JOHN MICHAEL VAZQUEZ, District Judge.
This matter comes before the Court on the motion of Defendants Quantum International Income Corp. ("Quantum Income") and Manu Sekhri's (collectively "Defendants") to dismiss the Amended Complaint pursuant to Federal Rule of Civil Procedure 12(b)(6). D.E. 13. Plaintiffs Columbus LTACH Management, LLC ("Columbus Management") and Columbus LTACH, LLC ("Columbus") (collectively "Plaintiffs") filed a brief in opposition, D.E. 17, to which Defendants replied. D.E. 18.
Plaintiff Columbus Management is a New Jersey limited liability company with its main address in Newark, New Jersey. Amended Complaint ("FAC") at 1; D.E. 9. Plaintiff Columbus is a long-term acute care hospital in New Jersey that shares the same address as Columbus Management. Id. Defendant Quantum Holdings is a limited liability company with its main address at Wellington Street West, Ontario, Canada. Id. ¶ 1. Defendant Quantum Income is a corporation that shares the same address as Quantum Holdings. Id. ¶ 2. At all relevant times until October 28, 2015, Defendant White was the CEO of both Quantum Holdings and Quantum Income. Id. ¶ 10. Defendant Sekhri later replaced White as the CEO of both. Id. ¶ 29.
On June 9, 2015, Columbus, Columbus Management, and Quantum Holdings executed a Membership Interest Purchase Agreement ("MIPA"), through which Columbus Management agreed to sell Columbus to Quantum Holdings for twenty-nine million dollars ("the deal"). FAC, Ex. A., MIPA; D.E. 9-1. Non-party Richard Lipsky, M.D., the managing member of both Columbus Management and Columbus, is also a party to and signatory of the MIPA. MIPA at 1, 49. The MIPA included a "Break Up Fee" provision, which provided as follows:
Id. § 10.2.2. The MIPA also provided for a closing date no later than October 31, 2015 (the "drop dead date"), unless the parties agreed in writing to extend that date. Id. § 10.1.7.
Quantum Income is not a signatory or party to the MIPA. In the FAC, Plaintiffs allege that "Quantum [Holdings] is nothing more than an alter-ego of Quantum [Income]." Id. ¶ 9. In support of this theory, Plaintiffs point out that on June 12, 2015, Quantum Income put out a press release announcing its acquisition of Columbus. FAC, Ex. G; D.E. 9-7.
Following the signing of the MIPA, Anthony Modafferi, counsel for Columbus, Columbus Management, and Dr. Lipsky and Gary Herschman, counsel for Quantum Holdings and White, exchanged several communications concerning the deal's closing. On September 25, 2015, Mr. Modafferi sent Mr. Herschman a letter stating that since the two anticipated days of closing, September 15th and 24th, had passed and since Quantum Holdings had just informed Columbus, Columbus Management, and Dr. Lipsky that it lacked the money to purchase Columbus, Columbus, Columbus Management, and Dr. Lipsky were terminating the MIPA. FAC, Ex. B; D.E. 9-2. On September 28, 2015, Mr. Herschman replied, stating that Columbus, Columbus Management, Dr. Lipsky, Quantum Holdings, and White had agreed to move the closing to October 15, 2015, or sometime thereafter but before November 1, 2015. FAC, Ex. C; D.E. 9-3. Mr. Herschman also attached a letter, showing that Equity Financial Trust Company was holding CAD $15,026,439.06 in escrow for Quantum Income. Id. The letter also included an appendix which provided that Quantum Income had deposited CAD $19,026,387 in escrow on July 28, 2015, but had removed CAD $4,000,080 later that same day. Id., Appendix A.
On September 30, 2015, Mr. Modafferi again wrote to Mr. Herschman, indicating that since White had asked for additional information from Columbus, Columbus Management, and Dr. Lipsky, an additional CAD $50,000 needed to be added to the closing price or Break Up Fee to revive the MIPA. The letter also asked what White had done with the four million that he withdrew from escrow as working capital. FAC, Ex. D; D.E. 9-4. In an email, Mr. Herschman responded that the MIPA remained in force and did not need reviving. Counsel also agreed that Quantum Holdings would pay the incremental costs as to gathering the additional information. Further, Mr. Herschman added that if Dr. Lipsky "would like to know what Quantum has done with the funds released thus far, he should call Grant White, who would be happy to discuss this with him." FAC, Ex. E; D.E. 9-5.
