Court Opinion

ID: 4428465
Source: CourtListenerOpinion
Date Created: 2019-08-20 19:07:15.649279+00
Date Added: 2024-06-11T14:59:52.327859
License: Public Domain

NOT FOR PUBLICATION WITHOUT THE
                               APPROVAL OF THE APPELLATE DIVISION
        This opinion shall not "constitute precedent or be binding upon any court." Although it is posted on the
     internet, this opinion is binding only on the parties in the case and its use in other cases is limited. R. 1:36-3.

                                                         SUPERIOR COURT OF NEW JERSEY
                                                         APPELLATE DIVISION
                                                         DOCKET NO. A-4725-17T1

MY EZ WEB SOLUTIONS, INC.
and JOSEPH V. THOMAS,

          Plaintiffs-Appellants,

v.

JOSEPH P. THOMAS and
SYMBIOSIS EDUCATIONAL
CONSULTANTS, INC.,

     Defendants-Respondents.
______________________________

                    Argued March 26, 2019 – Decided May 24, 2019

                    Before Judges Yannotti, Gilson and Natali.

                    On appeal from Superior Court of New Jersey, Law
                    Division, Bergen County, Docket No. L-7382-17.

                    Joseph V. Meyers argued the cause for appellants.

                    Maurizio Savoiardo (Miranda Slone Sklarin
                    Verveniotis) of the New York Bar, admitted pro hac
                    vice, argued the cause for respondents (Miranda Slone
                    Sklarin Verveniotis, attorneys; Michael A. Miranda and
                    Maurizio Savoiardo, on the brief).
PER CURIAM

      Plaintiffs appeal from an order dated March 29, 2018, which dismissed

their complaint with prejudice pursuant to Rule 4:6-2(e) for failure to state a

claim upon which relief can be granted. Plaintiffs also appeal from an order

dated May 25, 2018, which denied their motion for reconsideration. We reverse.

                                        I.

      In October 2017, plaintiffs filed a complaint in the trial court, which they

thereafter amended. Plaintiffs alleged that in February 2007, defendant Joseph

P. Thomas (JPT) contacted plaintiff Joseph V. Thomas (JVT) with a business

proposal. At the time, JPT was employed by Fairleigh Dickinson University

(the University) in a full-time management position with responsibility for

decisions regarding online education. According to an exhibit attached to the

complaint, JPT is married to the daughter of JVT's second cousin.

      JPT allegedly agreed that he would provide outsourced information

technology (IT) services to the University in his spare time and bill the

University through a New Jersey entity that JVT would incorporate.             All

payments from the University to JPT would be deposited in a bank account in

the name of JVT's corporation. On April 5, 2007, JPT established My EZ WEB

Solutions, Inc. (Solutions).

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      On April 16, 2007, JVT sent JPT a letter memorializing a conversation

they had a few days earlier. In the letter, JVT stated that he was the president,

secretary, treasurer, and sole owner of Solutions. JVT appointed JPT as Chief

Executive Officer (CEO) of Solutions, but stated that JPT could not hire

employees without his prior approval.

      The letter also stated that JPT was required to report Solutions' monthly

gross revenue to JVT. If Solutions' monthly gross revenue for any month

exceeded $2000, JVT was to receive forty percent of that revenue. In addition,

the letter stated that if JPT received permanent resident status in the United

States and created another corporation, JVT also was to receive forty percent of

the gross revenue from that entity.

      Thereafter, JVT and JPT opened a corporate bank account for Solutions,

which listed JVT and JPT as the persons who were authorized to sign on behalf

of the corporation.   Moreover, according to the complaint, JPT repeatedly

reported to JVT that the monthly gross revenues from the University were less

than $2000.

      In mid-2012, JPT requested JVT's advice regarding his relationship with

the University. Plaintiffs claim the University had questioned JPT about his

activities and requested a letter from the owner of Solutions stating that JPT was

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not outsourcing work to himself for personal financial gain. JVT wrote a letter

to the University stating that he was the sole owner of Solutions. Plaintiffs

allege that several weeks later, JPT told JVT that he had been forced to resign

from the University due to "'inappropriate' financial activities."

