NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION

SUPERIOR COURT OF NEW JERSEY APPELLATE DIVISION DOCKET NO. A

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- 13T3

DELRAY HOLDING, LLC, and BAY DOCK HOLDINGS, LLC,

Plaintiff s - Respondents,

v.

SOFIA DESIGN AND DEVELOPMENT AT SOUTH BRUNSWICK, LLC, SOFI A HOMES, LLC, ANNE KELLY, and BURGESS STEEL, LLC,

Defendants,

and

THE GUERIN FAMILY TRUST, EUGENE GUERIN, JAMES GUERIN, LOUIS FILOSO, MICHAEL REILLY, STEVEN LANGAN, JAMES CAREY, and MARZENA CAREY,

Defendant s /Third

- Party Plaintiff s - Appellants,

v.

ROGER PASSARELLA,

Third

- Party Defendant

Respondent.

______________________________________

Argued December 3, 2014

– Decided
Before Judges Fuentes, Ashrafi , and Kennedy. APPROVED FOR PUBLICATION

March 2, 2015

APPELLATE DIVISION

March 2, 2015A

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- 13T3 2 On appeal from Superior Court of New Jersey, Law Division, Monmouth County, Docket No. L

- 3425

- 11.
Andrew T. Walsh argued the cause for appellan ts (Chamlin, Rosen, Uliano & Wi therington, attorneys; Mr. Walsh , on the brief).

Tennant D. Magee, Sr. , argued the cause for respondents (Maggs & McDermott, L.L .C., attorneys; Mr. Magee, on the brief).
The opinion of the court was delivered by

ASHRAFI, J.A.D.
Appellants are individuals and a family trust that invested
in two real estate development companies , S ofia Homes, LLC
(Sofia Homes) and Sofia Design & Development at South Brunswick,
LLC (Sofia Design) (jointly the Sofia Entities) . The companies

failed financially an d were forced into bankruptcy proceedings

. In the course of the bankruptcy case and other litigation , t he
Sofia Entities settled claims against respondent Roger
Passarella and two real estate development companies that he

owns, respondents Delray Holding, LLC, and Bay Dock Holdings,

LLC.
This appeal is from summary judgment granted against

appellants when they claim ed in their individual capacities that
respondents had interfered with their investment agreements with

the Sofia Entities and thus damaged their interests. The trial

court concluded the claims belonged to the Sofia E ntities, andA

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- 13T3 3 therefore appellants lacked standing to bring them as

individuals. As an alternative ground , the court determine d

that appellants did not refut e respondents' accounting evidence ,
which showed that respondents did not cause any damages to the

Sofia Entities . We affirm the trial court's decision

.

I.
Sofia Homes, a construction company primarily engaged in
residential development , owned property in Freehold known as the
Liberty Crossing p roject. It wa s also the principal owner and

the sole Clas s A member of Sofia Design , which was formed to

deve lop and operate a single propert y in South Brunswick , an
office building to be named Gateway Commons. Appellants are
variously members of Sofia Homes, Class B members of Sofia
Design, or investors in the development project s .
In 2006, Sofia Homes entered into a contract with

respondent Bay D ock Holdings , LLC, to develop residential
property in Wall Township. Sofia Homes and Bay Dock also
entered into a cost sharing agreement for site improvements o n
their adjacent lands in F reehold.

In 2009, r espondents assisted the Sofia Entities in
obtaining financing from Amboy National Bank for the Gateway

Commons project . Anthony D'Amore, III, was then a member of

Sofia Homes and Sofia Design , and also an un disclosed employeeA

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- 13T3 4 of Bay D ock . He told appellants that Bay Dock was willing to

offer its Freehold property as collateral for S ofia D esign to

receive additional funding for the Gateway Commons project . In
exchange, S ofia D esign would satisfy tax liens on Bay Dock's
Freehold property and elevate D'Amore to managing member of

S ofia D esign . A fter the parties reached an agreement , Bay Dock
transferred ownership of its Freehold land to a new company , respondent Delray Holding , LLC , which was created and owned by