On October 1, 2015, Mr. Modafferi wrote Mr. Herschman a letter reaffirming his belief that the deal would close. The letter explained that "[t]his will confirm that based upon our prior conversation with Canadian counsel for the purchase . . . that your client is working to close the [Columbus] Acquisition by October 15, 2015, and in any event, before the October 31, 2015 dropdead date specified in the Agreement." FAC, Ex., D.E. 9-6. However, on October 28, 2015, Mr. Herschman wrote that the deal would not close. FAC ¶ 28. Mr. Herschman said that Sekhri would meet with Columbus Management, Columbus, and Dr. Lipsky the next day and provide alternative terms for the MIPA. Id. That same day, October 28, 2015, the board of Quantum Income and Quantum Holdings fired White for improperly seeking to borrow money from a hedge fund. FAC ¶ 11. White had allegedly sought to borrow money from Natixis,
The meeting took place the following day, but Columbus Management, Columbus, and Dr. Lipsky deemed Sekhri's alternatives insufficient. Id. ¶ 29. Columbus Management and Columbus allege that during this meeting, Sekhri made several admissions, which show that White and Quantum Income interfered with Quantum Holdings' ability to close the deal. Id. In particular, Columbus and Columbus Management allege that the withdrawal of the four million from the escrow account caused the lenders to "back out of their commitment to finance the purchase price in the MIPA." FAC ¶ 23. Sekhri also informed Columbus Management, Columbus, and Dr. Lipsky that he had been appointed CEO of Quantum Holdings and Quantum Income. Id. ¶ 29.
Three days later, October 31, 2015, the MIPA's drop dead date passed without a closing. Id. ¶ 30.
On March 21, 2016, after it "became clear" that Defendants would not deliver the purchase price, Plaintiffs filed a demand for arbitration. Id. ¶ 31. Defendants did not respond to Plaintiffs' demand. Id. 1134-35. As a result, Plaintiffs filed a Complaint in New Jersey state court on August 31, 2016, seeking to compel Defendants to arbitrate. Id. 1136. The Complaint did not ask for any form of relief other than to compel arbitration.
On October 5, 2016, Quantum Income removed the matter to the District of New Jersey, D.E. 1, and then filed a motion to dismiss on November 3, 2016, D.E. 3. Id. ¶¶ 39-40. The Court granted Defendant's motion and dismissed the Complaint without prejudice. D.E. 7-8.
Plaintiffs filed an Amended Complaint on June 15, 2017. D.E. 9. In the Amended Complaint, Plaintiffs completely forgo the original remedy they sought to compel arbitration. Instead, the Amended Complaint alleges four counts: breach of contract (Count I); breach of implied covenant of good faith and fair dealing (Count II); tortious interference with contractual relations (Count III); fraudulent and negligent misrepresentation (Count IV).
Rule 12(b)(6) of the Federal Rules of Civil Procedure permits a defendant to move to dismiss a complaint for "failure to state a claim upon which relief can be granted[.]" To withstand a motion to dismiss under Rule 12(b)(6), a plaintiff must allege "enough facts to state a claim to relief that is plausible on its face." Bell Ad. Corp. v. Twombly, 550 U.S. 544, 570 (2007). A complaint is plausible on its face when there is enough 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). Although the plausibility standard "does not impose a probability requirement, it does require a pleading to show more than a sheer possibility that a defendant has acted unlawfully." Connelly v. Lane Const. Corp., 809 F.3d 780, 786 (3d Cir. 2016) (internal quotation marks and citations omitted). As a result, a plaintiff must "allege sufficient facts to raise a reasonable expectation that discovery will uncover proof of her claims." Id. at 789.