      Plaintiffs further allege that JPT continued to seek business advice from

JVT, including advice regarding "serious problems" that JPT had with a

regulatory agency in New York State concerning a corporation that JPT had

established. That corporation also engaged in IT outsourcing, but was larger

and had more employees. JPT met with JVT and informed him that JPT could

be liable for "numerous possible [sic] serious . . . business violations" in New

York. JVT claims he provided JPT with "proper business advice."

      In June 2017, JVT spoke with an employee of the University while waiting

on line in a donut shop. This individual allegedly told JVT that the University

had fired a person with a similar name, and that person had "bilked" the

University of more than $2 million. JVT contacted JPT and asked for Solutions'

bank records, and any records pertaining to the gross receipts JPT received for

billing the University for outsourced IT business. JPT refused to provide JVT

with the requested documents and information.

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      Thereafter, JVT obtained Solutions' bank records, which allegedly showed

that $66,000 had been deposited into the account on March 1, 2012, and on

March 14, 2012, the same amount had been withdrawn. The bank records also

allegedly showed that another $1500 had been withdrawn from the account on

March 15, 2012, and deposits totaling $15,000 had been made in January 2015

and March 2016. JVT removed JPT as a co-signatory on the account.

      Plaintiffs alleged JPT breached his agreement with JVT by failing to

provide him with forty percent of the gross receipts that JPT received from the

University for the outsourced IT services. Plaintiffs also alleged JPT breached

the implied covenants of good faith and fair dealing by: failing to "provide

faithful and honest services to" Solutions; failing "to provide accurate reports of

the gross revenues" he received; "misus[ing] his position as CEO [of Solutions]

to . . . charge personal expenses to the" corporation; and "otherwise . . . fail[ing]

to comply with [his] agreement" with JVT.

      Plaintiffs also asserted claims of legal and equitable fraud. They alleged

JPT knowingly and intentionally lied about the amount of monthly gross receipts

he received from the University by stating that they were significantly below

$2000 per month, and that no payments or distributions were due to Solutions.

They claimed JPT violated the agreement by "caus[ing] invoices to . . . be sent

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out under the name of [another] [c]orporation, believed to be [defendant]

Symbiosis, Inc." (Symbiosis), and depositing those payments in a bank account

other than the account for Solutions. They alleged JPT knowingly made false

material representations to JVT regarding the agreement with the intent that

plaintiffs would rely upon them.

      In addition, plaintiffs asserted claims of conversion, embezzlement, theft ,

and unjust enrichment against defendants. They claimed JPT breached his

fiduciary duty and sought to pierce the corporate veil of Symbiosis and hold JPT

personally liable.    Plaintiffs sought compensatory and punitive damages,

interest, costs of suit, attorney's fees, and such other relief that the court deemed

just and equitable.

      On February 6, 2018, defendants filed a motion to dismiss pursuant to

Rule 4:6-2(e) for failure to state a claim upon which relief can be granted.

Defendants argued that plaintiffs' claims are barred by judicial estoppel because

JVT failed to disclose in a bankruptcy petition an ownership interest in Solutions

or claims to monies owed to that corporation. Defendants further argued that

the claims against Symbiosis for fraud, conversion, theft, embezzlement, breach

of fiduciary duty, and to pierce the corporate veil should be dismissed on other

grounds.

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      In support of their motion, defendants submitted to the court a copy of a

voluntary petition in bankruptcy that JVT and his wife filed on September 30,

2015, in the United States Bankruptcy Court for the District of New Jersey. In

that petition, JVT stated that he did not have any interest in any "incorporated

[or] unincorporated businesses"; any "[i]nterest[] in partnerships or joint

ventures"; or any "[a]ccounts receivable" owed to him.

      In the petition, JVT also stated that he did not have any interest in any

"[o]ther contingent or unliquidated claims" and JVT stated he was not a director,

executive, or more than five percent shareholder in any business. Defendants

also presented the order of the bankruptcy court dated February 3, 2016, which

granted JVT and his wife a discharge in bankruptcy.

      In further support of their motion, defendants submitted documents

showing that in November 2009, JPT's wife had incorporated Symbiosis, and

that she was the sole owner of that corporation. According to defendants, JPT

and his spouse successfully worked for Symbiosis developing online educational

content. Defendants also claimed that in February 2017, JPT formally dissolved

Solutions.

      Plaintiffs opposed the motion. They argued that judicial estoppel did not

apply because JVT's failure to state in the bankruptcy petition that he had an

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                                       7
interest in Solutions or that Solutions had any claims against defendants was

merely "a benign omission." Plaintiffs also argued that they had pled sufficient

facts to support the claims against Symbiosis.

