Court Opinion

ID: 4170658
Source: CourtListenerOpinion
Date Created: 2017-05-22 14:12:50.940927+00
Date Added: 2024-06-11T14:39:02.911145
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NOT FOR PUBLICATION WITHOUT THE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-1384-14T3

DIRECT COAST TO COAST, LLC
and SELECTIVE TRANSPORTATION
CORPORATION,

        Plaintiffs-Appellants/
        Cross-Respondents,

v.

JOSEPH PETERSON, individually and
as an agent of THE BANFIELD GROUP,
LLC,

        Defendant-Respondent/
        Cross-Appellant,

and

LISA MARIE HARRISON, individually
and as an agent of THE BANFIELD
GROUP, LLC and JERRY KETEL,
individually and as an agent of
THE BANFIELD GROUP, LLC,

     Defendants.
____________________________________

              Argued December 21, 2016

              Before Judges Alvarez, Higbee and Manahan.

              Telephonically reargued February 28, 2017 –
              Decided May 22, 2017
          Before Judges Alvarez, Accurso and Manahan.

          On appeal from Superior Court of New Jersey,
          Law Division, Middlesex County, Docket No.
          L-6322-12.

          Ronald Horowitz argued the cause for
          appellant/cross-respondent.

          Craig Rothenberg argued the cause for
          respondent/cross-appellant.

PER CURIAM

    Plaintiffs Direct Coast To Coast, LLC and Selective

Transportation Corporation appeal from a summary judgment

dismissing their complaint against defendant Joseph Peterson, as

well as orders denying their motions for reconsideration and for

counsel fees and costs as a condition of vacating a prior

default against Peterson and for obtaining the dismissal of his

counterclaims with prejudice.   Defendant cross-appeals from the

denial of his motion to impose fees and costs on plaintiffs and

their counsel for pursuing frivolous litigation and violating

the rules of professional conduct.   We affirm each of the

orders.

    The essential facts are undisputed.   Plaintiffs are

affiliated freight transportation companies located in New

Jersey.   The Banfield Group, LLC was a freight transportation

broker located in Oregon with which plaintiffs did business for

several years.

                                2                            A-1384-14T3
    Defendant owned a majority interest in Banfield until the

end of 2008 when he entered into an agreement conveying his

interest to the company and a remaining member, who continued to

operate the business.   The purchase price was payable over

several years, coinciding with a part-time employment agreement

for defendant, and defendant was provided a security interest in

Banfield's tangible and intangible assets.     As part of the

transaction, Banfield and the remaining member agreed to defend,

indemnify and hold defendant harmless from any damages arising

out of the ownership or operation of the company going forward.

Defendant's security interest was evidenced by a UCC Financing

Statement filed with the State of Oregon.    Defendant was

apparently Banfield's only secured creditor.

    In 2009, Banfield began to fall behind in its payments to

plaintiffs for freight services.     In January 2010, plaintiffs

sent demand notices to Banfield.    Direct's notice advised if

payment of the full amount of $128,733.03 owed was not received

within five business days, Direct would eliminate the minimum

rates and discounts accorded Banfield and seek "full bureau

rates" for a total of $468,238.71.    Selective sent a similar

notice advising if Banfield failed to pay the $17,872.96 it

owed, Selective would seek payment of $104,732.48.    The

statements of account attached to those notices provided that

                                3                            A-1384-14T3
the balances owed were incurred by Banfield in late 2009, months

after defendant sold his interest in the company.

    In addition to not paying plaintiffs, Banfield also stopped

paying defendant.   In late January 2010, Banfield surrendered

its assets to defendant, acknowledging he had "a first position

perfected security interest in all of the tangible and

intangible assets" of the company.   In March 2010, defendant's

lawyer wrote to Banfield's creditors, including plaintiffs,

advising that defendant sold his interest in Banfield in

December 2008, had "a first perfected security interest in all

of the assets" of the company, and that following default by

Banfield, its assets were surrendered to him in lieu of

foreclosure.   The letter also advised that the value of the

remaining assets was significantly less than the sums owed

defendant.