In evaluating the sufficiency of a complaint, a district court must accept all factual allegations in the complaint as true and draw all reasonable inferences in favor of the plaintiff. Phillips v. Cty. of Allegheny, 515 F.3d 224, 231 (3d Cir. 2008). A court, however, is "not compelled to accept unwarranted inferences, unsupported conclusions or legal conclusions disguised as factual allegations." Baraka v. McGreevey, 481 F.3d 187, 211 (3d Cir. 2007). If, after viewing the allegations in the complaint most favorable to the plaintiff, it appears that no relief could be granted under any set of facts consistent with the allegations, a court may dismiss the complaint for failure to state a claim. DeFazio v. Leading Edge Recovery Sols., 2010 WL 5146765, at *1 (D.N.J. Dec. 13, 2010).
At the outset, the Court notes that the Amended Complaint is somewhat unclear. Among other things, the Amended Complaint assumes a level of familiarity with the underlying facts and circumstances that is inappropriate in a pleading. It appears that Plaintiffs main argument is that when Quantum Holdings or Quantum Income raised money
Quantum Income seeks a dismissal of Count III, which alleges that tortious interference with contractual relations. The MIPA provides that any claim arising out of or as a result of the contract will be governed by New Jersey law. MIPA § 10.1.7. Thus, Plaintiffs claim for tortious interference is governed by New Jersey law.
Under New Jersey law, a plaintiff seeking to establish a claim of tortious interference with contractual relations "must prove (1) an existing contractual relationship; (2) intentional and malicious interference with that relationship; (3) loss or breach of a contract as a result of the interference; and (4) damages resulting from that interference." MaxLite, Inc. v. ATG Elecs., Inc., 193 F.Supp.3d 371, 388 n. 18 (D.N.J. 2016) (quotation omitted). Further, "it is `fundamental' to a cause of action for tortious interference with a prospective economic relationship that the claim be directed against defendants who are not parties to the relationship." Printing Mart-Morristown v. Sharp Elecs. Corp., 116 N.J. 739, 752 (1989) (citations omitted). Thus, a claim of tortious interference is meant to protect parties to a contact from "outside interference." Id. In other words, a party to a contract cannot be liable for tortiously interfering with its own contract.
Defendants argue that Quantum Income, as an affiliate of Quantum Holdings, cannot tortiously interfere with the MIPA as a matter of law. For support, Defendants point to Gavornik v. LPL Fin. LLC, No. CIV. 14-955, 2014 WL 3844828, at *7 (D.N.J. Aug. 5, 2014). In Gavornik, Judge Thompson addressed whether two defendants had tortiously interfered with the relevant contract. Judge Thompson first noted that "a party to a contract cannot be held liable both for breach of that contract and for inducing that breach." Id. (internal quotation marks omitted) (quoting Shearin v. E.F. Hutton Grp., Inc., 652 A.2d 578, 591 (Del. Ch. 1994)). Thus, to determine whether the defendants had interfered with the contract, the Gavornik court found that it first had to analyze whether the defendants qualified as third parties who were legally capable of interfering with the contract. Id.
Judge Thompson found that as a corporate affiliate,
Turning to the second defendant, Judge Thompson found that as a CEO of the corporation, the defendant could not be liable for tortious interference if he was acting on behalf of his employer or principal. Id. (citing to DiMaria Const., Inc. v. Interarch, 351 N.J.Super. 558, 568 (App. Div. 2001). Further, the Gavornik court noted that the Third Circuit "has held that an employee falls outside the scope of his employment if the employee `acts for personal motives, out of malice, beyond his authority, or otherwise not in good faith in the corporate interest.' Id. (quoting Yarrallo v. Hammond Inc., 94 F.3d 842, 849 n. 11 (3d Cir.1996)). Finding that the plaintiffs had not alleged adequate facts to meet this standard, the court in Gavornik granted the motion to dismiss as to the second defendant. Id.
Here, Plaintiffs allege that Quantum Income is more than the affiliate of Quantum Holdings. Instead, Plaintiffs assert that Quantum Income the alter ego of Quantum Holdings. Under the alter ego theory, a corporation is not just connected through ownership to a second corporation, but rather, it is legally considered to be the same entity as the second corporation. See FDA Smart, Inc. v. Dishman Pharm. & Chemicals Ltd., 448 N.J.Super. 195, 203-04 (App. Div. 2016). Thus, as alleged in the FAC, Quantum Income is considered to be the same as Quantum Holdings. Quantum Holdings is a party to the contract, the MIPA, but a party cannot tortiously interfere with its own contract. As a result, Quantum Income also cannot, as a matter of law, interfere with the contract because it is considered to be the same as Quantum Holdings.
