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. 

 

HONORABLE JEROME B. SIMANDLE 

Civil Action 

No. 10-6465 (JBS/JS) 

OPINION

 

 

APPEARANCES: 

Robert A. Vort, Esq. 

2 University Plaza, Suite 101 

Hackensack, NJ 07601 

-andJoseph A. Molinaro, Esq. 

666 Godwin Avenue, Suire 220 

Midland Park, NJ 07342 

 Attorneys for Plaintiff 

Dimitri Luke Karapelou, Esq. 

LAW OFFICES OF DIMITRI L. KARAPELOU, LLC 

Two Penn Center 

1500 JFK Boulevard, Suite 920 

Philadelphia, PA 19102 

 Attorney for Defendants 

SIMANDLE, Chief Judge: 

INTRODUCTION 

 In this action, Plaintiff MSKP Oak Grove, LLC (“MSKP”) 

asserts claims under the New Jersey Uniform Fraudulent Transfer 

Act, N.J.S.A. § 25:2-20 et seq. (“NJUFTA”), arising from an 

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allegedly fraudulent transfer of assets through which Defendants 

intended to avoid payment to certain creditors, including 

Plaintiff. Plaintiff is a commercial landlord to which 

Hollywood Tanning Systems, Inc. (“HTS”) is indebted by a 2009 

judgment in the amount of $411,573.45. Plaintiff alleges that 

following an asset purchase agreement with another corporation, 

Tan Holdings, LLC, in 2007, HTS fraudulently distributed $23 

million to its shareholders, Defendants Carol and Ralph A. 

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

P. Venuto (“the Shareholders”), and rendered HTS without 

sufficient assets to satisfy future obligations to creditors, 

including HTS’s obligation to Plaintiff relating to a defaulted 

lease agreement. 

 After the conclusion of nearly five years of dismissal 

motion practice and discovery and a lengthy stay, the parties 

now bring a host of motions before the Court: a motion for 

judgment on the pleadings as to Count IV of the Second Amended 

Complaint by Defendants Carol Venuto, Ralph A. Venuto, Jr., 

Carol Rebbecchi, Richard P. Venuto, and Hollywood Tanning 

Systems, Inc. (“HTS”) [Docket Item 148]; a motion in limine to 

exclude Plaintiff’s expert, Shelley Brown, as an expert witness 

 

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

this action, Plaintiff names his estate as a defendant, 

represented by Defendant Carol Venuto as executrix. 

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pursuant to Fed. R. Evid. 702 and Daubert by Defendants [Docket 

Item 150]; a motion by Plaintiff to enjoin proceedings currently 

pending in the Superior Court of New Jersey [Docket Item 161]; 

and cross-motions for summary judgment by Plaintiff and by 

Defendants. [Docket Items 178 & 187.] The Court convened a 

hearing regarding admissibility of Ms. Brown’s proposed expert 

testimony on June 22, 2016. 

 For the reasons discussed below, the Court will deny 

Defendants’ motion for judgment on the pleadings as to Count IV, 

deny Defendants’ Daubert motion to exclude Ms. Brown as an 

expert, deny Plaintiff’s motion to enjoin proceedings in the New 

Jersey state courts, and deny the cross-motions for summary 

judgment. 

BACKGROUND 

Factual Background 

Prior to the events at issue in this action, HTS was a New 

Jersey corporation that operated tanning salons and sold 

franchises and tanning equipment to independent tanning salons. 

(Def. Summary Judgment Ex. A [Docket item 178-5] at 9:17-10:1). 

HTS was founded in 1994 by Ralph A. Venuto, Sr., who is now 

deceased. (Def. Summary Judgment Ex. B [Docket Item 178-6] at 

2.) HTS was owned by Ralph A. Venuto, Sr. and his wife Carol 

Venuto, Ralph A. Venuto, Jr., Carol Rebbecchi, and Richard P. 

Venuto, who also acted as HTS’s officers. (Pl. Summary Judgment 

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Ex. I [Docket Item 187-5].) Franchisees operated over 300 

Hollywood Tanning salons. (Def. Summary Judgment Ex. C [Docket 

Item 178-7] at 11:25.) 

 In 2003, HTS leased a commercial retail space in a shopping 

center in Florida from TSO Oak Grove, LLC (“TSO”), a predecessor 

in interest to Plaintiff MSKP. (Second Am. Compl. ¶ 19.) In 

2004, TSO consented to HTS’s request to sublease the space to a 

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

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

Altamonte’s default. (Id. ¶¶ 20-21.) Plaintiff acquired the 

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

(Id. ¶ 23.) 

 In the spring of 2007, HTS entered into an asset purchase 

agreement with non-party Tan Holdings, LLC, in which Tan 

Holdings acquired almost all of HTS’s assets and assumed many of 

HTS’s debts in exchange for $40 million, 25% of the issued and 

outstanding preferred units of Tan Holdings, and certain 

contingency payments depending on Tan Holding’s future earnings. 

(Def. Summary Judgment Ex. D [178-9] at 15-24.) Tan Holdings was 

operated by ACI Capital (“ACI”), a company with a “successful 

track record of growing consumer-service franchise businesses,” 

including Jenny Craig. (Def. Summary Judgment Ex. B at 11.) ACI 

engaged several third parties to perform due diligence prior to 

the sale. (Id. at 4.) 

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 The asset purchase agreement closed on June 22, 2007. (Def. 

Summary Judgment Ex. D.) That same day, the four Defendant 

shareholders each individually received distributions in the 

amount of $5,858,547.67, or more than $23.8 million of the $40 

million from the sale. (Second Am. Compl. ¶ 17.) The parties 

dispute the nature of the payment to HTS’s shareholders, whether 

it was a diversion from Tan Holdings straight to the 

shareholders or a proper shareholder distribution. Other 

proceeds of the sale went towards settling HTS’s thenoutstanding debts, which was required by the terms of the asset 

purchase agreement. (Def. Summary Judgment Ex. D.) HTS retained 

a few small receivables but otherwise substantially ended its 

operations as of June 22, 2007. (Def. Summary Judgment Ex. A at 

26:15-27:20.) The parties dispute the nature and amount of HTS’s 

debts and liabilities, if any, that remained afterwards. 

 After the closing of the sale Tan Holdings was unable to 

maintain operations. (Def. Summary Judgment Ex. A at 17:6-9.) 

The company ultimately declared bankruptcy and changed its 

corporate structure. (Id.) 

 On July 3, 2008, over a year after the asset sale and 

shareholder distribution, Plaintiff notified HTS that Altamonte, 

its sublettor franchisee, had defaulted on its lease. (Second 

Am. Compl. ¶ 24.) Plaintiff sued HTS and Altamonte in Florida 

state court to recover damages for breach of the lease. (Id. ¶ 

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25.) Plaintiff subsequently won a judgment against HTS for 

$411,573.45, which was recorded in the Superior Court of New 

Jersey on July 30, 2009 and remains unpaid. (Pl. Summary 

Judgment Ex. A [Docket Item 187-4] and Ex. B [Docket Item 187-

4].) 

