IN THE UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF NEW JERSEY

MSKP Oak Grove, LLC,

Plaintiff,

v.

CAROL VENUTO, individually and

as executrix of the Estate of

RALPH A. VENUTO, Sr., et al.

Defendants.

Civil Action 

No. 10-6465 (JBS/JS)

OPINION

APPEARANCES:

Joseph A. Molinaro, Esq.

JOSEPH A. MOLINARO, LLC

648 Wyckoff Avenue

Wyckoff, New Jersey, 07481

-andRobert A. Vort, Esq.

2 University Plaza, Suite 101 

Hackensack, NJ 07601

Counsel for Plaintiff 

Dimitri L. Karapelou, Esq.

LAW OFFICES OF DIMITRI L. KARAPELOU, ESQ.

1600 Market Street, 25th Floor 

Philadelphia, PA 19103 

Counsel for Defendants

SIMANDLE, Chief Judge:

I. INTRODUCTION

This action, in which Plaintiff alleges various violations

of the New Jersey Uniform Fraudulent Transfer Act, N.J. Stat.

Ann. § 25:2-20 et seq., and other causes of action arising under

New Jersey law, is before the Court on Defendants’ motion to

dismiss the Amended Complaint for failure to state a claim

pursuant to Fed. R. Civ. P. 12(b)(6). [Docket Item 20.] This is

the second time the Court has considered such a motion in this

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action; Defendants previously moved to dismiss Plaintiff’s

original Complaint, which the Court granted without prejudice on

August 8, 2011. [Docket Items 11 & 12.] The instant motion

seeks to dismiss Plaintiff’s Amended Complaint. [Docket Item

24.] In brief, this case involves the sale of substantially all

of the assets of Defendant Hollywood Tanning Systems, Inc.

(“HTS”) to nonparty Tan Holdings, LLC in 2007 for approximately

$40 million and a 25% ownership interest in Tan Holdings. 

Subsequent to this asset sale, HTS paid all creditors whose

claims were due and owing, and then distributed approximately $16

million to its shareholders, Defendants Carol and Ralph A.

Venuto, Sr. , Ralph A. Venuto, Jr., Carol Rebbecchi, and Richard 1

P. Venuto (“the shareholders”). Approximately a year after the

asset sale to Tan Holdings and apparently at some point after the

distribution to shareholders, Plaintiff, a commercial landlord in

Florida, notified HTS that it was in default on a lease; payment

of which Plaintiff has not been able to secure from any party. 

Consequently, Plaintiff seeks to have a portion of the 2007

distribution to the shareholders set aside as a fraudulent

conveyance, improper distribution, or unjust enrichment. 

The principal questions at issue in Defendants’ motion are

(1) whether Plaintiff has alleged an intentionally fraudulent

 Ralph A. Venuto, Sr. died prior to the initiation of this 1

action; Plaintiff names his estate as a Defendant, represented by

Defendant Carol Venuto as executrix. 

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transfer with the requisite specificity and plausibility, (2)

whether, at the time of the shareholder distribution, HTS’s

assets appeared sufficient to cover its liabilities, and (3)

whether Plaintiff is collaterally estopped from pursuing its

fraudulent transfer claims. As discussed below, the Court

concludes that Plaintiff has sufficiently alleged the elements of

an intentionally fraudulent transfer as well as a constructive

fraudulent conveyance, but has failed to allege that HTS was

insolvent at the time of the shareholder distribution. The Court

will grant in part and deny in part Defendants’ motion.

II. BACKGROUND

The facts described below are taken from those facts alleged

in Plaintiff’s Amended Complaint and from undisputedly authentic

documents upon which Plaintiff relies in its Amended Complaint. 

See Pension Ben. Guar. Corp. v. White Consol. Indus., Inc., 998

F.2d 1192, 1195, n.1 (3d Cir. 1993).

Prior to the events alleged in this action, Defendant HTS

was a New Jersey corporation that operated tanning salons and

sold franchises and tanning equipment to independent tanning

salons. Am. Compl. ¶¶ 7-8. In 2003, HTS leased a commercial

retail space in a shopping center in Florida from a predecessor

in interest to Plaintiff MSKP Oak Grove, LLC (“MSKP” or

“Plaintiff”). Id. ¶ 19. In 2004, Plaintiff’s predecessor

consented to HTS’s request to sublease the space to a franchisee

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of HTS (a non-party entity known as Altamonte Chick Shades,

Inc.), though HTS remained liable on the lease in the event of

Alamonte’s default. Id. ¶¶ 20-21. Plaintiff acquired the

landlord’s rights under the lease agreement in January of 2007.

On April 18, 2007, HTS and Tan Holdings entered into an

asset purchase agreement in which Tan Holdings acquired almost

all of HTS’s assets in exchange for payment to HTS of

approximately $40 million, approximately 25% of the issued and

outstanding preferred units of Tan Holdings, and certain

contingent “earn out” payments that would be made to HTS only if

Tan Holdings’ earnings met certain thresholds within the first

two years following the asset purchase. Id. ¶¶ 9-10, 12. HTS

apparently remained liable on its lease with Plaintiff despite

the asset sale to Tan Holdings. Id. ¶ 21 (“Hollywood Tanning

remained liable on the lease” after subletting to its

franchisee).