Thus, Count III is dismissed without prejudice as to Quantum Income.
Both Quantum Income and Sekhri seek a dismissal of Count IV, which asserts fraudulent and negligent misrepresentation. As stated above, the MIPA provides that any claim arising out of or as a result of the contract will be governed by New Jersey law. MIPA § 10.1.7. Thus, Plaintiffs' claims for fraudulent and negligent misrepresentation are governed by New Jersey law.
In order to establish a viable claim of fraudulent misrepresentation, "a plaintiff must prove the following: `(1) a material misrepresentation of a presently existing or past fact; (2) knowledge or belief by the defendant of its falsity; (3) an intention that the other person rely on it; (4) reasonable reliance thereon by the other person; and (5) resulting damages.'" Banco Popular North America v. Gandi, 184 N.J. 161, 172-73 (2005) (quoting Gennari v. Weichert Co. Realtors, 148 N.J. 582, 610 (1997)); Richie & Pat Bonvie Stables, Inc. v. Irving, 350 N.J.Super. 579, 589 (App. Div. 2002). "The elements of negligent misrepresentation are essentially the same as those of common law fraud except negligent misrepresentation does not require scienter." New York Pipeline Mech. Contractors, LLC v. Sabema Plumbing & Heating Co., No. CIV.A. 10-148, 2012 WL 209349, at *4 (D.N.J. Jan. 24, 2012) (citation omitted). To establish a claim of negligent misrepresentation, a plaintiff must prove that "(1) the defendant negligently provided false information; (2) the plaintiff was a reasonably foreseeable recipient of that information; (3) the plaintiff justifiably relied on the information; and (4) the false statements were a proximate cause of the plaintiffs damages.'" Id. (quoting McCall v. Metropolitan Life. Ins., 956 F.Supp. 1172, 1186 (D.N.J. 1996)).
Thus, claims of either negligent or fraudulent misrepresentation requires that the defendant made a materially false statement or misrepresentation to the plaintiff. Here, Plaintiffs have not sufficiently alleged that either Sekhri or Quantum Income made such false statements. As to Sekhri, Plaintiffs make no specific allegations that he fraudulently or negligently made false misrepresentations. First, the FAC provides that Natixis imposed additional requirements on Quantum Income and refused to increase the loan amount "because Quantum [Income], Sekhri and White expended money they raised from the Canadian public markets on working capital." FAC ¶ 13. Further to that point, the FAC alleges that "over $4 million CAD were withdrawn by Quantum [Income], White and Sekhri from the gross proceeds which were to be available to conduct the transaction." Id. ¶ 23. However, neither of these allegations actually allege that Sekhri made any statements.
Turning to Quantum Income, the Court also finds that Plaintiffs have not plausibly alleged that it made fraudulent or negligent statements. The FAC alleges that (1) "[a]s a result of Quantum [Income's] actions," Quantum Holdings did not secure the funds necessary to close the deal, id. ¶ 14; (2) that Quantum Income's "largest investors were asked to reinvest money[,]" id. ¶ 15; and (3) that Quantum, White, and Sekhri's withdrawal $4 million CAD caused the loan broker to rescind on its commits to finance Columbus's purchase price. Id. ¶ 25. However, these allegations concern actions, not statements, that Quantum Income allegedly took.
The FAC does allege that Quantum Holdings breached the MIPA when it made false promises when negotiating with Natixis. Id. ¶ 17. However, this allegation concerns Quantum Holdings rather than Quantum Income. And even treating them as one entity, the false statement was made to Natixis, not Plaintiffs. Finally, the FAC alleges that Quantum Income made promises that it could not fulfill, which induced Plaintiffs to enter into the MIPA. Id. 1159. However, like with the allegations concerning Sekhri, Plaintiffs fail to provide plausible facts as to what the promises were. Thus, the FAC also does not plausibly allege that Quantum Income made negligent or fraudulent misrepresentations to Plaintiffs.
Therefore, Count IV is dismissed, without prejudice as to Quantum Income and Sekhri.
For the reasons set forth above, Defendant's Motion to Dismiss (D.E. 13) is