      In opposing the motion, JVT submitted a certification in which he

disputed defendants' assertion that he never had an ownership interest in

Solutions. He also stated that he did not assert that he had an interest in

Solutions in his bankruptcy petition because he filed his bankruptcy petition in

2015. JVT said that at that time, Solutions "was an inactive entity and the

omission of the stock from [his] list of assets . . . was at best a technical

oversight."

      JVT also stated that it was his belief that Solutions had not earned any

income since the University terminated JPT's employment in 2012. He asserted

that he did not know who filed the certificate dissolving Solutions, but said, "it

was not me." JVT further asserted that JPT used his wife to establish Symbiosis,

and then utilized that corporation to receive the income JPT earned from the

University, thereby depriving him of his forty-percent share of the income.

      The judge entered an order dated March 29, 2018, granting the motion to

dismiss. On the order, the judge wrote that the complaint was barred by judicial

estoppel because in his bankruptcy filing, JVT stated that "he had no interest in

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any incorporated or unincorporated business." The judge did not address JVT's

assertion that his failure to disclose in the bankruptcy action his interest in

Solutions or his claims against defendants was a "technical oversight." The

judge also did not address defendants' contention that plaintiffs failed to plead

sufficient facts to assert their claims against Symbiosis.

      Plaintiffs thereafter filed a timely motion for reconsideration. In support

of that motion, JVT submitted a certification in which he stated that when he

filed his bankruptcy petition, he did not list Solutions as an asset because, to his

knowledge, the corporation had been "defunct and non-operational for at least"

three years. JVT stated that Solutions "was not an asset," and the corporation

did not have any known claims. He said that if he had known Solutions had a

claim against defendants, he would have listed the corporation's stock and the

particular claim in his petition.

      JVT also asserted that he did not know Solutions had been dissolved in

February 2017. He stated that when he became aware that he had viable claims

against defendants, he retained an attorney, who filed the complaint. He noted

that in November 2017, he sent an e-mail to the bankruptcy trustee, and sent her

a copy of the complaint in this matter. JVT stated that the trustee had declined

to reopen his bankruptcy case "at this time."

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      Defendants opposed the motion. They argued that plaintiffs failed to meet

the standard for reconsideration and had improperly submitted "new evidence"

on the motion. They contended that the court had correctly decided to dismiss

the complaint on the basis of judicial estoppel.

      Defendants also asserted that JVT had improperly submitted a "self-

serving" e-mail to the bankruptcy trustee, in an effort to convince the court that

he failed to disclose his interest in Solutions in good faith. They argued that the

court had properly drawn the inference that JVT had acted in bad faith by

securing the benefit of a discharge in bankruptcy without disclosing his interest

in Solutions and making those potential assets available for distribution to

creditors.

      The judge denied the motion for reconsideration. On the order, the judge

wrote that plaintiffs had not shown that the court's prior decision was palpa bly

incorrect or that the court had not considered relevant evidence. The judge

stated that for purposes of applying judicial estoppel, it was irrelevant whether

a party's prior representation was made in good faith.

      The judge also stated that she had properly considered JVT's bankruptcy

documents since they are public records. The judge concluded she was not

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                                       10
required to convert the motion to dismiss under Rule 4:6-2(e) to a motion for

summary judgment under Rule 4:46. This appeal followed.

                                        II.

      On appeal, plaintiffs argue that because the parties presented the court

with factual material outside the pleadings, the court erred by failing to convert

the application to a motion seeking summary judgment. We agree.

      "In evaluating motions to dismiss, courts consider 'allegations in the

complaint, exhibits attached to the complaint, matters of public record, and

documents that form the basis of a claim.'" Banco Popular N. Am. v. Gandi,

184 N.J. 161, 183 (2005) (quoting Lum v. Bank of Am., 361 F.3d 217, 222 n.3

(3d Cir. 2004)). Where "matters outside the pleadings are presented to and not

excluded by the court, the motion [to dismiss] shall be treated as one for

summary judgment and disposed of as provided by R[ule] 4:46." R. 4:6-2.