Procedural History 

 Plaintiff filed the original Complaint in this action on 

December 13, 2010, naming only the individual shareholders as 

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

Complaint for failure to state a claim and for failure to join a 

necessary party, namely HTS, which the Court granted on August 

8, 2011, dismissing the Complaint without prejudice to Plaintiff 

filing a motion to amend and to join the new party. [Docket 

Items 11 & 12.] Plaintiff subsequently filed an Amended 

Complaint on November 14, 2011. [Docket Item 24.] The Amended 

Complaint asserted six counts against Defendants: Counts One 

through Four involved claims under the NJUFTA, Count Five sought 

to recover under a theory of improper distribution under 

N.J.S.A. § 14:6-12(1)(c), and Count Six sought to recover under 

a theory of unjust enrichment.2 Defendants again moved to 

dismiss for failure to state a claim pursuant to Fed. R. Civ. P. 

12(b)(6). The Court denied Defendants’ motion as to the first 

 

2 This Court exercises diversity jurisdiction over Plaintiff’s 

state law claims pursuant to 28 U.S.C. § 1332. 

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three counts, holding that Plaintiff had sufficiently alleged a 

fraudulent transfer under three subsections of the NJUFTA, but 

granted Defendants’ motion as to Counts Four, Five, and Six. 

MSKP Oak Grove, LLC v. Venuto, 875 F. Supp. 2d 426, 443 (D.N.J. 

2012). Following entry of an Order granting in part and denying 

in part Defendants’ motion to dismiss [Docket Item 34], 

Defendants filed an Answer to the Amended Complaint on July 13, 

2012. [Docket Item 40.] 

 Thereafter, Defendants filed their first motion for 

judgment on the pleadings due to untimeliness. [Docket Item 41.] 

In January, 2013, the Court issued an Order [Docket Item 59] 

staying all scheduling and motion practice until factual 

findings were issued in a related case pending before Judge Noel 

Hillman, Rowen Petroleum Properties, LLC v. Hollywood Tanning 

Sys., Inc., 899 F. Supp. 2d 303 (D.N.J. 2012). Following Rowen’s 

dismissal, on March 5, 2014, the Court relisted for 

consideration Defendants’ motion for judgment on the pleadings 

and permitted the parties to submit supplemental briefing 

regarding a related New Jersey state court case, GS Partners, 

LLC v. Carol Venuto, et al., No. C-12044 (N.J. Super. Ct. Ch. 

Div. Nov. 8, 2012), in which another of Defendants’ creditors 

asserted similar claims against Defendants3 under the NJUFTA 

 

3 All Defendants in the present action were named in GS Partners 

with the exception of HTS. 

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based on the same allegedly fraudulent transfer at issue in the 

present action. The Court then denied Defendants’ motion for 

judgment on the pleadings [Docket Items 75 & 76], finding 

Plaintiff’s NJUFTA claims under §§ 25:2-25(a), 25:2-25(b)(1), 

and 25:2-27(a) timely because the Amended Complaint relates back 

to the filing date of the Complaint under N.J. Ct. R. 4:9-3. 

MSKP Oak Grove, LLC v. Venuto, Case. No. 10-6465, 2014 WL 

4385979, at *10 (D.N.J. Sept. 5, 2014). 

 Plaintiff sought, and was granted, leave to file a Second 

Amended Complaint on March 25, 2015. [Docket Item 96.] This 

iteration included an amended NJUFTA claim under N.J.S.A. § 

25:2-27(b), which had been dismissed by this Court from the 

Amended Complaint in 2012. Defendants filed an Answer and 

Affirmative Defenses to the Second Amended Complaint. [Docket 

Item 102.] After further discovery, the parties filed the 

motions now before the Court: Defendants’ second motion for 

judgment on the pleadings as to Count IV [Docket item 148]; 

Defendants’ motion to exclude Plaintiff’s Expert Shelley Brown 

and her expert reports under Daubert [Docket Item 150]; 

Plaintiff’s motion to enjoin discovery in New Jersey state court 

[Docket Item 161]; and the parties’ cross-motions for summary 

judgment. [Docket Items 178 & 187.] The Court heard oral 

argument only as to Defendants’ Daubert motion on June 22, 2016, 

and heard testimony from Ms. Brown at that time. 

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DISCUSSION 

A. Defendants’ Motion for Judgment on the Pleadings On 

Count IV 

 First, Defendants bring a motion for judgment on the 

pleadings as to Count IV of Plaintiff’s Second Amended 

Complaint, contending that the Plaintiff’s new claim is time 

barred by the NJUFTA statute of repose and that it does not 

relate back to the Amended Complaint and the original Complaint. 

[Docket Item 148.] Plaintiff added a new claim under NJUFTA, 

N.J.S.A. § 25:2-27(b) to its Second Amended Complaint, alleging 

that the company was insolvent as of March 31, 2007, three 

months before the asset sale and shareholder distribution.4 (See 

Second Am. Compl. ¶¶ 53-55.) Defendants contend that this March 

2015 addition falls outside of the four-year statute of repose 

established by N.J.S.A. § 25:2-31 and that it does not relate 

back to the filing of the original Complaint because statutes of 

 

4 Plaintiff had originally included a claim for relief in its 

first Amended Complaint under § 25:2-27(b), which was dismissed 

by this Court on June 20, 2012, for failure to state a claim 

upon which relief could be granted. MSKP Oak Grove, LLC v. 

Venuto, 875 F. Supp. 2d 426, 439-40 (D.N.J. 2012). There, the 

Court found that the Amended Complaint failed to state a claim 

for a constructive fraudulent transfer because Plaintiff, at 

most, alleged that HTS became unable to satisfy its liabilities 

because of the shareholder distribution, where it was required 

by the statute to allege that HTS was insolvent at the time of 

the distribution. Id. Plaintiff, by its Second Amended 

Complaint, attempted to cure that deficiency by adding new 

factual allegations establishing HTS’s insolvency as of the 

distribution. 

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repose do not allow for equitable tolling or relation back. (Pl. 

Br. at 15, 17-18.) 

 Plaintiff takes the position that Defendants waived this 

argument by not seeking review of Judge Schneider’s order 

permitting the amendment, and in the alternative that relation 

back applies per this Court’s September 4, 2014 Opinion denying 

Defendants’ first motion for judgment on the pleadings. MSKP Oak 

Grove, LLC v. Venuto, Case No. 10-6465 (JBS/JS), 2014 WL 4385979 

(D.N.J. Sept. 5, 2014). For the reasons that follow, the Court 

will deny Defendants’ motion for judgment on the pleadings as to 

Count IV. 

1. Standard of Review 

 A defendant may move to dismiss a complaint before or after 

filing an answer. Fed. R. Civ. P. 12(b)(6) and (c); see also 

Borough of Sayreville v. Union Carbide Corp., 923 F. Supp. 671, 

675 (D.N.J. 1996). A motion made before an answer is filed is a 

motion to dismiss pursuant to Fed. R. Civ. P. 12(b)(6). A motion 

made after an answer is filed is a motion for judgment on the 

pleadings pursuant to Fed. R. Civ. P. 12(c). See Fed. R. Civ. P. 

12(h)(2) (“Failure to state a claim upon which relief can be 

granted . . . may be raised . . . by a motion under Rule 

12(c).”). 

