SUPERIOR COURT OF NEW JERSE Y APPELLATE DIVISION DOCKET NO . A

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REED S. KEAN , Plaintiff

- Respondent/ Cross

- Appellant,

v. INTOWN INVESTMENT GROUP, LLC, 1 DAVID BLACK, CATHLEEN BLACK, and VICINITY MEDIA GROUP, INC. , Defendants

- Appellants/ Cross

- Respondents.

_________ ___________________________

Argued November 8, 2018

– Decided Before Judges Koblitz, Ostrer, and Mayer. On appeal f

rom Superior Court of New Jersey, Law Division, Morris County, Docket No. L

- 2733

- 15. Mitchell J. Decter a rgued the cause for appellants/cross

- respondents ( Ferro Labella & Zucker

1 InTown Investment Group, LLC was dissolved prior to this litigation and is not a party to the appeal. NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION This opinion shall not "constitute precedent or be binding upon any court." Although it is posted on the internet, this opinion is binding only on the parties in the case and its use in other cases is limited. R. 1:36

- 3.

December 7, 20182 A

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- 17T2 LLC, attorneys ; Mitchell J. Decter, of counsel and on the brief s ). Jorda n D. Weinreich argued the cause for respondent/cross

- appellant ( Sherman Wells Sylvester & Stamelman LLP , attorneys; Julian W. Wells and Jordan D. Weinreich, of counsel; Matthew F. Chakmakian, on the brief).
PER CURIAM Defendants David Black, 2 Cathleen B lack, and Vicinity Media Group, Inc. (VMG) appeal from an August 8, 2017 judgment entered against them , jointly and severally, in favor of plaintiff in the amount of $112,500. 3 Plaintiff cross

appeals from the trial court ' s denial of his claim that defend ants violated the New Jersey Uniform Securities Law, N.J.S.A. 49:3

- 47 to

- 83 (NJUSL). We affirm in part and remand in part. We affirm as to the entry of the judgment , inclusive of plaintiff ' s $100,000 investment, and the trial court ' s denial of plaintiff ' s claim under the NJUSL. We remand for the trial court to

2 We refer to David Black interchangeably as David Black and Black. We refer to his wife as Cathleen Black throughout this opinion.

3 The trial court entered judgment in the amount of $112,500, finding $100,000 represented plaintiff's initial invest ment for the project known as InTown and Around and $12,500 represented a subsequent investment by plaintiff to Black for a different business venture known as Best of Essex. Defendants' appeal is limited to the $100,000 portion of the judgment.3 A

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provide findings of fact and conclusions of law regarding the imposition of joint and several liability against Black, Cathleen Black, and VMG

. The relevant facts are straightforward. Black had an idea to develop a mobile application to link local residents with local businesses within a particular community. The idea involved development of a new media platform , capitaliz ing on Black ' s existing business connections in the print magazi ne field

. Black and his wife had experience marketing local businesses to area residents through their company, VMG. 4 Black saw an opportunity to use his business expertise and VMG ' s publishing skills to create a product tailored to the digital
age. To make his vision a reality, Black sought investors for his idea. Plaintiff had no background in software development , but liked Black ' s idea and decided to meet with Black. Black asked plaintiff to invest $100,000 and gave plaintiff a spreadsheet with financial information. 5 The spreadsheet contained growth projections for the venture over a five

- year period. The projections were prepared by Black with the assistance of the owner of a landscaping company

4 VMG pu blished several print magazines touting local businesses.

5 During depositions, the parties referred to the spreadsheet as the "prospectus."4 A

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who advertised in VMG ' s print publication s . Black did not consult any financial advisors or other professionals in preparing the spreadsheet. Black sent plaintiff emails confirming the investment and describing each investors ' role in the application to be known as " InTown andAround.com " (InTown )

. I n December 2013, the parties signed an operating agreement for
InTown . In accordance with the operating agreement , spreadsheet , and Black ' s emails, plaintiff was the only investor contributing cash for InTown

. In August 2013, p laintiff agreed to inv est $100,000, payable in several installments , for a 21.8 percent share of InTown . According to the documents, another investor,
Eric Lanel , was to provide an in

- kind contribution toward the project , offering his advertising and marketing expertise , in re turn for a 2 1