    Following Banfield's demise, plaintiffs continued to do

business in 2010 and 2011 with defendant, through Auburn

Logistics, a company owned by defendant's brother.   In early

2011, after learning that plaintiffs' counsel was attempting to

collect on Banfield's debts, defendant wrote to him twice.

Defendant advised plaintiffs' counsel of the sale of defendant's

interest in Banfield, and that Auburn had no responsibility for

Banfield's debts.   In response, plaintiffs' counsel wrote to

                                4                          A-1384-14T3
defendant at Auburn, advising if payment of $475,851.73 was not

received within ten days, "suit will be instituted in New Jersey

against you, your company and The Banfield Group, together with

all shippers and consignees."

    Plaintiffs thereafter instituted separate suits in the Law

Division in Middlesex County against Banfield, Auburn and a

number of Banfield's consignees and shippers seeking the non-

discounted balances plaintiffs claimed were due from Banfield.

Plaintiffs sued Auburn on a theory of successor liability.

Although having threatened to sue defendant, plaintiffs did not

name him in those actions, despite their knowledge of his role

in Banfield and Auburn and did not identify him in their Rule

4:5-1 disclosures.    Instead, they took defaults against Banfield

and Auburn for the non-discounted amounts plaintiffs claimed

Banfield owed and settled with several consignees and shippers,

recovering $67,000.

    Plaintiffs concede they received additional information in

the course of discovery in the 2011 suits that defendant

allegedly diverted payments received from Banfield customers,

for services rendered by plaintiffs, to himself and withdrew

"substantial funds" from Banfield's bank accounts in 2010.

Notwithstanding, plaintiffs never sought to join defendant in

those actions or amend their Rule 4:5-1 disclosures to identify

                                 5                         A-1384-14T3
defendant as a person potentially liable to them on the basis of

those facts.

    After the 2011 litigation ended, plaintiffs filed this

action in the Law Division against defendant "individually and

as an agent of The Banfield Group, LLC" to recover the default

judgments secured in the 2011 suits, less the sums recovered

from Banfield's customers in those actions.   Plaintiffs obtained

a default judgment against defendant in January 2013 for

$515,779.21.

    Defendant moved to vacate the default, claiming he had not

been served.   Specifically, defendant claimed no one was present

at his Oregon home when he was allegedly served, as he and his

wife, the only two members of their household, were in

California celebrating a family birthday on the alleged date of

service.   Following a plenary hearing at which both defendant

and the process server testified, the court concluded defendant

had not been served and vacated the default judgment.

    Defendant filed an answer and counterclaim, and discovery

ensued with each side accusing the other of failing to produce

discovery.   Defendant eventually moved for summary judgment

arguing the entire controversy doctrine barred plaintiffs'

claims against him, that the complaint was filed beyond the

eighteen-month statute of limitations imposed on interstate

                                6                          A-1384-14T3
motor carriers seeking to recover charges for transportation or

services by 49 U.S.C. § 14705(a), that defendant did not owe

plaintiffs fiduciary duties as a matter of law and that he

should be awarded his counsel fees and costs as a sanction for

the bad faith of plaintiffs and their lawyer in pursuing the

action.

    In a comprehensive written opinion, Judge Paley found

plaintiffs' failure to join defendant in the first of these

successive actions was inexcusable and caused defendant

substantial prejudice.     See Hobart Bros. Co. v. Nat'l Union Fire

Ins. Co., 354 N.J. Super. 229, 242 (App. Div.), certif. denied,

175 N.J. 170 (2002).     Specifically, the judge found on the

undisputed facts that plaintiffs were aware of defendant's

affiliation with Banfield since at least 2010, as reflected in

their demand letters, and had even threatened to sue defendant

before instituting the 2011 suits.    The judge further found that

plaintiffs were aware in 2011 that defendant had taken a

security interest in all of Banfield's assets when he sold his

interest in the company in late 2008.