 The differences between Rules 12(b)(6) and 12(c) are purely 

procedural, and the pleading standards of Rule 12(b)(6) are 

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applied for both. Turbe v. Gov’t of the Virgin Islands, 938 F.2d 

427. 428 (3d Cir. 1991). Thus, the 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.” Fleischer v. Standard Ins. Co., 679 F.3d 

116, 120 (3d Cir. 2012). The complaint must contain “sufficient 

factual matter, accepted as true, to state a claim to relief 

that is plausible on its face.” Ashcroft v. Iqbal, 556 U.S. 662, 

678 (2009) (internal quotation marks omitted). “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.” Id. 

2. Discussion 

a) Judge Schneider’s Order 

 As a threshold matter, Plaintiff takes the position that 

Defendants’ motion is barred by their failure to seek review of 

Magistrate Judge Joel Schneider’s March 23, 2015 Order [Docket 

Item 94] allowing Plaintiff to file a Second Amended Complaint 

including Count IV. Plaintiff contends that Judge Schneider’s 

finding that “the then-proposed count pleaded a viable claim for 

relief” constitutes law of the case because Defendants did not 

exercise their right to appeal within fourteen days pursuant to 

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Fed. R. Civ. P. 72(a) and L. Civ. R. 72.1(c)(1)(A). (Pl. Opp. at 

5-6.) 

 Plaintiff is mistaken and confounds Judge Schneider’s 

permission to file an amended complaint pursuant to Rule 

15(a)(2), Fed. R. Civ. P., with Defendants’ present attack on 

the timeliness of Plaintiff’s claims under the NJUFTA’s statute 

of repose. These are two separate inquiries. Judge Schneider 

permitted the addition of Count IV because “the Court does not 

find that the defendant will be prejudiced by the amendment.” 

(Pl. Br. Ex. B at 18.) Judge Schneider’s Order addressed neither 

the merits nor the timeliness of Plaintiff’s new constructive 

fraudulent transfer claim, and inquired only into whether 

“justice so requires” that the Court grant Plaintiff leave to 

amend its complaint under the Federal Rules of Civil Procedure’s 

liberal amendment policy. Defendants are still permitted to 

attack the sufficiency of the claims in the Second Amended 

Complaint; a party may still move to dismiss an amended 

complaint on grounds that were not available on its earlier 

dismissal motion. See Fed. R. Civ. P. 12(g)(“Except as provided 

in Rule 12(h)(2) or (3), a party that makes a motion under this 

rule must not make another motion under this rule raising a 

defense or objection that was available to the party but omitted 

from its earlier motion.”) Accordingly, the Court will consider 

Defendants’ arguments regarding the NJUFTA statute of repose. 

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b) Relation Back under the NJUFTA 

 This Court already rejected Defendants’ contention that the 

NJUFTA statute of repose categorically prohibits the relation 

back of any amended complaints. MSKP Oak Grove, 2014 WL 4385979, 

at *7 (“Thus, the Court holds that the statute of repose 

in N.J.S.A. § 25:2–31 does not preclude the possibility of 

relation back if N.J. Ct. R. 4:9–3 is satisfied.”). Instead, an 

out-of-time amendment alleging claims under the NJUFTA will be 

considered to relate back to the original filing date when “the 

claim . . . asserted in the amended pleading arose out of the 

conduct, transaction or occurrence set forth or attempted to be 

set forth in the original pleading.” N.J. Ct. R. 4:9-3. The 

standards for relation back under N.J. Ct. R. 4:9-3 are to be 

liberally applied. Notte v. Merchants Mut. Ins. Co., 185 N.J. 

490, 499 (2006). 

 Critical to the undersigned’s earlier finding that the 

claims in Plaintiff’s first Amended Complaint related back to 

the date of the original pleading was the fact that “Plaintiff’s 

Amended Complaint did not change the nature of Plaintiff’s 

claims or add any parties not already on notice as to 

Plaintiff’s claims.” MSKP Oak Grove, 2014 WL 4385979, at *8. 

Here, Plaintiff’s amended Count IV clarifies Plaintiff’s claim 

for a fraudulent conveyance: asserting that the shareholder 

distribution was fraudulent because HTS was insolvent before the 

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conveyance, not merely that HTS became insolvent as a result of 

the conveyance. While this is an additional theory of liability, 

it is essentially attacking a label to the conduct that was 

attempted to be set forth in the original pleading, and it thus 

relates back. 

 Moreover, “The chief consideration underlying [statutes of 

repose] is said to be fairness to a defendant.” In re Sharps Run 

Assoc., L.P., 157 B.R. 766, 785 (1993) (quoting Rosenberg v. 

Town of North Bergen, 61 N.J. 190, 201 (1972)). Here, Defendants 

can scarcely claim to be surprised by the amendment, since their 

alleged fraudulent conveyance has been alleged from the 

beginning, albeit in deficient form until now. It may fairly be 

said that this is the claim Plaintiff attempted to set forth in 

its Complaint. Indeed, Defendants have had no difficulty 

addressing this Count IV claim in their summary judgment motion, 

addressed below. 

 Accordingly, the Court will deny Defendants’ motion for 

judgment on the pleadings as to Count IV on the grounds that the 

claim is untimely under the NJUFTA statute of repose. 

B. Defendants’ Daubert Motion 

 Defendants next seek an Order excluding Plaintiff’s expert, 

Shelley Brown, as an expert witness and excluding both of her 

expert reports pursuant to Fed. R. Evid. 702 and Daubert. 

[Docket Item 150.] The Court convened a Daubert hearing on June 

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22, 2016, to hear testimony of Ms. Brown and the arguments of 

counsel upon this motion to determine the admissibility of her 

opinions. Ms. Brown, the Director of Forensic and Valuation 

Services for Paritz & Company, PA, produced two expert reports 

in August of 2015 on Plaintiff’s behalf: the first, examining 

HTS’s solvency before and after the shareholder distribution on 

June 22, 2007, the “Fraudulent Conveyance Report” [Docket Item 

150-2], and the second, the “Valuation Report” [Docket Item 150-

3], which provided an opinion as to the fair market value of Tan 

Holdings as of June 22, 2007, the date of the HTS asset sale. 

Ms. Brown specifically rendered the following opinions: 

1. HTS did not receive reasonably equivalent value in return 

for the distributions and diversion of cash to the 

Venutos. 

2. Remaining assets of HTS were unreasonably small in 

relation to the business or transaction. 

3. The distributions to the Venutos and the diversion to 

them occurred when HTS knew or should have known that it 

would incur debt beyond its ability to pay them as they 

became due. The distribution and diversion left HTS with 

debts greater than its assets at fair market value. 

4. The distribution and diversions to the Venutos left HTS 

insolvent immediately or shortly after they were made. 

5. Evidence of HTS post sale insolvency contained [sic] in 

December 31, 2007 financial statements. 

6. Tan Holdings’ liabilities exceeded its assets on the day 

before the date of the sale, June 21, 2007, and on the 

date of the sale of HTS’s assets, June 22, 2007. 

(Fraudulent Conveyance Report at 2-3; Valuation Report at 1.) 

 Defendants contend that Ms. Brown’s fraudulent conveyance 

report is fatally flawed because she cited no reliable 

principles or methodology, she inappropriately used hindsight to 

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value HTS, and she rendered opinions on Defendants’ state of 

mind which she is unqualified to present. Defendants also take 

the position that Ms. Brown’s valuation report is inadmissible 

because it is not helpful to the trier of fact and because Ms. 