. 8 percent share of
InTown. T he Blacks also would provide in

- kind contributions for a collective
5 6

. 4 percent share of InTown. Black ' s contribution s included hiring and managing staff, using VMG ' s offices, and creating the content for the mobile application. Cathleen Black, for her share of InTown, would provide
contribution s in the form of marketing, bookkeeping, paying invoices, and writing checks

. Within ten months of plaintiff paying the fi rst investment installment , InTown failed . According to Black, due to advances in mobile technology , the5 A

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platform was obsolete. Ultimately, InTown dissolved. P laintiff then filed a lawsuit against defendants alleging fraud, fraud in the inducement, brea ch of contract, breach of fiduciary duty, conversion, unjust enrichment, and violation of the NJUSL. The matter was tried before a judge without a jury. The judge heard testimony on July 11, July 12, and July 28, 2017. Eric Lanel , plaintiff, and Black testified. Cathleen Black, who was present in the courtroom during the trial , did not testify

. The judge summarized the testimony in an oral opinion. Overall, the judge found the testimony provided by plaintiff and Lanel to be more credible than the testimony provided by Black. Based on the testimony , the judge found Black invoiced InTown for the in

- kind contributions he was obligated to perform . The judge also concluded p laintiff was not aware of the monthly management fee InTown paid to VM G

. T he judge determined the operating agreement afforded plaintiff "financial oversight" of InTown , which Lanel believed included access to accounting and bank ing information and the ability to challenge InTown ' s expenditure of money. W hile the judge found p laintiff unable to specifically recall receipt of t he
emails and spreadsheet from Black , plaintiff did not deny reviewing the6 A

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documents. The judge determined plaintiff opened InTown ' s bank account, using the same bank where plaintiff had his personal acco unt , to facilitate the payment of his investment installments

. Plaintiff claimed he was unaware InTown was making payments to VMG because th e Blacks, through VMG, were supposed to provide in

- kind services for the start

- up of InTown. While plaintiff
atten ded several meetings regarding InTown , plaintiff testified he never discussed where his investment money was being spent . Plaintiff characterized himself as a "passive investor" of InTown despite being granted "financial oversight" of InTown , opening InTown ' s bank account, and attending numerous meetings to discuss InTown. The judge found Black ' s testimony "inconsistent," "unbelievable , " and "rambling and

. . . unresponsive to the questions being asked." In reviewing the financial projections in t he spreadsheet sent to plaintiff, Black was asked about several line items. The judge found Black could not identify the s ervices a "pod account manager" would perform despite listing a pod account manager in the spreadsheet . Nor was Black able to explai n the purpose of the legal fees listed in the spreadsheet or explain how he arrived at the dollar amount for that line item. In arriving at the projected gross profits for InTown, Black told the judge the figures were "illustrative" and "potential based o n the numbers." Black7 A

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based his "numbers" on internet research but did not retain his search results. Black admitted he did not seek the advice of investment bankers or professional financial advisors in creating the spreadsheet. When Black was asked wh ether the information in the spreadsheet provided to plaintiff was realistic, Black responded the information was "totally speculative."
R esponding to questions about the language in InTown ' s operating agreement, Black conceded the document was "unclear" regarding many terms, including the terms "staff" and "office" used to describe his in

- kind contribution s toward InTown

. Also troubling to the judge was Black ' s lack of knowledge or information regarding the invoices VMG submitted to InTown. Accord ing to Black, Cathleen Black prepare d invoices on behalf of VMG and submit ted them to InTown for payment. Cathleen Black then issue d payment for VMG ' s invoices from InTown ' s bank account. Black was unable to explain the discrepancies between the amounts invoiced by VMG and the line item amount s in the spreadsheet. The judge concluded , "Black ' s answers simply did not make
sense." In addition, Black told the judge any advertising revenue generated by InTown was "deposited into VMG ' s accounts" and "none of the [advertis ing]

reve nue was put back into InTown." Black also admitted VMG ' s revenue had8 A

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declined approximately forty percent between 2008 and 2013 when InTown was lau n ched

. Based on the testimony, the judge found plaintiff met his burden o f proof

on his fraud claim as the "goals and the prospectus of InTown were totally speculative." The judge found :

Mr. Black had no basis for th e financial projections for the venture.