      Here, plaintiffs and defendants submitted evidence outside the pleadings

to the court on the motion to dismiss. In support of their motion, defendant

submitted copies of JVT's bankruptcy petition, the order of discharge from JVT's

bankruptcy, a bankruptcy petition of another corporation for which JVT served

as president, the certificate of incorporation for Symbiosis, and the certificate of

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                                        11
dissolution for Solutions. JVT also submitted a certification that set forth facts

that are not articulated in the complaint.

      In ruling on the motion to dismiss based on judicial estoppel, the judge

primarily based her decision on the pleadings and JVT's statements in his

bankruptcy petition, but the judge did not expressly exclude the other evidence.

The evidence rules permit a judge to take judicial notice of "records of the court

in which the action is pending and of any other court of this state or federal court

sitting for this state." N.J.R.E. 201(b)(4).

      A judge is permitted to take judicial notice that certain documents were

filed and that certain statements were made in those documents, if relevant. See

State v. Silva, 394 N.J. Super. 270, 275 (App. Div. 2007) (citing RWB Newton

Assocs. v. Gunn, 224 N.J. Super. 704, 710-11 (App. Div. 1988)). A judge may

not, however, take judicial notice of the truth of the facts asserted in such

documents. Ibid. (quoting Gunn, 224 N.J. Super. at 711).

      Here, the judge properly exercised her discretion to take judicial notice of

JVT's statements in his bankruptcy petition that he did not own stock in an

incorporated or unincorporated business, did not have any claim to accounts

receivable, did not have any contingent claims, and was not a director,

executive, or more than five percent shareholder in any business. However, as

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we have explained, in opposing defendants' motion to dismiss on the basis of

judicial estoppel, JVT submitted a certification in which he stated that his failure

to mention his interest in Solutions was merely "a technical oversight." He set

forth facts explaining why he did not disclose that interest in his bankruptcy

petition and his potential claims against defendants.

       In our view, the presentation of these additional facts, which the court did

not expressly exclude and which were relevant to whether judicial estoppel

should apply, required the trial court to treat the motion as one for summary

judgment under Rule 4:46-2, rather than a motion for dismiss on the pleadings

under Rule 4:6-2(e).

                                        III.

      Plaintiffs further argue that the trial court erred by dismissing the

complaint on the basis of judicial estoppel. They contend the judge failed to

consider JVT's explanation for his failure to disclose in the bankruptcy petition

that he had an interest in Solutions and potential claims against defendants for

monies owed to him and Solutions.

      It is well-established that "[a] party who advances a position in earlier

litigation that is accepted and permits the party to prevail in that litigation is

barred from advocating a contrary position in subsequent litigation to the

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                                        13
prejudice of the adverse party." Bhagat v. Bhagat, 217 N.J. 22, 36-37 (2014)

(citing Kimball Int'l, Inc. v. Northfield Metal Prods., 334 N.J. Super. 596, 606

(App. Div. 2000); Chattin v. Cape May Greene, Inc., 243 N.J. Super. 590, 620

(App. Div. 1990), aff'd o.b., 124 N.J. 520 (1991)).

      "The purpose of the judicial estoppel doctrine is to protect 'the integrity

of the judicial process.'" Kimball, 334 N.J. Super. at 606 (quoting Cummings

v. Bahr, 295 N.J. Super. 374, 387 (App. Div. 1996)). Thus, "[t]he doctrine

prevents litigants from 'playing fast and loose' with, or otherwise manipulating,

the judicial process." State v. Jenkins, 178 N.J. 347, 359 (2004) (quoting State,

Dep't of Law & Pub. Safety v. Gonzalez, 142 N.J. 618, 632 (1995)).

      However, "judicial estoppel is an 'extraordinary remedy,' which should be

invoked only 'when a party's inconsistent behavior will otherwise result in a

miscarriage of justice.'"   Kimball, 334 N.J. Super. at 608 (quoting Ryan

Operations G.P. v. Santiam-Midwest Lumber Co., 81 F.3d 355, 365 (3d Cir.

1996)). The party seeking to apply judicial estoppel need not establish that the

other party asserted a contrary position in prior litigation in bad faith. City of

Atlantic City v. Cal. Ave. Ventures, LLC, 23 N.J. Tax 62, 68-69 (App. Div.

2006).

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      "We review a trial court's decision to invoke judicial estoppel using an

abuse of discretion standard." Terranova v. Gen Elec. Pension Tr., 457 N.J.