Brown should be excluded as an expert. In opposition, Plaintiff 

argues that Ms. Brown’s reports should be read as two pieces of 

one expert opinion, such that the principles and methodology 

discussed in the later valuation report are part of her 

fraudulent conveyance report as well. For the reasons that 

follow, the Court will deny Defendants’ motion to exclude Ms. 

Brown’s expert reports. 

1. Standard of Review 

 Ms. Brown’s testimony is subject to the Federal Rules of 

Evidence, which mandate that: 

A witness who is qualified as an expert by knowledge, 

skill, experience, training, or education may testify 

in the form of an opinion or otherwise if: (a) the 

expert's scientific, technical, or other specialized 

knowledge will help the trier of fact to understand 

the evidence or to determine a fact in issue; (b) the 

testimony is based on sufficient facts or data; (c) 

the testimony is the product of reliable principles 

and methods; and (d) the expert has reliably applied 

the principles and methods to the facts of the case. 

Fed. R. Evid. 702. Expert opinions may be based on 

facts or data in the case that the expert has been 

made aware of or personally observed. If experts in 

the particular field would reasonably rely on those 

kinds of facts or data in forming an opinion on the 

subject, they need not be admissible for the 

opinion to be admitted. But if the facts or data 

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would otherwise be inadmissible, the proponent of 

the opinion may disclose them to the jury only if 

their probative value in helping the jury evaluate 

the opinion substantially outweighs their 

prejudicial effect. 

Fed. R. Evid. 703. 

 This Rule has been distilled into “a trilogy of 

restrictions on expert testimony: qualification, reliability, 

and fit.” Schneider ex. rel. Estate of Schneider v. Fried, 320 

F.3d 396, 404 (3d Cir. 2003) (citation omitted). Qualification 

refers to the requirement that the witness possess specialized 

expertise. The Third Circuit has “interpreted the specialized 

knowledge requirement liberally, and ha[s] stated that this 

policy of liberal admissibility of expert testimony extends to 

the substantive as well as the formal qualification of experts.” 

Waldorf v. Shuta, 142 F.3d 601, 625 (3d Cir. 1998) (citing In re 

Paoli R.R. Yard PCB Litig., 35 F.3d 717, 741 (3d Cir. 1994)). 

 Reliability means that the expert’s testimony must be based 

on the “methods and procedures of science” rather than on 

“subjective belief or unsupported speculation,” and “[p]roposed 

testimony must be supported by appropriate validation . . . .” 

Daubert v. Merrell Dow Pharmaceuticals, Inc., 509 U.S. 579, 590 

(1993). Daubert announced a nonexhaustive list of factors that 

bear on the inquiry of reliability: (1) whether the theory or 

technique can be and has been tested, (2) whether the theory or 

technique has been subjected to peer review, (3) the known or 

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potential rate of error and the existence of and maintenance of 

standards controlling the technique’s operation, and (4) general 

acceptance of the practice. Oddi v. Ford Motor Co., 234 F.3d 

136, 144-45 (3d Cir. 2000) (quoting Daubert, 509 U.S. at 593-

97). “[A]ny step that renders the analysis unreliable under the 

Daubert factors renders the expert’s testimony inadmissible. 

This is true whether the step completely changes a reliable 

methodology or merely misapplies that methodology.” In re Paoli 

R.R. Yard PCB Litig., 35 F.3d 717, 745 (3d Cir. 1994); see also 

In re TMI Litig., 193 F.3d 613, 695 (3d Cir. 1999); In re Human 

Tissue Products Liab. Litig., 582 F. Supp. 2d 644, 656 (D.N.J. 

2008). However, reliability does not require correctness. In re 

Paoli, 35 F.3d at 744. Rather, the party need only demonstrate 

“by a preponderance of the evidence” that the expert’s opinion 

bears adequate indicia of reliability, not that it is 

objectively “true.” Krys v. Aaron, 112 F. Supp. 3d 181, 190 

(D.N.J. 2015.) 

 The fit requirement “goes primarily to relevance” by 

“requir[ing] a valid scientific connection to the pertinent 

inquiry as a precondition to admissibility.” Daubert, 509 U.S. 

at 591-92. “In other words, the expert’s testimony must be 

relevant for the purposes of the case and must assist the trier 

of fact.” Schneider, 320 F.3d at 404 (citations omitted). 

2. Discussion 

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 At the outset, there can be no dispute that Ms. Brown is 

qualified as an expert to offer an opinion on the fair market 

value of HTS and Tan Holdings as of June 2007. According to her 

resume, [Docket Item 150-4], she is a Certified Public 

Accountant of many years of business evaluation experience, and 

she is “accredited in Business Valuation (ABV) and Financial 

Forensics by the American Institute of Certified Public 

Accountants (AICPA), and is certified to perform business 

valuations by the National Association of Certified Valuation 

Analysts (NACVA).” (Resume at 1.) Ms. Brown also testified at 

the June 22 hearing that she had been appointed as an expert to 

value businesses by New Jersey state courts in Bergen, Morris, 

Passaic, Hudson, and Essex counties and by the Hudson County 

Prosecutors Office. 

Similarly, there is no dispute that Ms. Brown’s reports 

demonstrate “fit” with the claims at issue in this case. The 

ultimate disposition of Plaintiff’s claims under the NJUFTA 

hinge on HTS’s financial health before and after the June 22, 

2007 distribution; her opinions are certainly relevant to that 

inquiry. 

 The disposition of this motion then depends on the 

reliability of the methodology employed in Ms. Brown’s report. 

As a threshold matter, the Court will consider the two documents 

designated as the Fraudulent Conveyance Report and the Valuation 

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Report to be part of one cohesive expert report for the purposes 

of the description of Ms. Brown’s methodology. At the June 22 

hearing, Ms. Brown testified that she prepared a report 

consisting of 5 parts, and that she produced that report in two 

pieces only in an effort to facilitate and expedite discovery 

between the parties. The reports were produced within a few days 

of each other. Taken together, and augmented by Ms. Brown’s 

explanation, the combined report supplies an ample summary of 

Ms. Brown’s methodology. Accordingly, the Court rejects 

Defendants’ position that the Fraudulent Conveyance Report is 

per se unreliable because it includes no summary of Ms. Brown’s 

methodology. 

 The crux of the parties’ arguments over the admissibility 

of Ms. Brown’s report, including both the Fraudulent Conveyance 

and Valuation Report portions, is whether she explains her 

methodology in a way that allows the Court to evaluate the 

reliability of her opinions. Ms. Brown clarified at the June 22 

hearing that the Valuation Methodologies and Valuation 

Approaches sections found at pages 33-37 of the Valuation 

Report, and the AICPA standards and valuation treatises attached 

as exhibits, were all intended to cover both portions of the 

report. Together, those sections of her report and exhibits 

describe the normalization adjustments she performed in the 

Fraudulent Conveyance portion to reverse engineer HTS’s 

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financial health from the incomplete records she had received in 

order to render an opinion as to HTS’s solvency or insolvency as 

of June 22, 2007, the date of the shareholder distribution. 