On June 22, 2007, the asset purchase agreement closed

between Tan Holdings and HTS. Am. Compl. ¶ 15. After the deal

closed, Defendant HTS used “much of” the $40 million acquisition

price to settle all then-outstanding debts owed to creditors of

HTS; Tan Holdings did not assume liability for such debts that

were due and owing at the time of the closing. Id. ¶ 13, 16;

Asset Purchase Agreement at ¶ 2.4(d). The remainder was

distributed, some time thereafter not specified in the Amended

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Complaint, to the Defendant shareholders of HTS, in the aggregate

amount of approximately $16 million. Id. ¶ 17. 

After HTS had paid the company’s debts that were due and

owing at the time of the closing, and subsequently distributed

the approximately $16 million to its shareholders, Defendant

HTS’s remaining assets were the approximately 25% ownership stake

in Tan Holdings and the possibility of being paid specific “earn

outs” should Tan Holdings meet certain earnings thresholds. 

Plaintiff does not allege sufficient facts from which the Court

can estimate the approximate value of these assets, as no

information about the aggregate valuation of Tan Holdings is

alleged. However, the Court notes that one of the Defendants

later said that the 25% ownership interest seemed to be of

“substantial value” to the HTS shareholders at that time. Venuto

June 18, 2010 Deposition at 27:5-10.2

On July 3, 2008, Plaintiff notified Defendant HTS that its

sublettor franchisee had defaulted on its lease. Id. ¶ 24. 

Plaintiff sued Defendant HTS and the franchisee Alamonte Chick

Shades in state court in Florida to recover for breach of the

 While Plaintiff does not attach a copy of this deposition 2

to the Amended Complaint, it cites to the deposition in the

Amended Complaint and has attached a copy to its brief in

opposition. See, e.g., Am. Compl. ¶ 31; Ex. C to Pltf.’s Brief

in Opposition. Similarly, Plaintiff cites to language in the

asset purchase agreement between HTS and Tan Holdings at multiple

paragraphs in the Amended Complaint. See Am. Compl. ¶¶ 9-13. 

Defendants attach an undisputedly authentic copy of the agreement

to their motion to dismiss. See Ex. A to Defs.’ Mot. Dismiss.

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lease. Id. ¶ 25. Plaintiff subsequently won a judgment against

Defendant HTS in the Florida action for approximately $411,573,

which remains unpaid. Id. ¶ 26-28. Tan Holdings, similarly, did

not succeed after the acquisition; in May of 2009, it turned over

its assets to its creditors. Id. ¶ 37. Defendant Ralph Venuto,

Jr. described the company as having gone bankrupt. Venuto June

18, 2010, Dep. at 17:13. In addition to Plaintiff, at least 14

other landlord creditors have sought to collect on various

liabilities of HTS after the shareholder distribution. Am.

Compl. ¶ 39.

Plaintiff filed the original Complaint in this action on

December 13, 2010, naming as defendants only the shareholder

Defendants. [Docket Item 1.] Defendants moved to dismiss the

Complaint for failure to state a claim, which the Court granted

on August 8, 2011, dismissing the Complaint without prejudice to

Plaintiff filing a motion for leave to amend to cure the defects

of the original Complaint. [Docket Items 11 & 12.] Plaintiff

thereafter moved to file an amended complaint, which Defendants

did not oppose. Plaintiff’s Amended Complaint, which added HTS

as a Defendant, was subsequently docketed [Docket Item 24]; the

Amended Complaint asserts six counts against Defendants: Counts

One through Four involve claims under the New Jersey Uniform

Fraudulent Transfer Act (“NJUFTA”), N.J. Stat. Ann. § 25:2-20 et

seq. Count Five seeks to recover based on a claim that the

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shareholder distribution was an improper distribution under N.J.

Stat. Ann. 14:6-12(1)(c); and the sixth count seek to recover

under a theory of unjust enrichment. Defendants subsequently

moved to dismiss again for failure to state a claim pursuant to

Fed. R. Civ. P. 12(b)(6).

III. DISCUSSION

A. Standard of Review

Pursuant to Rule 8(a)(2), a complaint need only contain "a

short and plain statement of the claim showing that the pleader

is entitled to relief." Specific facts are not required, and

"the statement need only 'give the defendant fair notice of what

the . . . claim is and the grounds upon which it rests.'" 

Ericson v. Pardus, 551 U.S. 89, 93 (2007) (citations omitted). 

However, while a complaint is not required to contain detailed

factual allegations, the plaintiff must provide the "grounds" of

his "entitle[ment] to relief", which requires more than mere

labels and conclusions. Bell Atlantic Corp. v. Twombly, 550 U.S.

544, 555 (2007). 

The Supreme Court has identified two working principles

underlying the failure to state a claim standard: first, the

tenet that a court must accept as true all of the allegations

contained in a complaint is inapplicable to legal conclusions. 

Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009). Indeed, threadbare

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recitals of the elements of a cause of action, supported by mere

conclusory statements, do not suffice. Id.

Second, a complaint must state a plausible claim for relief

in order to survive a motion to dismiss; where the well-pleaded

facts do not permit the court to infer more than the mere

possibility of misconduct, the complaint has alleged - but it has

not "show[n]" - "that the pleader is entitled to relief." Id. at

679. To survive a motion to dismiss, therefore, civil complaints

must allege "sufficient factual matter" to show that a claim is

facially plausible. This "allows the court to draw the

reasonable inference that the defendant is liable for the

misconduct alleged." Id. at 678. 