Passarella as its sole member

. The parties dispute the events that l ed to the financial

failure of the Sofia E ntities

. However, i t is undisputed that

D'Amore transferred loan proceeds that belonged to the Sofia

E ntities to a bank account controlled by Bay Dock
. Appellants

allege that D'Amore conspired with Passarella to divert the

funds as part of a secret plan to gain control o f the Gateway

Commons p roject. According to appellants, the diversion of the

loan proceeds caused the Sofia E nt ities' projects to fail , which

in turn led to the loss of appellants' equity interest s ,
investments , loans, and anticipated profits to be derived from
those projects

. Respondents , on the other hand, con tend that D'Amore

transferred the loan proceeds for th e benefit of the Sofia
Entities. They contend his purpose was to prevent CharlesA

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- 13T3 5 Kelly, a nother member of Sofia Homes who is not a party in this
litigation , from using the funds improperly for other ventures
and personal obligations

. See In re D'Amore , 472 B.R. 679, 684
(Bankr. D.N.J. 2012) . Respondents argue that D'Amore paid debts
owed by the Sofia E ntities out of the Bay Dock account , see

i bid. , and that he ultimately paid more on behalf of the Sofia

E ntities than he transferred into th e Bay Dock a ccount from the
loan proceeds
. R espondents contend the Sofia Entities suffered
no losses but actually benefitted from the diversion of the loan
proceeds.

By 20 1 0, D'Amore had resigned from one of the Sofia

Entities and been voted out as a member of the o ther
. Litigation ensued . In March 2010, the Sofia E ntities, Charles

Kelly , and appellants filed a complaint in Superior Court,

Monmouth County ( MON

- L

- 1430

- 10 ), against Bay Dock, Passarella,

and D'Amore alleging misappropriation, conversion, and related

causes of action

. D'Amore filed a voluntary petition for bankruptcy i n August
2010, which stayed the Monmouth County action as to him.

D'Amore , supra , 472 B.R. at 684. I n December 2010, the
plaintiffs in the Monmouth County action filed an adversary
complaint in the B ankruptcy Court against D'Amore , asserting

claims for fraud, defalcation, and similar causes of action

.A

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- 13T3 6 Ibid. Subsequently, D'Amore moved for summary judgment in the

Bankruptcy Court , contending among other grounds that the

individual i nvestors and members of the Sofia Entities lacked
standing to pursue the ir claims against him

. Id. at 684

- 85.
By written decision dated May 31, 2012, t he Bankruptcy

Court agree d with D'Amore . The court stated the funds that were
allegedly misappropria ted were the property of the Sofia
Entities, not the property of the individual LLC member s or

investors. A ny damages that could be claimed by the individuals

flow ed through the companies and could not be claimed directly

by the m . Id. at 694

- 95. The Bankruptcy Court dismissed the
individual claims of appellants. Id. at 696.
On July 5, 2012, the Monmouth County court in MON

- L

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- 10
granted summary judgment on the same ground to Bay Dock and

Passarella
. The lawsuit that is the subject of t his appeal , MON

- L

- 3425

-
11, was originally brought by Delray a nd Bay Dock . They claim ed
the Sofia Entities and the individual defendants owed them money

on the several development agreement s of the companies

. Appellants filed a counterclaim , a nd also a th ird

- party
complaint against Passarella. Appellants sought compensation

for the loss of their investments and anticipated profits in the

Gateway Commons and the Liberty Crossing project s on the groundA

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- 13T3 7 that the diversion of the loan proceeds was tortious

interference with their investment agreements with the Sofia

Entities and also entitl ed them to civil remedies under New

Jersey's racketeering (RICO) statute , N.J.S.A. 2C:41

- 2,

- 4
. In December 2012, res pondents and the Sofia Entities
settled their disputes and dismissed all claims against one

another, both in the bankruptcy proceedings and in the Monmouth

County cases . As part of the settlement, r espondents pa id

$225,000 to the Sofia Entities.

On Jul y 26, 2013, t he Law Division in this case granted
summary judgment in favor of respondents. The court held that

the claims remain ing in the case were corporate claims and that
appellants lacked standing to assert them as individuals. The

court also deter mine d that appellants did not have evidence of

any damages from D'Amore's diversion of the loan proceeds to Bay

Dock because they had not challenge d respondents' accounting ,
which showed that Bay Dock paid out mo re on behalf of the Sofia

E ntities than it t ook in from their loan proceeds

.
This appeal is from the summary judgment order dismiss ing
all the claims contained in appellants' counterclaim and third

party complaint.A

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- 13T3 8 II.

