smith in Opposition to Plaintiffs/Counter-Defendants’ Motion to Dismiss the Counterclaims and for Partial Judgment on the Pleadings has been filed with the Court and forwarded to counsel listed below on this 23rd day of January, 2017, by electronic mail and/or the Court’s ECF system. Adam Neil Saravay Mccarter & English, LLP Four Gateway Center 100 Mulberry Street Newark, NJ 07102-4070 (973) 622-4444 Email: asaravay@mccarter.com Counsel for Steven T. Apicella, Carol Robert Aron, John A. Facella, Robert A. Lopez, Gregory A. Munchrath, Nagah M. Ramadan, Cherrill Edwina Shea Case 3:16-cv-03599-AET-LHG Document 32-3 Filed 01/23/17 Page 1 of 2 PageID: 799 119414199_4 34 Brian W. Hofmeister Law Firm Of Brian W. Hofmeister, LLC 691 State Highway 33 Trenton, NJ 08619-4492 (609) 890-1500 Fax: 609-890-6961 Email: bwh@Hofmeisterfirm.com Eugene David Kublanovsky 26 Park Street Suite 2178 Montclair, NJ 07042 212-729-4707 Fax: 973-762-4032 Email: eugene@Edklaw.com Counsel for Michael W. Hunter Maureen Binetti Wilentz, Goldman & Spitzer 90 Woodbridge Center Drive P.O. Box 10 Woodbridge, NJ 07095 (732) 636-8000 Email: mbinetti@wilentz.com Counsel for Thomas Gray Date: January 23, 2017 /s/ Jennifer Platzkere Snyder Jennifer Platzkere Snyder, Esquire (JPS-2254) Counsel for B. Eric Sivertsen and Randall N. Smith Case 3:16-cv-03599-AET-LHG Document 32-3 Filed 01/23/17 Page 2 of 2 PageID: 800