After Iqbal and Twombly, the Third Circuit now requires that

a district court presented with a motion to dismiss conduct a

two-part analysis set forth in Iqbal: first, the factual and

legal elements of a claim should be separated. The district

court must accept all the complaint's well-pleaded facts as true,

but may disregard any legal conclusions. Iqbal, 556 U.S. at 678-

79. Second, a district court must then determine whether the

facts alleged in the complaint are sufficient to show that the

plaintiff has a "plausible claim for relief." Id. at 679. This

"plausibility" determination will be "a context-specific task

that requires the reviewing court to draw on its judicial

experience and common sense." Id. 

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In addition, Rule 9(b) imposes heightened pleading standards

for a complaint alleging fraud; Rule 9(b) applies to claims under

the NJUFTA. Ford Motor Credit Co. v. Chiorazzo, 529 F. Supp. 2d

535, 538 (D.N.J. 2008). Rule 9(b) requires a party to "state

with particularity the circumstances constituting fraud or

mistake." This requirement is intended "to place the defendants

on notice of the precise misconduct with which they are charged,

and to safeguard defendants against spurious charges of immoral

and fraudulent behavior." Seville Indus. Machinery Corp. v.

Southmost Machinery Corp., 742 F.2d 786, 791 (3d Cir. 1984). 

Notably, the Third Circuit has stated that "[a]though Rule 9(b)

falls short of requiring every material detail of the fraud such

as date, location, and time, plaintiffs must use 'alternative

means of injecting precision and some measure of substantiation

into their allegations of fraud.'" In re Rockefeller Center

Properties, Inc. Securities Litigation, 311 F.3d 198, 216 (3d

Cir. 2002) (citations omitted).

In spite of Rule 9(b)'s heightened requirements, however,

courts should be conscious of the fact that application of these

more stringent pleading standards may allow "sophisticated

defrauders" to "successfully conceal the details of their fraud." 

In re Burlington Coat Factory Securities Litigation, 114 F.3d

1410, 1418 (3d Cir. 1997). In situations where the required

factual material "is peculiarly within the defendant's knowledge

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or control, the rigid requirements of Rule 9(b) may be relaxed."

Id. However, "boilerplate and conclusory allegations will not

suffice" and "[p]laintiffs must accompany their legal theory with

factual allegations that make their theoretically viable claim

plausible." Id.

B. Analysis

As stated above, Plaintiff asserts six counts in the Amended

Complaint. As Defendants seek to dismiss each count for

different reasons, the Court will address them in turn.

1. Fraudulent Conveyance under § 25:2-25(a)

Plaintiff’s first count alleges that the $16 million

shareholder distribution runs afoul of the intentionally

fraudulent transfer provision contained in § 25:2-25(a). The

relevant provision of the statute states that

[a] transfer made or obligation incurred by a

debtor is fraudulent as to a creditor, whether

the creditor's claim arose before or after the

transfer was made or the obligation was

incurred, if the debtor made the transfer or

incurred the obligation:

a. With actual intent to hinder, delay,

or defraud any creditor of the debtor . .

. 

N.J. Stat. Ann. § 25:2-25(a). Plaintiff alleges that Defendants

undertook the shareholder distribution in 2007 with the intent to

hinder, delay or defraud those creditors, like Plaintiff, whose

potential contractual liabilities were not satisfied by HTS prior

to the shareholder distribution. Plaintiff argues that: the

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distribution constituted substantially all of HTS’s liquid

assets; it was distributed to insiders of HTS; HTS received no

consideration from the shareholders for the distribution; and as

a result, the remaining assets of HTS were insufficient to

satisfy claims such as Plaintiff’s against HTS. Am. Compl. ¶ 34-

39. Plaintiff alleges, generally, that the distribution was made

with the intent to hinder, delay or defraud creditors such as

Plaintiff. Id. ¶ 40.

“The purpose of the [NJUFTA] is to prevent a debtor from

placing his or her property beyond a creditor’s reach” thereby

“deliberately cheat[ing] a creditor by removing his property from

the jaws of execution.” Gilchinsky v. Nat. Westminster Bank

N.J., 159 N.J. 463, 475 (1999) (internal quotation and citations

omitted). The New Jersey Supreme Court has articulated two

elements that must be alleged and proven to prevail on such a

claim.

The first is whether the debtor or person

making the conveyance has put some asset

beyond the reach of creditors which would have

been available to them at some point in time

but for the conveyance. . . The second is

whether the debtor transferred property with

an intent to defraud, delay, or hinder the

creditor.

Id. at 475-76.

Defendants argue that Plaintiff has not plausibly, and with

the requisite specificity, alleged the second element of this

provision. They argue that the facts as alleged do not give rise

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to the conclusion that Defendants “intended to thwart or evade

[their] creditors.” Id. at 476. Gilchinsky holds that the Court

should look to the “badges of fraud” enumerated in N.J. Stat.

Ann. § 25:2-26 in order to evaluate whether the facts alleged

state a claim for intentional fraud. Id.