. . . Mr. Black came up with [the gross profit] figures on his own wi thout consultation with financial advisors or investment bankers. Mr. Black had no basis or reason to expect such growth from InTown. In addition, at no point did Mr. Black disclose the extent to which he planned VMG ' s involvement in the venture.

. . . M r. Black was to make an in

- kind contribution to staff, office [,] and infrastructure development and sales. Instead, Mr. Black, through VMG, invoiced InTown for the in

- kind contribution he was obligated to perform. In total, VMG invoiced InTown for nearly $75,000 in services rendered. In addition, the cash infusion of VMG came at a time when revenue had declined by [forty] percent over a five

- year period.
T he judge concluded plaintiff was entitled to the return of his $100,000
investment for InTown

. Pla intiff submitted a form of judgment pursuant to R

. 4:42

- 1 (c) reflecting the judge ' s decision . According to the language in the proposed judgment, the judge found against David Black, Cathleen Black , and VMG "jointly and severally, in the amount of $112,500." While the judge made findings that Black9 A

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committed fraud , he made no such findings as to Cathleen Black or VMG in his decision

. T he judge also considered and rejected plaintiff ' s NJUSL claim. On the
i ssue of plaintiff ' s status as a n investor to invoke the NJUSL, the judge found :

Plaintiff is trying to argue essentially both sides of the same coin. Plaintiff asserts that the expectation of all parties was that plaintiff was to be a passive investor; ho wever, plaintiff then states that defendant should be estopped from arguing that plaintiff is a passive investor and the [c]ourt should treat [plaintiff] as an active investor for the purpose of designat ed exception [ ] N.J.S.A. 49:3

- 50(a)(12)(b) ( 9 )

. Plai ntiff has presented conflicting testimony as to whether [he] was or was not a passive investor. Accordingly, plaintiff has not met [his] burden in establishing a claim under New Jersey ' s Unif orm Security Law. On appeal, defendant s argue the judge erred i n finding plaintiff ' s $100,000 cash investment was procured through fraud and imposing joint and several liability against Cathleen Black and VMG. On the cross - appeal, p laintiff challenges the judge ' s denial of his claim under the NJUSL.
Our r eview of a trial court ' s factual findings is limited to whether the findings are supported by sufficient credible evidence. Rova Farms Resort v. Investors Ins. Co. , 65 N.J. 474, 483

– 84 (1974). A trial judge ' s evaluation of credibility, based on his or her opportuni ty to see and hear witnesses, should be honored unless manifestly against the weight of the evidence. Valdez v. Tri

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State Furniture , 374 N.J. Super. 223, 232 (App. Div. 200 5 )

. However, a trial
court ' s legal conclusions are reviewed de novo. See, e.g. , K ieffer v. Best Buy , 205 N.J. 213, 222 (2011). A trial court ' s application of the law to the facts is also reviewed de novo. State v. Harris , 181 N.J. 39 1 , 416 (2004).
In review ing a common

- law fraud claim, a plaintiff is required to prove: (1) a material misrepresentation by the defendant of a presently existing fact or past fact; (2) knowledge or belief by the defendant of its falsity; (3) an intent that the plaintiff rely on the statement; (4) reasonable reliance by the plaintiff; and (5) resulting damages to the plaintiff. Gennari v. Weichert Co. Realtors , 148 N.J. 582, 610 (1997). A plaintiff must prove a fraud claim through clear and convincing evidence. Stochastic Decision s , Inc. v. DiDomenico , 236 N.J. Super. 388, 395 (App. Div. 1989). Generally, "the alleged fraudulent representation must relate to some past or present ly existing fact and cannot ordinarily be predicated upon matters in futur o . " Ocean Cape Hotel Corp. v. Masefield Corp. , 63 N.J. Super. 369, 380 ( App. Div. 1960) (alterations omitted)

. There is an exception to this rule in the case of a false representation of an existing intention. I bi d. "A promise to pay in the future is fraudulent if there is no present intent ever to do so." Van Dam11 A