 The Fraudulent Conveyance portion of Ms. Brown’s report 

clearly lays out the problems with the HTS financial documents 

she received from Defendants in this case; many documents 

“normally maintained by companies of this size for tax and 

management purposes” were unavailable, or were produced in PDF 

rather than native format without important underlying 

information. (Fraudulent Conveyance Report at 6.) Accordingly, 

Ms. Brown performed “normalization adjustments” as instructed by 

the Statements on Standards for Valuation Services Section 100 

promulgated by the AICPA (referred to at the June 22 hearing as 

VS-100), the Pratt and Hitchner treatises, and Generally 

Accepted Accounting Principles (GAAP) to recreate income 

statements and balance sheets for the company, based on the 

partial information she received. 

 For example, VS-100.41 suggests that a business’s valuation 

should be discounted to account for non-operating assets and 

excess operating assets. Ms. Brown testified that she 

consequently discounted the value of HTS’s assets in “investment 

in stores held for resale” on her normalized balance sheet for 

franchises that had not re-opened for over a year, having 

concluded from losses booked by HTS on its 2006 tax filings that 

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those stores had been abandoned and should not have been treated 

the same as functioning stores. From this, Ms. Brown concluded 

that HTS overstated its net income accounts receivable by over 

$3 million. Ms. Brown also testified that she adjusted ACI’s 

projections of Tan Holdings’ prospective ability to generate 

income, in accordance with Pratt’s examples of normalizing 

adjustments that may be performed, because the compound annual 

growth rates cited in the Crowe Chizek draft investment memo 

were significantly higher than the historical growth rate she 

calculated based on HTS’s 2006 and 2007 financial documents. 

Throughout the report, Ms. Brown identifies the assumptions and 

scope restrictions and limitations on her opinion in keeping 

with VS-100.18 and .19. 

 In sum, VS-100 and the Pratt and Hitchner treatises 

discussed in and attached to Ms. Brown’s report contemplate a 

business valuation based on the sorts of adjustments to 

financial documents which Ms. Brown performed for HTS. In her 

report, Ms. Brown normalized HTS’s incomplete financial records 

and identified the assumptions and estimates on which she 

relied, in accordance with accepted business valuation 

principles. In short, she described her application of reliable, 

recognized principles of accounting and valuation analysis.5 

 

5 Moreover, while this Court may have detected some confusion or 

non-responsiveness to several cross-examination questions, those 

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 It is up to a jury, then, to resolve the weight due to 

opinions in a report which, by necessity, relies so heavily on 

assumptions and is subject to so many scope limitations. 

“Admissibility decisions focus on the expert’s methods and 

reasoning; credibility decisions arise after admissibility has 

been determined.” Kannankeril v. Terminix Intern., Inc., 128 

F.3d 802, 806 (3d Cir. 1997) (citing In re Paoli R. R. Yard PCB 

Litig., 35 F.3d 717, 743-46 (3d Cir. 1994)). In the absence of 

any reason to exclude a report which undoubtedly offers insights 

into issues critical to this dispute, the Court will deny 

Defendants’ motion to exclude Plaintiff’s expert, Shelley Brown. 

C. Plaintiff’s Motion for Preliminary Injunction 

 Next, Plaintiff seeks an Order from this Court enjoining 

proceedings in the Superior Court of New Jersey wherein 

Defendants seek discovery from Plaintiff’s former counsel 

regarding MSKP’s efforts to mitigate its damages before and 

after the entry of its Florida judgment. [Docket Item 161.] 

Plaintiff takes the position that this injunction is not barred 

by the Anti-Injunction Act, that the New Jersey Uniform 

Enforcement of Foreign Judgment Act bars Defendants’ attempted 

discovery, and that the Full Faith and Credit Clause requires 

 

hesitations are relevant to the witness’s demeanor or manner on 

the witness stand and are relevant to the weight of her 

testimony, not its admissibility under Fed. R. Evid. 702 & 703. 

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that New Jersey enforce Plaintiff’s Florida judgment in full. 

Defendants concede that this Court has ruled that mitigation is 

not a relevant defense to Plaintiff’s fraudulent transfer 

claims, but contend that this discovery is relevant to the 

underlying judgment entered in the New Jersey state courts and 

is permitted by Florida law. For the following reasons the Court 

will deny Plaintiff’s motion. 

 The Anti-Injunction Act’s “core message is one of respect 

for state courts. The Act broadly commands that those tribunals 

shall remain free from interference by federal courts.” Smith v. 

Bayer Corp., 564 U.S. 299, 306 (2011) (citing Atl. Coast Line R. 

Co. v. Locomotive Eng’rs, 398 U.S. 281, 282 (1970)). 

Accordingly, a federal court is prohibited from enjoining state 

court proceedings except where such an injunction falls into one 

of the three limited and specifically defined circumstances 

contemplated by the Act: where “expressly authorized by an Act 

of Congress, or where necessary in aid of its jurisdiction, or 

to protect or effectuate its judgments.” 28 U.S.C. § 2283; see 

also In re General Motors Corp. Pick-Up Truck Fuel Prods. 

Liability Litig., 134 F.3d 133, 144 (3d Cir. 1998). These 

exceptions “are narrow and are not to be enlarged by loose 

statutory construction.” Chick Kam Choo v. Exxon Corp., 486 U.S. 

140, 146 (1988); In re Diet Drugs Prods. Liability Litig., 369 

F.3d 293, 305 (3d Cir. 2004). Indeed, “[a]ny doubts as to the 

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propriety of a federal injunction against state court 

proceedings should be resolved in favor of permitting the state 

courts to proceed.” Atl. Coast Line, 398 U.S. at 297. Here, 

Plaintiff suggests that its sought-after injunction is 

permissible under the second and third exceptions of the Act. 

Plaintiff is mistaken on both grounds.6 

 The “necessary in aid of its jurisdiction” exception is 

inapplicable here; it works only “to prevent a state court from 

so interfering with a federal court’s consideration or 

disposition of a case as to seriously impair the federal court’s 

flexibility and authority to decide that case.” Id. (citing Atl. 

Coast Line, 398 U.S. at 295). In practical terms, this exception 

applies only in in rem cases, where “a federal court is 

entertaining complex litigation” involving a class of parties 

from multiple states or a consolidation of cases from multiple 

districts, or where a court retains jurisdiction to enforce a 

settlement agreement. In re Diet Drugs, 369 F.3d at 306; 1975 

Salaried Retirement Plan for Eligible Employees of Crucible, 

Inc. v. Nobers, 968 F.2d 401, 407 (3d Cir. 1992). Plaintiff 

 

6 The cases Plaintiff cites for the proposition that this Court 

can enjoin duplicate litigation are inapposite; all deal with 

parallel cases in different federal district courts, and as such 

are not concerned with the peculiar boundaries of the AntiInjunction Act and its respect for federalism and comity. 

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presents no such circumstances in support of its request for an 

injunction. 

 The “protect or effectuate its judgments” exception, known 

also as the relitigation exception, is similarly inapplicable. 