It is a fundamental principl e of corporate law that :

A corporation is regarded as an entity separate and distinct from its shareholders. It is a principle of corporation law that [ r ] egard for the corporate personality demands that suits to redress corporate injuries which secondarily harm all shareholders al ike are brought only by the corporation

. . . . T he prevailing American rule is that [ w ] hen an injury to corporate stock falls equally on all s tock holders, then an individual stockholder may not
recover for the injury to his stock alone, but must seek recov ery derivatively i n behalf of the corporation.

[ Strasenburgh v. Straubmuller , 146 N.J. 527, 549

- 5 0 (1996) (citations and internal quotation marks omitted)

. ]

Shareholders in a corporation may only sue individually

when they suffer a "special injury," as distinct from injur ies

suffered by all shareholder s . Pepe v. Gen
. Motors Acceptance

Corp. , 254 N.J. Super. 662, 666 (App. Div.), certif. denied , 130

N.J. 11 (1992)
. "A special injury exists 'where there is a

wrong suffered by [a] plaintiff that was not suffered by all

stockholders generally or where the wrong involves a contractual
right of the stockholders, such as the right to vote.'"
Strasenburgh , supra , 146 N.J. at 55 0 (quoting In re Tri

- Star
Pictures, Inc. , 634 A. 2d 319, 330 (Del. 1993)). To determine

whether a claim presents an individual cause of action or a

derivative claim belonging solely to the corporation, "courtsA

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- 13T3 9 examine the nature of the wrongs alleged in the body of the
complaint, not the plaintiff's designation or stated intention."

Id. at 551 (citing Lipton v. News Int'l , Plc , 514 A. 2d 1075,

1078 (Del. 1986)).

Our decision i n Pepe , supra , 254 N.J. Super. 662 , is
directly on point with respect to the issue in this appeal. In

that case , Virginia and Richard Pepe asserted contract and tort

claims resulting from the financial failure of the ten corporate

automobile dealer ship s the y owned as shareholders
. Id. at 664

-

65. We h eld that the Pepe s' c laims :

all assert losses sustained by them as the result of the destruction of their corporations. As such, the claims are entirely derivative of causes of action which, but for their release by the bankruptcy stipulation, would be available to the corporations. T he law is clear and uniform: shareholders cannot sue for injuries arising from the diminution in value of their sharehold ing s resulting from wrongs allegedly done to their corporation s .

. . . Nor can stockholders assert ind ividual claims for wages or other income lost because of injuries asserte dly done to their corporations.

[ Id. at 666 (citations omitted). ]

Here, a ppellants make tort claims similar to those the

Pepes made
. Their claims of tortious interference with their

investment agreements are entirely dependent on losses the Sofia

Entities allegedly sustained as a result of the financialA

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- 13T3 10 failure of the companies. The individual claims derive from the

claims that the Sofia En tities had against respondents and that

were settled in exchange for a substantial payment by
respondents.
Appellants cite no cases to support their argument that
they have standing to sue as individuals for the alleged losses

of the Sofia Entities

. The ir conclusory statements that they
"had a protected interest" and that their claims are not

identical to those of the Sofia Entities' claims are not
sufficient to overcome the prevailing law with respect to
standing to sue

.

Nor can an independent investor in a corporation sue for
debts owed to the corporation. If it were otherwise, any

investor or creditor could undermine the corporation's
settlement of a dispute and bring an individual claim for causes
of action that belong to the corporation. T he Sofia Entities
settled their claims against respondents, and individual

investors and creditors cannot revive those same claims by
asserting an individual cause of action.

Because the members and other investors have not alleged an
injury caused by res pondents that is distinct from that suffered
by any shareholder, investor, or creditor of the corporateA

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- 13T3 11 entit ies , they lack standing to assert their claim s of tortious

interference or racketeering violations

.