The factors listed in the statute include whether

a. The transfer or obligation was to an

insider;

b. The debtor retained possession or control

of the property transferred after the

transfer;

c. The transfer or obligation was disclosed or

concealed;

d. Before the transfer was made or obligation

was incurred, the debtor had been sued or

threatened with suit;

e. The transfer was of substantially all the

debtor's assets;

f. The debtor absconded;

g. The debtor removed or concealed assets;

h. The value of the consideration received by

the debtor was reasonably equivalent to the

value of the asset transferred or the amount

of the obligation incurred;

i. The debtor was insolvent or became

insolvent shortly after the transfer was made

or the obligation was incurred;

j. The transfer occurred shortly before or

shortly after a substantial debt was incurred;

and

k. The debtor transferred the essential assets

of the business to a lienor who transferred

the assets to an insider of the debtor.

N.J. Stat. Ann. § 25:2-26.

The parties agree on most of the factors. Defendants

concede that Plaintiff has plausibly alleged factors (a) and (h):

that the transfer was to insiders and that the debtor (HTS) did

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not receive consideration that was reasonably equivalent to the

$16 million HTS distributed to the Shareholder Defendants. And

Plaintiff agrees that it has not alleged factors (b), (d), (f),

(g), (j), and (k). Therefore the only disputes are over factors

(c), (e), and (i).

As to factor (c), Plaintiff offers no argument explaining

how or where it has alleged that the shareholder distribution was

concealed. The Court can find no such allegation in the Amended

Complaint, nor has Plaintiff pointed the Court to any such fact

in any supporting document. Therefore, the Court concludes that

Plaintiff has not alleged this factor.

Regarding factor (e), whether the transfer was of

substantially all of HTS’s assets, Defendants argue that

Plaintiff fails to plausibly allege this point because the

Amended Complaint alleges that, even after the shareholder

distribution, HTS retained its 25% ownership stake in Tan

Holdings, which Defendants value at approximately $10 million as

of the asset sale and shareholder distribution in 2007. 

Defendants arrive at this valuation by taking the acquisition

price of HTS’s assets ($40 million) and dividing by four (25%) to

reach $10 million. Other circumstances bring Defendants’

valuation of the shares into question, and it is plausible that

evidence may confirm Plaintiff’s allegation that this 25%

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ownership in Tan Holdings had minimal real value. Plaintiff 3

relies on the fact that, within a year after Tan’s acquisition of

HTS, the value of the shares became worthless. This is powerful

circumstantial evidence that Tan’s true equity position after it

borrowed funds and paid to acquire HTS was insubstantial or even

negative. At this stage, the Court is not obligated to accept

Mr. Venuto’s deposition testimony that the shares had

“substantial value,” when history shortly thereafter demonstrated

otherwise. The Plaintiff’s allegation on this point proffers a

plausible basis to conclude that factor (e) may be demonstrated

at trial. Plaintiff has met its pleading burden on this point as

required by Rule 9(b).

Consequently, the Court concludes that Plaintiff has

sufficiently alleged facts from which the Court can infer that

factor (e) (that the transfer comprised substantially all of the

debtor’s assets) is present.

Finally, Defendants claim that Plaintiff has not

sufficiently alleged factor (i), that HTS was insolvent or became

 For example, the Court notes that Tan Holdings apparently 3

had to take on debt in order to raise the cash needed to pay HTS

the $40 million purchase price (see Asset Purchase Agreement at

52, ¶ 6.6(a)). It would therefore seem unlikely that a full and

fair valuation of Tan Holdings at the time of the shareholder

distribution would lead to a $40 million valuation, and therefore

the 25% ownership interest retained by HTS would likely be worth

somewhat less than $10 million. It would be worth, at most, only

25% of the assets minus liabilities of Tan Holdings, reduced

further by the illiquidity of such an investment in a closely

held enterprise. 

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insolvent shortly after the transfer was made. Defendants merely

deny that HTS became insolvent after, or because of, the

transfer. The Court finds this argument unpersuasive, noting

that Plaintiff quotes Defendant Ralph Venuto, Jr. as saying that

the company was insolvent no later than August or September of

2008, just over a year after the asset purchase agreement closed

and the subsequent shareholder distribution. The Court finds

such facts sufficient to allege this badge of fraud under factor

(i).

Consequently, the Court finds that Plaintiff has

sufficiently alleged four separate badges of fraud, namely

factors (a), (e), (h) and (i). The Court now must determine

whether the presence of these four factors meets the standard

articulated in Gilchinsky:

The proper inquiry is whether the badges of

fraud are present, not whether some factors

are absent. Although the presence of a single

factor, i.e. badge of fraud, may cast

suspicion on the transferor’s intent, the

confluence of several in one transaction

generally provides conclusive evidence of an

actual intent to defraud.

Id. at 477. In the instant action, the Court finds that, while

only four badges of fraud are adequately alleged to be present,

the Court concludes that these four, in combination, are

sufficient to state a claim for intentional fraud under § 25:2-

25. As the New Jersey Supreme Court has held, the presence of a

single badge of fraud is sufficient to cast suspicion on the

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transferor’s intent. Gilchinsky at 477. Here, the Amended

Complaint alleges with requisite specificity that the suspect

transfer was to insiders, HTS received no consideration for the

transfer, the transfer was for substantially all of HTS’s assets,

and shortly thereafter, the company had become insolvent. 