“The relitigation exception was designed to permit a federal 

court to prevent state litigation of an issue that previously 

was presented to and decided by the federal court.” Chick Kam 

Choo, 486 U.S. at 147. In other words, this exception applies 

only where the state law claims would be precluded by doctrine 

of res judicata. As such, an essential prerequisite of this 

exception is that “the claims or issues which the federal 

injunction insulates from litigation in state proceedings 

actually have been decided by the federal court.” Id. at 148. In 

this case, Judge Schneider has already determined that 

Defendants’ request for discovery on the issue of mitigation of 

damages is irrelevant to the disposition of this fraudulent 

transfer action, but he was not presented with the question of 

whether MSKP’s efforts to mitigate its damages, or lack thereof, 

should affect the amount outstanding on the underlying Florida 

judgment. 

 Accordingly, because Plaintiff has not shown that its 

request falls into any of the exceptions recognized by the AntiInjunction Act, the Court will deny Plaintiff’s motion under the 

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general principle that federal courts are prohibited from 

enjoining state court litigation. 

D. Cross-Motions for Summary Judgment 

 Finally, both parties present cross-motions for summary 

judgment on all counts of the Second Amended Complaint. [Docket 

Items 178 & 187.] The parties’ failure to meaningfully comply 

with L. Civ. R. 56.1 complicates the Court’s assessment of the 

record for disputes of material fact; at best, the parties have 

dumped nearly 1,500 pages of potentially relevant material 

without specific citations to the record, and at worst drawn 

unsupported conclusions from the mountain of evidence presented. 

For the following reasons, the Court will deny both motions. 

1. Standard of Review 

 Federal Rule of Civil Procedure 56(a) generally provides 

that the “court shall grant summary judgment if the movant shows 

that there is no genuine dispute as to any material fact” such 

that the movant is “entitled to judgment as a matter of law.” 

FED. R. CIV. P. 56(a). A “genuine” dispute of “material” fact 

exists where a reasonable jury’s review of the evidence could 

result in “a verdict for the non-moving party” or where such 

fact might otherwise affect the disposition of the litigation. 

Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). 

Disputes over irrelevant or unnecessary facts, however, fail to 

preclude the entry of summary judgment. Id. Conclusory, selfCase 1:10-cv-06465-JBS-JS Document 215 Filed 06/29/16 Page 27 of 43 PageID: 5505
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serving submissions cannot alone withstand a motion for summary 

judgment. Gonzalez v. Sec’y of Dept. of Homeland Sec., 678 F.3d 

254, 263 (3d Cir. 2012) (internal citations omitted). 

 In evaluating a motion for summary judgment, the Court must 

view the evidence in the light most favorable to the non-moving 

party, and must provide that party the benefit of all reasonable 

inferences. Scott v. Harris, 550 U.S. 372, 378 (2007); Halsey 

v. Pfeiffer, 750 F.3d 273, 287 (3d Cir. 2014). However, any 

such inferences “must flow directly from admissible evidence 

[,]” because “‘an inference based upon [] speculation or 

conjecture does not create a material factual dispute sufficient 

to defeat summary judgment.’” Halsey, 750 F.3d at 287 (quoting 

Robertson v. Allied Signal, Inc., 914 F.2d 360, 382 n. 12 (3d 

Cir. 1990); citing Anderson, 477 U.S. at 255).

2. Discussion 

a) Count I, NJUFTA § 25:2-25(a) 

 Plaintiff’s first count alleges that the $23.8 million 

shareholder distribution runs afoul of the intentionally 

fraudulent transfer provision of the NJUFTA. Both parties seek 

summary judgment on this count. Section 25:2-25(a) provides that 

A transfer made . . . is fraudulent as to a creditor, 

whether the creditor’s claim arose before or after the 

transfer was made . . . if the debtor made the transfer 

or incurred the obligation: 

(a) With actual intent to hinder, delay, or defraud any 

creditor of the debtor. . . 

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The New Jersey Supreme Court has articulated two elements that 

must be 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. 

Gilchinsky v. Nat. Westminster Bank N.J., 732 A.2d 482, 475-76 

(N.J. 1999). Because fraudulent intent is difficult to prove by 

direct evidence, Gilchinsky holds that the Court should look to 

the “badges of fraud” enumerated in N.J.S.A. § 25:2-26 in order 

to evaluate whether the facts presented allow an inference of 

intentional fraud. Id. at 476. 

 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 of the 

debtor’s assets; 

f. The debtor absconded; 

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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.S.A. § 25:2-26. Courts are instructed to balance these 

factors along with “any other factors relevant to the 

transaction.” Gilchinsky, 732 A.2d at 489. “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 489-90 (citing Max Sugarman 

Funeral Home, Inc. v. A.D.B. Investors, 926 F.2d 1248, 1254-55 

(1st Cir. 1991)).

 Both parties argue that they are entitled to summary 

judgment on Plaintiff’s intentional fraudulent transfer claim. 

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Plaintiff argues that it is entitled to summary judgment on this 

claim because the record shows evidence of markers (a), (c), 

(e), (h), and (i) relevant to HTS’s intent to defraud its 

creditors.7 Defendants principally argue that there are no 

indicia of intentional fraud by HTS in the record, and that they 

could not have intended to defraud creditors at the time of the 

shareholder distribution because the Venutos all believed that 

Tan Holdings, and by extension HTS’s interest in the company, 

would be successful and valuable going forward. Defendants 

contend that they had no reason to believe at the time of the 

shareholder distribution that any of its franchisees’ 

liabilities that it guaranteed were in default or likely to be 

in default. (Def. Ex. E.) As follows, the Court finds that 

material factual disputes persist over these badges of fraud, 

such that summary judgment would be inappropriate as to either 

party on Plaintiff’s intentional fraudulent transfer claim. 

 There is no factual dispute that the individual Defendants 

were all insiders of HTS within the meaning of the NJUFTA,8 as 

 

7 Plaintiff further argues that Defendants’ conduct in this 

litigation and others is further evidence of its intent delay, 

and suggests that its motion practice may violate Rule 11. This 

argument is irrelevant to the fraudulent conveyance claim; what 

is relevant to Plaintiff’s success on Count I is only proof of 

Defendants’ intent to defraud or delay creditors by means of a 

fraudulent conveyance, in this case the shareholder 

distribution, and not any other conduct. 

8 “Insider” includes the following individuals, when the debtor 

is a corporation: “(1) A director of the debtor; (2) An officer 

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subsection (a) suggests may be indicative of fraudulent intent. 

N.J.S.A. § 25:2-26(a). At the same time, there is no factual 

dispute that the shareholder distribution was not of 

substantially all of HTS’s assets, see N.J.S.A. § 25:2-26(e). 

Plaintiff asserts that the shareholder distribution comprised 

nearly all of HTS’s assets, because only $117,647.38 of the 

$40,000,000 sale to Tan Holdings remained in HTS’s Investment 

Account after the shareholder distribution. (Pl. Br. at 15-16.) 

However, Defendants produced evidence that HTS retained value 

after the closing of its asset sale to Tan Holdings; Plaintiff’s 

assumption ignores the value of HTS’s 25% interest in Tan 

Holdings, something HTS’s officers thought “would be worth more 

than $10 million” (Def. Ex. E at ¶ 6), the contingent earn-outs 

from Tan Holdings that HTS was entitled to receive in the 

future, and a few receivables still due HTS from franchisees. 

(Def. Ex. D at 21; Def. Ex. A at 26:15-27:20.) 

 However, factual disputes remain over the other indicators. 