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Egg Co. v. Allendale Farms, Inc. , 199 N.J. Super. 452, 457 (App. Div. 1985). As we held in Stochastic Decision s , fraudulent intention

may be derived from circumstantial evidence such as: the recklessness or implausibility of the statement in light of later even ts; showing that the promisor ' s intentions were dependent on contingencies known only to the promisor; or simply from evidence indicating that the promisor would not or could not fulfill the promise. [ Stoc h a stic Decision s , 236 N.J. Super. at 396. ] Blac k ' s promises regarding InTown were not simply puffery or opinions as to future events. Black made statements to plaintiff to obtain a $100,000 cas h investment for InTown , knowing the statements were made without financial support , and the projections were "totally speculative." Black also committed fraud by failing to disclose his intention to use money from InTown for his own financially declining company, VMG, when Black expressly agreed to contribute in

- kind services through VMG in exchange for his percentage share of InTown

. Having reviewed the record, plaintiff met his burden of proving fraud under the circumstances. Black made false misrepresentations about InTown that were without any financial basis or other support, and dependent on
i nformation known only to Black; specifically , his intent ion to bill InTown for12 A

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VMG ' s services that were supposed to be included as Black ' s in

- kind contribution s toward InTown in lieu of a cash contribution

. Blac k also knew plaintiff would rely on the infor mation in the spreadsheet.
W ithout the spreadsheet , there was no reason for plaintiff to invest in InTown. Plaintiff testified he agreed to the $100,000 investment based on the materials
p laintiff received fr om Black, including the spreadsheet. P laintiff reasonably relied on Black ' s spreadsheet because plaintiff had no experience in the development of mobile applications . Black ' s representations regarding InTown were made in bad faith with the intent to induce plaintiff to make a large cash investment.
We next consider defendants ' challenge to the entry of the final judgment jointly and severally against all defendants. Rule 1:7

- 4 requires a trial court find

" t he facts and state its conclusions of law thereon . . . on every

. . . written order that is appealable as of right [

. ] " The failure of a trial court to meet the requirements of the rule "constitutes a disservice to the litigants, the attorneys and the app ellate court." Curtis v. Finneran , 83 N.J. 563, 569

– 70 (1980) (quoting Kenwood Assocs. v. Bd. of Adj. Englewood , 141 N.J. Super. 1, 4 (App. Div. 1976)). The failure to advance reasons in support of a judicial decision13 A

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results in our speculating as to the trial court ' s thinking. See Salch v. Salch , 240 N.J. Super. 441, 443 (App. Div. 1990). Here, the judge failed to make the required findings of fact and state his legal reasons for imposing joint and several liability against all defendants. The judg e determined David Black committed fraud

. However, we are unable to discern from the record whether the fraud findings extended to Cathleen Black and VMG

. Thus, we are constrained to remand the matter to the trial court to explain the imposition of joint and several liability on David Black, Cathleen Black, and VMG. We take no position on the court ' s determination of this issue
on remand.
We next examine plaintiff ' s cross - appeal regarding the judge ' s denial of his NJUSL claims. Having reviewed the record, we are satisfied that to be an "investment contract" within the definition of a security under the NJUSL , an investor must be a "passive investor." See S.E.C. v. Howey , 328 U.S. 293, 298 (1946) (applying federal securities law). 6 A "passive inves tor" is one who derives profits "solely through the efforts of [ others ] ." I bi d. An investor who

6 Under the NJUSL, courts have to power to review federal law for guidance on the sale of securities. See N.J.S .A. 49:3

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has legal rights and enjoys certain powers is not a passive investor. See Goodwin v. Elkins & Co. , 730 F.2d 99, 107 (3d Cir. 1984). The judge found plaintif f "presented conflicting testimony as to whether [he] was or was not a passive investor." P laintiff admitted he had certain rights such as opening the bank account for InTown, an ability to access InTown ' s bank
state ments and transactions, attending meeti ngs with InTown ' s investors, appointment as secretary of InTown , and "financial oversight" over InTown. Whether or not plaintiff chose to exercise these rights with respect to InTown does not equate with his being a "passive investor." Under the circumstances , we are satisfied plaintiff was not a passive investor entitled to pursue a claim under the NJUSL. We affirm as to the amount of the final judgment entered and the denial of plaintiff ' s claims under the NJUSL. We remand to the court to ex plain the basis for the entry of the judgment against David Black, Cathleen Black, and
VMG jointly and severally. We do not retain jurisdiction.