Perhaps after discovery and on a summary judgment record, the

evidence will provide a more full explanation for why HTS became

insolvent so soon after the shareholder distribution, the amount

of debt Tan took on to purchase HTS, and the value of the 25%

interest in Tan. But on the few but sufficient facts and

circumstances alleged here, the Court concludes that Plaintiff

has pointed to sufficient indicia of fraud in the distribution to

the Defendant Shareholders to survive a motion to dismiss. See

In re B. Moss Clothing Co. Ltd, Slip Op. 2011 WL 3878387 (Bankr.

D.N.J. Aug. 31, 2011) (“the presence of two badges of fraud are

surely sufficient then to state a claim for actual fraud” under §

25:2-25(a)). See also In re Lopresti, Slip Op. 2006 WL 2708605

(Bankr. D.N.J. Sep. 20, 2006) (finding claim stated on allegation

of three badges of fraud).

The cases cited by Defendants are factually distinguishable

based on the fact that the plaintiffs in those cases were unable

to sufficiently allege more than a single badge of fraud, or as

strong a connection between the badges as Plaintiff has here. 

See, e.g. In re Actrade Fin. Techs. Ltd., 377 B.R. 791, 809-10

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(Bankr. S.D.N.Y. 2005) (listing two suspicious facts not

traditionally considered badges of fraud, and determining that

“few if any” badges of fraud were present); Nisselson v. Softbank

Am. Corp. (in re MarketXT Holdings Corp.), 361 B.R. 369, 396-97

(Bankr. S.D.N.Y. 2007) (finding only one badge of fraud: the

inadequacy of consideration). 

Accordingly, the Court cannot find that Plaintiff has failed

to state a claim for intentional fraudulent transfer under §

25:2-25(a). The Court will, therefore, deny Defendants’ motion

to dismiss Plaintiff’s first count.

2. Fraudulent Conveyance under § 25:2-25(b)(1)

In Count Two, Plaintiff alleges that Defendants’ shareholder

distribution constitutes constructive fraud pursuant to § 25:2-

25(b)(1). Under this provision of the statute, a transfer is

fraudulent 

if the debtor made the transfer . . . (b)

Without receiving a reasonably equivalent

value in exchange for the transfer . . . , and

the debtor: (1) Was engaged . . . in a

business or a transaction for which the

remaining assets of the debtor were

unreasonably small in relation to the business

or transaction . . .

Id. Thus, to state a claim under this subsection, Plaintiff must

allege both (1) that HTS executed the $16 million shareholder

distribution without repayment and (2) that as a result of the

distribution, Defendant HTS’s remaining assets were unreasonably

small in relation to its continuing liabilities to Plaintiff and

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other creditors.

The Third Circuit, interpreting the Pennsylvania analogue to

the NJUFTA, defined “unreasonably small” assets as 

the inability to generate sufficient profits

to sustain operations. Because an inability

to generate enough cash flow to sustain

operations must precede an inability to pay

obligations as they become due, unreasonably

small capital would seem to encompass

financial difficulties short of equitable

insolvency.

Moody v. Security Pacific Business Credit, Inc., 971 F.2d 1056,

1070 (3d Cir. 1992). “The question of whether a debtor left

itself with unreasonably small assets to carry on its business is

ultimately one of foreseeability.” United States v. Rocky

Mountain Holdings, Inc., 782 F. Supp. 2d 106, 119 (E.D. Pa. 2011)

(quoting Peltz v. Hatten, 279 B.R. 710, 744 (D. Del. 2002)). The

question, therefore, is whether, at the time of the transfer, the

Defendants expected that the debtor (HTS) retained sufficient

assets to meet its foreseeable liabilities, including this

liability to Plaintiff.

Thus, to state a claim for constructive fraudulent

transaction under § 25:2-25(b)(1), Plaintiff must allege that it

was reasonably foreseeable, at the time of the shareholder

distribution, that the assets retained by HTS after the

distribution would be insufficient to pay claims by potential

creditors such as Plaintiff.

Defendants argue that it was not foreseeable at the time of

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the distribution that Plaintiff would seek to collect on a claim

for unpaid rent on a sublease contract because at that time,

Defendants expected the lease agreements with landlords such as

Plaintiff to be paid by other parties such as Tan Holdings or the

franchisees who were subletting the properties, much as they had

been paid prior to the asset sale and shareholder distribution. 

Thus, while the theoretical possibility existed that a

landlord such as Plaintiff would seek payment of back rent

because the franchisee had defaulted, such a liability would be

merely a contingent liability. For contingent liabilities such

as these, courts typically take into account the apparent

likelihood of the contingent event happening when comparing such

liabilities against assets. In re R.M.L., Inc. v. Mellon Bank,

N.A., 92 F.3d 139, 156 (3d Cir. 1996) (holding that for

contingent assets or liabilities, “a court must take into

consideration the likelihood of that event occurring from an

objective standpoint.”). See also Xonics Photochemical, Inc.,

841 F.2d 198 (7th Cir. 1988) (“the asset or liability must be

reduced to its present, or expected, value before a determination

can be made whether the firm’s assets exceed its liabilities”)

(quoted in R.M.L. at 156). Thus, the possibility of franchisee

default as a liability is discounted according to its apparent

likelihood at the time of the shareholder distribution. This

liability could therefore be described as appearing to be small,

but of greater than zero value.