Subsection (c) provides that fraudulent intent may be inferred 

 

of the debtor; (3) A person in control of the debtor; (4) A 

partnership in which the debtor is a general partner; (5) A 

general partner in a partnership described in paragraph (4) of 

subsection b. of this definition; or (6) A relative of a general 

partner, director, officer, or person in control of the debtor.” 

N.J.S.A. § 25:2-22(b). In this case, Ralph Venuto, Jr., Carol 

Rebbecchi, and Richard Venuto were officers of HTS according to 

its 2006 tax return (see Pl. Mot. Ex. I), and Carol Venuto was 

married to Ralph Venuto, Sr., another officer. 

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where the transfer was concealed.9 N.J.S.A. § 25:2-26(c). 

Plaintiff claims that the shareholder distribution was concealed 

because the payments to Defendants were not recorded in HTS’s 

books and records on June 22, 2007. (Pl. Br. at 15.) HTS’s 

general ledger from that date shows only deposits of 

$4,279,399,59 from “Proceeds from ACI transaction” and of 

$127,812,81 from “Transfer from other accts” and does not 

anywhere account for the portion of the $40 million sale to ACI 

disbursed to the individual shareholders. (Def. Ex. D.) 

Defendants take the position that the “closing documents” 

provided for ACI to pay the shareholders directly, but without a 

citation to a specific provision in the Asset Purchase Agreement 

or the Schedules appended thereto (but not included in the 

record on summary judgment), the Court cannot resolve the 

dispute over concealment. (Def. Reply at 9-10.) As will be 

discussed further, infra, with respect to Counts II and III, the 

Court cannot conclude as a matter of law at this juncture 

whether the value of consideration received by the HTS was 

reasonably equivalent to the value of the shareholder 

distribution or whether the HTS was insolvent or became 

 

9 This Court concluded that Plaintiff had not alleged this factor 

in its First Amended Complaint, see MSKP Oak Grove, LLC v. 

Venuto, 875 F. Supp. 2d 426, 435 (D.N.J. 2012), but Plaintiff 

contends that it corrected that deficiency in the Second Amended 

Complaint. [Docket Item 96, ¶¶ 35-41.] 

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insolvent shortly after the transfer was made. N.J.S.A. §§ 25:2-

26(h) and (i). Accordingly, the Court finds summary judgment 

inappropriate as to Count I. 

b) Count II, NJUFTA § 25:2-25(b)(1) 

 Plaintiff’s second count alleges that the shareholder 

distribution constitutes a constructive fraudulent transfer 

under the NJUFTA because HTS’s remaining assets were 

unreasonably small in relation to its business. N.J.S.A. 25:2-

25(b)(1) provides that 

A transfer made . . . is fraudulent as to a creditor, whether 

the creditor’s claim arose before or after the transfer was 

made . . . if the debtor made the transfer or incurred the 

obligation: (b) Without receiving a reasonably equivalent 

value in exchange for the transfer . . . and the debtor (1) 

Was engaged or was about to engage in a business or 

transaction for which the remaining assets of the debtor were 

unreasonably small in relation to the business or 

transaction. 

Thus, to prevail on such a claim, Plaintiffs must show both (1) 

that HTS executed the shareholder distribution without 

repayment, and (2) that as a result of the distribution, HTS’s 

assets were unreasonably small in relation to its continuing 

liabilities to Plaintiff and other creditors. 

 At the outset, there is a factual dispute over whether HTS 

received reasonably equivalent value for the shareholder 

distribution. Plaintiff contends that Defendants have produced 

“no evidence that they paid anything or gave any asset to HTS 

which constitutes consideration for the distribution of the 

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proceeds of sale of its assets.” (Pl. Br. at 10.) On the other 

hand, Defendants maintain that, as shareholders, they had an 

ownership interest in the company and conveyed their interest in 

HTS’s assets to the company for sale to ACI – the excess of 

which came back as a shareholder distribution to compensate “for 

the loss of income that HTS would have provided the shareholders 

had the sale of HTS not occurred.” (Def. Br. at 21.) Neither 

party points to evidence in the record supporting their 

proposition. 

 The record is similarly unclear on the issue of HTS’s 

remaining assets in relation to its business. In order to 

prevail on their claim, Plaintiff must show that HTS’s assets 

were unreasonably small in relation to its continuing 

liabilities. A business’s assets are “unreasonably small,” and 

may contribute to a finding of a fraudulent transfer, where a 

business is unable 

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 

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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)). For contingent liabilities, such as HTS’s guarantee of 

the Altamonte lease, 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., 

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.”). The crux of Plaintiff’s claim, then, as this 

Court noted earlier, 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.” MSKP Oak Grove, LLC v. Venuto, 875 

F. Supp. 2d 426, 438 (D.N.J. 2012). 

 It is clear what assets HTS retained after the sale to Tan 

Holdings: the remaining cash in HTS’s Investment Account, the 

25% interest in Tan Holdings, contingent earn-outs from Tan 

Holdings, and small receivables from a few franchisees that were 

not transferred to Tan Holdings. (See Def. Ex. A, D, & E.) 

However, factual disputes arise over the value of the two 

largest assets: HTS’s 25% interest in Tan Holdings and its 

future expectancy of earn-outs. Plaintiff contends that these 

assets were worthless because Ms. Brown’s expert reports show 

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that Tan Holdings acquired useless encumbered assets from HTS in 

the sale and because the HTS was already unable to meet its 

obligations by the end of October 2007, when the Venutos had to 

loan $1,430,000 to the company.10 (See Pl. Ex. D at 112.) 

Defendants contend that the 25% interest was valuable at the 

time of sale because HTS was purchased for $40,000,000 and that 

it was reasonable for them to believe that Tan Holdings would be 

a successful company over time, given the health of HTS’s assets 

transferred over and ACI’s track record with running other 

national lifestyle businesses. (See Def. Ex. A, B at 3-4). 

 The parties further disagree over what of HTS’s obligations 

remained after the asset sale to Tan Holdings, and, crucially, 

how foreseeable those obligations were at the time. Plaintiff 

argues that, at the time of the shareholder distribution, HTS 

remained liable for nearly all of its franchisees’ leases, for 

outstanding tax obligations in New York and New Jersey, and for 

a judgment in the case of Warminster Group L.P. v. McGuire and 

Hollywood Hands, d/b/a Hollywood Tanning Systems, Inc., No. 

2000-4882 (Court of Common Pleas, Bucks County, Pennsylvania) 

 

10 Plaintiff further claims that HTS was even more cash-poor than 

the documents suggest because the Venutos “cleaned out the 

company bank account and transferred it to an investment 

account” (Pl. Br. at 26). But Plaintiff provides no further 

detail as to the functional difference between the two accounts, 

leaving the Court to guess at the significance of this point. 

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(hereinafter “the Warminster judgment”) – the sum of all of 

which far outpaced the $117,647 liquid cash remaining in HTS’s 

account after the shareholder distribution. (See Pl. Ex. K, R, & 

S.) Defendants take the position that Tan Holdings assumed 

nearly all of HTS’s debt outstanding after HTS paid off all 

current creditors as a precursor to the asset sale (Def. Ex. D ¶ 

2.1) and that each of the obligations Plaintiff points to were 

either not debts known at the time of the transaction or were so 

contingent as to count as $0. According to Defendant, its liquid 

cash along with its 25% interest in Tan Holdings should have 

been enough to cover HTS’s foreseeable liabilities. 