Super. 404, 410 (App. Div. 2019) (quoting In re Declaratory Judgment Actions

Filed by Various Municipalities, Cty. of Ocean, 446 N.J. Super. 259, 291 (App.

Div. 2016), aff'd, 227 N.J. 508 (2017)). "A court abuses its discretion when a

decision 'is "made without a rational explanation, inexplicably departed from

established policies, or rested on an impermissible basis."'"        Id. at 410-11

(quoting U.S. Bank Nat'l Ass'n v. Guillaume, 209 N.J. 449, 467 (2012)).

      When a party files a bankruptcy petition, the party is required to list,

among other things, "a schedule of assets and liabilities" and "a statement of

[his] financial affairs." 11 U.S.C. § 521(a)(1)(B)(ii), (iii). "The commencement

of a [bankruptcy] case . . . creates an estate . . . comprised of . . . all legal or

equitable interests of the debtor in property as of the commencement of the

case." 11 U.S.C. § 541(a)(1). This section is "intended to sweep broadly to

include 'all kinds of property, including tangible or intangible property, [and]

causes of action[.]'" In re Kane, 628 F.3d 631, 637 (3d Cir. 2010) (first alteration

in original) (quoting Westmoreland Human Opportunities, Inc. v. Walsh, 246

F.3d 233, 241 (3d Cir. 2001)).

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                                        15
      Here, the trial court found that JVT's claims were barred by judicial

estoppel due to his failure to disclose in his bankruptcy petition that he had an

ownership interest in Solutions and claims against defendants for monies owed

to that corporation. The judge based her decision solely on the pleadings and

the records of JVT's bankruptcy action. However, as we have explained, JVT

presented an explanation for his failure to disclose his interest in Solutions and

his claims for monies due to that corporation in his bankruptcy petition. The

trial court erred by failing to consider this evidence.

      We therefore conclude the trial court abused its discretion by determining

judicial estoppel barred plaintiffs' claims.     Without considering all of the

relevant evidence, the court could not decide whether JVT had been "'playing

fast and loose' with" the courts by asserting inconsistent positions, and whether

judicial estoppel was necessary to prevent "a miscarriage of justice."         See

Jenkins, 178 N.J. at 359 (quoting Gonzalez, 142 N.J. at 632); Kimball, 334 N.J.

Super. at 608 (quoting Ryan Operations, 81 F.3d at 365).

      Furthermore, the trial court found that judicial estoppel barred the claims

asserted by Solutions. Solutions is, however, a legal entity separate and apart

from its shareholders. See State, Dept. of Envtl. Prot. v. Ventron Corp., 94 N.J.

473, 500 (1983) (citing Lyon v. Barrett, 89 N.J. 294, 300 (1982)). Solutions did

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not file a petition for bankruptcy and it did not fail to disclose any potential

claims in a bankruptcy action. The trial court provided no explanation for

applying judicial estoppel to Solutions.     On remand, the trial court should

reconsider that determination and provide reasons for applying judicial estoppel

to the claims asserted by Solutions.

                                       IV.

      In view of our decision, we need not consider plaintiff's contention that

the trial court erred in denying their motion for reconsideration.    We note,

however, that in support of the reconsideration motion, JVT submitted a

certification in which he stated that on November 17, 2017, he sent an email to

the bankruptcy trustee and provided her a copy of the complaint in this case.

According to JVT, the trustee declined to reopen the bankruptcy proceeding "at

this time."

      The trial court was not required to consider this newly-produced evidence

when considering the reconsideration matter because this was available in

November and should have been presented to the court when plaintiffs opposed

the motion to dismiss in February 2018. See Cummings, 295 N.J. Super. at 64

(quoting D'Atria v. D'Atria, 249 N.J. Super. 392, 401-02 (Ch. Div. 1990)). In

any event, on remand, the trial court should consider this evidence as well as

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                                       17
any other evidence relevant to the decision of whether judicial estoppel should

be applied to plaintiffs' claims.

      Accordingly, we reverse the trial court's orders dismissing the complaint

and denying plaintiffs' motion for reconsideration. We remand the matter for

further proceedings on defendant's motion to dismiss based on judicial estoppel.

Defendants may also renew their motion to dismiss the claims against Symbiosis

under Rule 4:6-2(e) on other grounds.

      Reversed and remanded for further proceedings in conformity with this

opinion. We do not retain jurisdiction.

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