The question, then, is whether it was foreseeable at the

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time of the distribution that HTS’s assets after the distribution

would become insufficient to satisfy its probabilistically small

but existent liabilities. The only asset Defendants point to

that they argue could have satisfied such liabilities is the 25%

ownership interest in Tan Holdings, which had some value,

“substantial” or otherwise, that is not alleged. Plaintiffs have

alleged that this asset was insufficient to satisfy the

foreseeable, if unlikely, lease liabilities. The Court concludes

that, on these facts and circumstances, Plaintiff has plausibly

alleged that it was foreseeable that the potentially heavily

encumbered 25% share in Tan Holdings, likely lacking in

liquidity, would not be sufficient to meet any claims that could

foreseeably arise in the future. Accordingly, the Court will

deny Defendants’ motion to dismiss Plaintiff’s claim for

constructive fraudulent transfer under § 25:2-25(b) in Count Two.

3. Fraudulent Conveyance under § 25:2-27

In Counts Three and Four, Plaintiff additionally seeks

relief under § 25:2-27; under subsection (a) in Count Three and

subsection (b) in Count Four. The two provisions apply to

slightly different factual contexts, so the Court will address

them separately, beginning with subsection (a).

Subsection (a) provides that 

A transfer made or obligation incurred by a

debtor is fraudulent as to a creditor whose

claim arose before the transfer was made or

the obligation was incurred if the debtor made

the transfer or incurred the obligation

without receiving a reasonably equivalent

value in exchange for the transfer or

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obligation and the debtor was insolvent at

that time or the debtor became insolvent as a

result of the transfer or obligation.

N.J. Stat. Ann. § 25:2-27(a). Defendants seek to dismiss

Plaintiff’s claim under this subsection on the grounds that (1)

Defendant HTS received a reasonably equivalent value in exchange

for the relevant asset transfer; and (2) Defendant HTS was not

insolvent at the time of the relevant transfer and was not made

insolvent as a result of the transfer.

With regard to the reasonably equivalent value, Defendants

analyze the issue as though the transfer or conveyance at issue

were the asset purchase agreement with Tan Holdings, under which

HTS received more than $40 million in exchange for selling

substantially all its assets. This argument fails because, as

Plaintiff points out in opposition, Plaintiff has no complaints

with the asset purchase agreement. Plaintiff, instead, alleges

that it was the shareholder distribution that violates § 25:2-

27(a). Defendants argue, in reply, that such a position “seems

inconsistent” because “[e]ither both are part of a fraudulent

transaction or neither is.” Defendants offer no explanation for

why this would be so, however, other than mere ipse dixit. 

Consequently, the Court is unpersuaded by Defendants’ argument

and finds that Plaintiff has sufficiently alleged that in the

relevant transaction of the shareholder distribution, Defendant

HTS did not receive a reasonably equivalent value in exchange for

distributing approximately $16 million among the shareholders.

As to Defendant HTS’s alleged insolvency, Defendants argue

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that Plaintiff fails to sufficiently allege this element of the

statute because the allegations show that, at the time of the

distribution and subsequent to it, Defendant HTS retained its 25%

ownership interest in Tan Holdings, which Defendants value at $10

million, in addition to the Tan Holdings performance-based

contingent earnings (the “earn outs”). Defendants compare these

assets, at the time of the distribution, with the contingent

liability of Defendant’s sublettor defaulting, and concludes that

Defendant HTS was not insolvent at the time of the distribution.

The Court concludes, however, that Plaintiff need not only

allege that HTS was insolvent at the time of the distribution;

Plaintiff could also allege that Defendant HTS became insolvent

after the distribution as a result, at least in part, of the

distribution. Plaintiff cites Defendant Ralph Venuto, Jr.,

stating that Defendant HTS became insolvent in August or

September of 2008, not more than one year after it distributed

approximately $16 million to its shareholders. Plaintiff alleges

the reasonable inference that, had Defendant HTS not distributed

$16 million in liquid assets to its shareholders in 2007, it

would not have become insolvent in 2008 mere months after

Plaintiff served notice of default on its commercial lease. Am.

Compl. ¶ 49. Consequently, the Court will deny Defendants’

motion to dismiss Plaintiff’s third count.

With regard to subsection (b), however, the result is

different. Pursuant to that provision

[a] transfer made by a debtor is fraudulent as

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to a creditor whose claim arose before the

transfer was made if the transfer was made to

an insider for an antecedent debt, the debtor

was insolvent at that time, and the insider

had reasonable cause to believe that the

debtor was insolvent.

N.J. Stat. Ann. § 25:2-27(b). To survive Defendants’ motion to

dismiss on this claim, Plaintiff must plausibly allege that, at

the time of the distribution, Defendant HTS was insolvent and the

shareholder Defendants had reason to believe so. This, however,

Plaintiff does not do. At most, Plaintiff alleges that because

of the distribution, HTS became unable to satisfy its liabilities

at some point after the distribution. 