 The parties principally disagree over the leases entered 

into by HTS’s franchisees. Defendants contend that all leases 

were current as of the shareholder distribution and that HTS was 

only contingently liable on those agreements, such that the 

amount potentially owed on the outstanding leases should be 

discounted accordingly. (See Def. Reply Br. at 4.) Plaintiff 

contends that HTS was the named lessee on over 300 leases and 

that the leases qualify as “claims” under N.J.S.A. § 25:2-2111

which should count fully. (Pl. Br. at 23-24; Pl. Ex. U; Def Ex. 

C at 163:10-165:14; Def. Ex. H at 14.) 

 

11 The NJUFTA defines claim as “a right to payment, whether or 

not the right is reduced to judgment, liquidated, unliquidated, 

fixed, contingent, matured, unmatured, disputed, undisputed, 

legal, equitable, secured, or unsecured.” N.J.S.A. § 25:2-21. 

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 With respect to HTS’s tax obligations, Plaintiff’s Exhibit 

R shows that, as of August 2010, HTS owed $114,157.87 in taxes, 

penalties, and interest to the State of New Jersey for the 

return period of 2007. Plaintiff’s Exhibit S shows that, as of 

December 2010, HTS owed $107,409.10 in taxes and interest to New 

York State for the period ending August 31, 2007. In response, 

Defendants point out that neither were assessed until 2010, and 

offer an affidavit from Ralph A. Venuto, Jr. declaring that HTS 

was not aware of the tax debts until several years after the 

asset sale and that they were paid in full. (Def. Reply Ex. A at 

¶¶ 3-9). 

 Finally, with respect to the Warminster judgment, Plaintiff 

claims that a judgment was entered in favor of the Warminster 

Group, L.P. for $457,725.29 against “Hollywood Hands d/b/a 

Hollywood Tanning Systems, Inc.” and should be considered one of 

HTS’s liabilities. (Pl. Ex. K.) Defendants contend that HTS was 

neither a party to the Warminster case nor a party to the 

Hollywood Hands lease that was at issue there. (Pl. Ex. L; Def. 

Reply Ex. A at ¶¶ 10-14.) 

 Accordingly, with so many factual disputes remaining at 

this time, the Court cannot conclusively compare the assets HTS 

retained with its ongoing liabilities to grant summary judgment 

to either party on Plaintiff’s constructive fraudulent transfer 

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claim. Both motions are denied with respect to Count II of the 

Second Amended Complaint. 

c) Count III, NJUFTA § 25:2-27(a) 

 The Court will similarly deny both parties’ motion for 

summary judgment as to Plaintiff’s Count III, which alleges that 

the shareholder distribution caused HTS to become insolvent. 

N.J.S.A. 25:2-27(a) provides that 

A transfer made . . . by a debtor is fraudulent as to a 

creditor whose claim arose before the transfer was made . . 

. if the debtor made the transfer . . . without receiving a 

reasonably equivalent value in exchange for the transfer . 

. and the debtor was insolvent at that time or the debtor 

became insolvent as a result of the transfer or obligation. 

Thus, to prevail on this claim, Plaintiff must show that (1) 

Plaintiff’s claim arose before the shareholder distribution; (2) 

HTS did not receive a reasonably equivalent value in exchange 

for the shareholder distribution; and (3) HTS was insolvent at 

the time of the distribution or became insolvent as a result of 

the distribution. 

 Plaintiff can show the first element: that its claim arose 

before the July 2007 shareholder distribution. Although HTS was 

not made aware of its franchisee’s default until on or about 

July 3, 2008, N.J.S.A. § 25:2-21 defines a “claim” as “a right 

to payment whether or not the right is reduced to judgment, 

liquidated, unliquidated, fixed, contingent, matured, unmatured, 

disputed, undisputed, legal, equitable, secured, or unsecured” 

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and a “creditor” as “a person who has a claim.” (Emphasis 

added.) Thus, although the Altamonte lease was only a contingent 

liability in 2007 – HTS’s franchisee was primarily liable on the 

lease and HTS had no reason to think the franchisee or HTS would 

become unable to pay – it was still a “claim” against which a 

conveyance could be fraudulent. 

 As above with respect to Count II, there is a factual 

dispute over whether HTS received reasonably equivalent value 

for the shareholder distribution. Similarly, the record is 

unclear as to whether HTS was insolvent at the time of the 

distribution or whether HTS became insolvent as a result of the 

distribution. 

 Under the NJUFTA, “A debtor is insolvent if the sum of the 

debtor’s debts is greater than all of the debtor’s assets, at a 

fair valuation.” N.J.S.A. § 25:2-23(a). HTS’s solvency as of 

June 22, 2007 is unclear, for the reasons discussed in 

subsection 2, supra: the parties dispute the value of HTS’s 

assets and liabilities as of the asset sale and shareholder 

distribution. Furthermore, even if HTS was not insolvent on June 

22, 2007, it became presumably insolvent by July 2008, when 

Plaintiff tried to collect on its claim for the Altamonte lease 

and HTS did not pay. See N.J.S.A. § 25:2-23(b). The Court cannot 

glean from this record, however, what caused that insolvency: 

the distribution of over $23 million to HTS’s shareholders, as 

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Plaintiff claims, or factors outside of HTS’s control such as 

the Great Recession experienced nationwide in 2008, as 

Defendants contend. Accordingly, the Court will deny both 

parties’ motions with respect to Count III. 

d) Count IV, NJUFTA § 25:2-27(b) 

 The Court will also deny Defendants’ motion for summary 

judgment as to Plaintiff’s Count IV, which alleges that the 

shareholder distribution constitutes a constructive fraudulent 

transfer under the NJUFTA because HTS was insolvent at the time 

and because the shareholders had reasonable cause to believe so 

at the time. N.J.S.A. § 25:2-27(b) provides that 

A transfer made by a debtor is fraudulent as 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. 

Thus, to prevail on such a claim, Plaintiff must show that (1) 

Plaintiff’s claim arose before the shareholder distribution; (2) 

that HTS was insolvent at the time of the shareholder 

distribution; and (3) that Defendants, as insiders, had 

reasonable cause at the time of the shareholder distribution to 

believe that HTS was insolvent. 

 Plaintiff can show that its claim arose before the 

shareholder distribution, but there are factual disputes over 

the other two elements of Plaintiff’s Count IV. As discussed 

above, the Court cannot conclude as a matter of law whether HTS 

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was solvent or insolvent as of June 22, 2007. Similarly, factual 

disputes persist over whether the Venutos had reasonable cause 

to believe that HTS was insolvent at the time of the asset sale 

and shareholder distribution. Ms. Brown’s report offers evidence 

sufficient to describe why Defendants should have known that HTS 

was insolvent, while Defendants have pointed out deposition 

testimony from the Venutos suggesting that none of them knew or 

believed there were any problems with HTS prior to the sale to 

Tan Holdings. For these reasons, the Court will deny Defendants’ 

motion for summary judgment as to Count IV. 

CONCLUSION 

 An accompanying Order will be entered. 

June 29, 2016 s/ Jerome B. Simandle 

Date JEROME B. SIMANDLE 

 Chief U.S. District Judge

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