III.
A secondary ground for summary judgment was that , even if

appellants ha ve standing to pursue their c laim s, they failed to
produce evidence to c ontradict respondents' accounting

. The
trial court discussed the importance of th e accounting evidence
presented on respondents' summary judgment motion :

[T] he accounting records indicate that the amount put into the [Bay Dock] account . . . was less than the amount paid out of the account for corporate bills [of the Sofia Entities] . Thus, these records indicate that D'Amore did not gain personal benef it from those funds and neither did [Bay Dock] or Passarella. . . . [A]ccording to the record evidence and the uncontested calculations by [respondents], the accounting records suggest that the [Bay Dock] account was used to pay for [ the Sofia Entities ' ] c orporate bills. Thus, [appellants] have failed to establish how D'Amore's deposit of the proceeds into the [Bay Dock] account . . . caused their injuries or resulted in damages. As such, apart from the issue of standing, the evidence here is so one

- sided that [respondents] must prevail as a matter of law with regard to the counterclaims.
Appellants d isput e this finding of the court . They rely on
a certification of their attorney , and the exhibits attached to

that certification , and claim there was oppos ing accountingA

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- 13T3 12 evidence . They contend that whether the divers ion of the loan

proceeds damaged the Sofia Entities is a disputed issue of fact

. In December 2013, respondents moved in this court to strike

from our record on appeal the certification of appellants'

attorney dated September 18, 2012, and its accompanying

exhibits

. Respondents asserted that the se items were not

included in the summary judgment papers submitted to the trial

court
. By order dated January 24, 2014, we remanded to the

tria l court pursuant to Rule 2:5

- 5(a) for the limited purpose of
settling the summary judgment record. On March 5, 2014, the
motion judge issued a letter

- decision stating that the trial

court had not retained the summary judgment record

. Although

t he judge c ould not verify the summary judgment record , he

inferred f rom the contents of the parties' motions in this court
that the 2012 certification and its exhibits were not part of
the summary judgment record. 1

Appellants are not able to assert that the ir a ttorney's

2012 certification was submitt ed in opposition to the summary

1 We have not been formally informed of the record

- retention practices of the Law Division, but we know that the court discarded the motion papers in less time than six month s from the summary judgment order o f July 26, 2013, until our remand order of January 24, 2014. Even a timely notice of appeal did not prompt the Law Division to retain the papers pertinent to this appeal. Civil litigants would be well

- advised to keep accurate records of motions and other papers in the event of an appeal or other future proceedings

.A

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- 13T3 13 judgment motion in this case . I nstead, they contend i t was

submit ted in a motion for summary judgment in the prior Monmouth

County case, MON

- L

- 1430

- 10. Nevertheless, a ppellants argue that
all parties had in their possession an accounting exhibit that
contradicts respondents' evidence. A ppellants contend that , therefore, respondents' accounting was in fact disputed.
Appellants cannot base a challenge to factual evidence

presen ted for the court's summary judgment review on evidence

that was not presented to the court but was instead presented in

a different although related case.
Furthermore, the contradictory accounting evidence upon
which appellants now rely is only a single page summary of
several figures with no explanation or backup information. In

contrast, r espondents submitted a detailed spreadsheet of a
"Cash Analysis" of "All Transactions" of the Bay Dock account.

The trial court viewed respondents' detailed account ing evidence

to be " unchallenged " for purposes of the summary judgment

motion. W e can find no error in the court's determination

. Appellants also argue that the accounting evidence is

irrelevant to this case because their claim is not for the
misappropriation of the Sofia E ntities' fund s. They are
mistaken. The accounting evidence is relevant to whether
appellants can prove damages and causation . If Bay Dock in factA

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- 13T3 14 paid out more on behalf of the Sofia E ntities for legitimate
debts related to the appropriate projects than D'Amore removed
from their loan proceeds , Bay Dock did not cause any damage to

the Sofia E ntities . Consequently , r espondents can not be held
responsible for the financial failure of those compan ies and the

loss of appellants' investment interests

.

IV.
Having concluded that respondents were entitled to summary
judgment on both grounds

— lack of standing and the merits of

appellants' claims for damages

— we need not address any other

arguments rai sed by either side in this appeal

.
Affirmed.