Consequently, the Court concludes that Plaintiff has failed

to sufficiently allege the elements of a claim under § 25:2-

27(b), and will therefore grant Defendants’ motion to dismiss

Plaintiff’s fourth count. Because the Court has granted

Defendant’s motion to dismiss as to the fourth count, the Court

need not address Defendants’ argument regarding whether

Plaintiff’s claim under § 25:2-27(b) is barred by the one-year

statute of limitations.

4. Collateral Estoppel

Defendants additionally argue that Plaintiff’s claims under

the NJUFTA are barred under the doctrine of collateral estoppel

because an unrelated plaintiff, AMC Delancey Richboro Partner, LP

(“AMC”), has previously filed a similar complaint against

Defendants in the Superior Court of New Jersey, Camden County Law

Division, docketed at L-5169-10. The AMC complaint was filed on

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October 15, 2010, see Defs.’ Ex. C, and, on June 10, 2011, the

complaint was dismissed without prejudice for failure to state a

claim. See Defs.’ Ex. F.

Collateral estoppel, otherwise known as issue preclusion,

“bars relitigation of any issue that was actually determined in a

prior action, generally between the same parties, involving a

different claim or cause of action.” Zirger v. General Accident

Insurance Co., 144 N.J. 327, 337 (1996). New Jersey courts

require the party asserting collateral estoppel to demonstrate

five elements: 

(1) the issue to be precluded is identical to

the issue decided in the prior proceeding; (2)

the issue was actually litigated in the prior

proceeding; (3) the court in the prior

proceeding issued a final judgment on the

merits; (4) the determination of the issue was

essential to the prior judgment; and (5) the

party against whom the doctrine is asserted

was a party to or in privity with a party to

the earlier proceeding.

State v. Brown, 394 N.J. Super. 492, 502 (App. Div. 2007)

(quoting First Union Nat’l Bank v. Penn Salem Marina, 190 N.J.

342, 352 (2007)). 

The only element disputed here is whether or not Plaintiff

MSKP is in privity with AMC. Defendants argue that privity

exists here under Zirger’s definition of privity. In Zirger, the

New Jersey Supreme Court explained that a non-party to an earlier

adjudication could usually only be considered to be in privity

with one of the parties “when the party is a virtual

representative of the non-party, or when the non-party actually

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controls the litigation.” Id. at 338 (quoting Collins v. E.I.

DuPont de Nemours & Co., 34 F.3d 172, 176 (3d Cir. 1994)).

The Court agrees with Plaintiff that the AMC plaintiff did

not fit the “virtual representative” category as described in

Zirger. There is no indication that, other than both being

commercial landlords holding a judgment against Defendant HTS,

AMC and Plaintiff share any other factual connection or

similarity. That the two plaintiffs pursued similar legal

theories of recovery is not enough to fall within the relatively

narrow scope of “privity” as described in Zirger.

The Court further concludes that, were the New Jersey

Supreme Court to address the scope of privity in the context of

collateral estoppel today, the Court would likely follow the lead

of many other courts, including the Third Circuit and the United

States Supreme Court, which have rejected the “virtual

representative” standard for assessing privity in collateral

estoppel cases in favor of a significantly more narrow

definition. In Nationwide Mutual Fire Ins. Co. v. George V.

Hamilton, Inc., 571 F.3d 299 (3d Cir. 2009), the Third Circuit

explicitly rejected the “virtual representative” definition:

“privity requires a prior legal or representative relationship

between a party to the prior action and the nonparty against whom

estoppel is asserted.” Id. at 312 (applying holding of Taylor v.

Sturgell, 553 U.S. 880 (2008)). Thus, were the New Jersey

Supreme Court to address the proper scope of privity after

Nationwide and Taylor, the Court is confident that it would

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follow the United States Supreme Court in narrowing the field of

nonparties affected by a prior judgment under collateral

estoppel; the result of such a narrower application in the

instant case results in the conclusion that Plaintiff MSKP is not

in privity with the AMC plaintiff, as there is no indication that

the two have ever had a prior legal or representative

relationship, and that collateral estoppel is therefore

inappropriate here. 

5. Improper Distribution of Corporate Assets

Plaintiff’s fifth count seeks to recover from Defendants

under a theory of director liability pursuant to N.J. Stat. Ann.

§ 14A:6-12(1)(c). The cited portion of the statute provides a

cause of action against certain directors of a corporation who

vote for or concur in “the distribution of assets to shareholders

during or after dissolution of the corporation without paying, or

adequately providing for, all known debts . . . .” Id. 

Defendants argue that Plaintiff cannot state a claim under

this statute because Plaintiff has not alleged that Defendant HTS

had dissolved or was undergoing dissolution at the time of the

shareholder distribution. Plaintiff does not respond to this

argument, but rather argues simply that the shareholder

distribution caused Defendant HTS to become insolvent, after

which HTS stopped filing annual reports, allegedly causing “the

State to administer corporate euthanasia.” Plf.’s Br. in Opp. at

19. Even were this allegation contained in the Amended Complaint 

so that the Court could consider it on a motion to dismiss, it

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would still be insufficient to state a claim under the statute. 

The New Jersey legislature has enumerated specific ways in which

a corporation can be dissolved, none of which are encompassed by

the facts alleged in the Amended Complaint or in Plaintiff’s

briefs. See N.J. Stat. Ann. § 14A:12-1(1). Accordingly,

Plaintiff has not adequately plead that Defendants approve the

distribution to shareholders after HTS had dissolved, or during a

dissolution, as that term “dissolution” is commonly understood. 

Consequently, the Court concludes that Plaintiff has failed to

state a claim for relief under § 14A:6-12(1)(c) and will grant

Defendants’ motion to dismiss the fifth count of the Amended

Complaint.

6. Unjust Enrichment

Finally, Plaintiff seeks recovery from the shareholder

Defendants under the equitable theory of unjust enrichment. 

Plaintiff argues that though no direct contractual relationship

existed between Plaintiff and the shareholder Defendants, the

Plaintiff did have a contractual relationship with Defendant HTS,

and that rather than setting aside money to pay the debts it

eventually was found to owe Plaintiff, HTS instead distributed

its remaining liquid assets to the shareholders. Therefore,

Plaintiff argues, for the shareholders to retain the money that

Defendant HTS owes to Plaintiff would be unjust.

Defendants argue that this claim should be dismissed for two

reasons, first because Plaintiff already has an adequate remedy

at law (fraudulent transfer under the NJUFTA), and second because

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Plaintiff does not allege, as it must, that there exists any

direct contractual relationship between Plaintiff and the

shareholder Defendants. Plaintiff’s brief in opposition does not

respond to either of these arguments.

The Court declines to dismiss the claim on the basis of

there being an adequate remedy at law available, as Plaintiff is

permitted to plead alternative theories of recovery. See In re

K-Dur Antitrust Litigation, 338 F. Supp. 2d 517, 544 (D.N.J.

2004) (denying motion to dismiss claims of unjust enrichment on

the basis that equitable remedies such as unjust enrichment

should not be granted where there exists an adequate remedy at

law, and noting that plaintiffs “are clearly permitted to plead

alternative theories of recovery.”)

However, the Court agrees with Defendants that Plaintiff has

failed to state a claim for unjust enrichment on these facts

because Plaintiff has not alleged that any contractual

relationship existed between Plaintiff and the shareholder

Defendants from whom Plaintiff seeks recovery. Unjust enrichment

is a theory of quasi-contractual liability that requires a direct

relationship between the parties. See Callano v. Oakwood Park

Homes Corp., 91 N.J. Super. 105, 109 (App. Div. 1966) (holding

that “quasi-contract cases involve either some direct

relationship between the parties or a mistake on the part of the

person conferring the benefit” and therefore “[a] plaintiff is

not entitled to employ the legal fiction of quasi-contract to

substitute one promisor or debtor for another.”) (internal

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quotation marks and citations omitted).

The unjust enrichment doctrine requires that

plaintiff show that it expected remuneration from

the defendant at the time it performed or conferred

a benefit on defendant and that the failure of

remuneration enriched defendant beyond its

contractual rights.

VRG Corp. v. GKN Realty Corp., 135 N.J. 539, 554 (1994).

In the instant matter, Plaintiff does not allege that it had

a direct relationship with the shareholder Defendants. Indeed,

Plaintiff alleges specifically that “[a]lthough plaintiff had a

lease with Hollywood Tanning, it had no direct agreement with the

shareholders of Hollywood Tanning.” Am. Compl. ¶ 61. Plaintiff

further does not allege that it conferred any benefit directly on

the shareholder Defendants, but merely that they benefitted from

the breach of Defendant HTS. As a result, Plaintiff’s claim for

unjust enrichment fails to state a claim. The Court will,

accordingly, grant Defendant’s motion to dismiss the sixth count

of the Amended Complaint.

IV. CONCLUSION

Plaintiff has sufficiently alleged a fraudulent transfer

under three of the subsections of the NJUFTA, but has failed to

allege a violation of one other. Plaintiff plausibly alleges

that Defendant HTS distributed $16 million to its shareholders

with no repayment, rendering it substantially without assets

shortly before HTS became insolvent, raising the plausible

inference that the transfer was intended to hinder, delay, or

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defraud its creditors. Similarly, because Plaintiff has

plausibly alleged that after the distribution, HTS’s assets were

foreseeably insufficient to cover its liabilities, Plaintiff

states a claim for constructive fraudulent transfer as well. 

Additionally, Plaintiff has sufficiently alleged that HTS made

the distribution without receiving payment of a reasonably

equivalent value, and HTS subsequently became insolvent as a

result of the distribution. Therefore, the Court will deny

Defendants’ motion to dismiss as to Plaintiff’s first, second,

and third counts. However, Plaintiff has failed to plausibly

allege facts to support a claim under § 25:2-27(b) because

Plaintiff has not alleged facts suggesting that Defendant HTS was

insolvent at the time of the distribution. Therefore, the Court

will grant Defendants’ motion to dismiss as to Plaintiff’s fourth

count.

Finally, the Court is also granting Defendants’ motion to

dismiss as to the fifth and sixth counts of the Amended Complaint

because Plaintiff has not alleged that the shareholder

distribution occurred during or after the dissolution of

Defendant HTS and because Plaintiff has failed to allege a direct

contractual relationship between Plaintiff and the shareholder

Defendants.

The accompanying Order will be entered.

June 20, 2012 s/ Jerome B. Simandle 

Date JEROME B. SIMANDLE

Chief U.S. District Judge

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