    The court concluded that by holding back their claim

against defendant under those circumstances and suing him only

after recovering a default judgment against Banfield, plaintiffs

were seeking to deprive him of any meaningful opportunity to

                                  7                         A-1384-14T3
challenge the amount of the judgments and thus to capitalize on

their failure to exclude him from the prior lawsuits.    See

Baureis v. Summit Trust Co., 280 N.J. Super. 154, 160 (App.

Div.), certif. denied, 141 N.J. 99 (1995) (concluding

particularized evaluation of successive action revealed risk of

substantial unfairness to the defendant, unreasonably fragmented

litigation of the same issues and posed an unfair burden on

judicial economy).   The judge further found that intervening

events, notably the remaining member's personal bankruptcy,

"substantially prejudiced" defendant by depriving him of the

ability to obtain the benefit of his contractual

indemnification.

    Judge Paley also concluded plaintiffs' claims were time-

barred because plaintiffs filed their complaint in September

2012, thirty-three months after the last services were provided.

The judge concluded the Interstate Commerce Commission

Termination Act of 1995 (ICCTA), 49 U.S.C. § 13501, barred the

claims because plaintiffs were attempting to recover for unpaid

freight charges notwithstanding that plaintiffs styled them as

constituting a breach of fiduciary duty.   See 49 U.S.C. §

14705(a) ("A carrier providing transportation or service subject

to jurisdiction under chapter 135 must begin a civil action to

recover charges for transportation or service provided by the

                                8                            A-1384-14T3
carrier within 18 months after the claim accrues."); Emmert

Indus. Corp. v. Artisan Assocs., Inc., 497 F.3d 982, 987, 989-90

(9th Cir. 2007) (holding the statute's plain language requires a

carrier to bring its claims to recover for transportation or

service within eighteen months of accrual and "necessarily

preempts" state law providing for a longer period of

limitation).

    Finally, the judge found defendant did not owe any

fiduciary duties to plaintiffs because defendant was not under

any "duty to act for or give advice for the benefit of

plaintiffs on matters within the scope of their relationship."

See McKelvey v. Pierce, 173 N.J. 26, 57 (2002).   Defendant was

not a director or officer at the time the debts accrued and only

retook control of Banfield's assets after the debts were accrued

pursuant to his perfected security interest.   The judge found

plaintiffs had thus "failed to demonstrate the existence of any

fiduciary interest flowing to them."

    Plaintiffs appeal, contending the court erred by holding

the action barred by the entire controversy doctrine, that 49

U.S.C. § 14705 "does not apply to bar any of the claims by

plaintiff, Direct, and only some of the claims by plaintiff,

Selective," that as a "corporate principal, defendant owed a

duty to bona fide creditors not to misappropriate corporate

                               9                          A-1384-14T3
funds and, as a broker, not to comingle trust funds," that they

were entitled to their counsel fees and costs and that the case

was not ripe for summary judgment.   We reject those arguments.

    We review a grant of summary judgment using the same

standard that governs the trial court.    Murray v. Plainfield

Rescue Squad, 210 N.J. 581, 584 (2012).   Thus, we consider

"whether the evidence presents a sufficient disagreement to

require submission to a jury or whether it is so one-sided that

one party must prevail as a matter of law."    Liberty Surplus

Ins. Corp., Inc. v. Nowell Amoroso, P.A., 189 N.J. 436, 445-46

(2007) (quoting Brill v. Guardian Life Ins. Co. of Am., 142 N.J.

520, 536 (1995)).   Applying that standard here, we find no

reason to disturb Judge Paley's careful findings.

    There is no dispute that plaintiffs were well aware of

defendant's role in Banfield, the entity that accrued the debts,

and Auburn, the entity plaintiffs sued in 2011 under a theory of

successor liability, at the time of the first suits.   They admit

they threatened to sue defendant before instituting the 2011

litigation and confirmed in discovery facts they claim show

defendant diverted funds paid to Banfield by consignees and took

for himself funds in Banfield's bank account after assuming

control of the company in 2010 pursuant to the surrender of

assets.   Plaintiffs' claims that defendant breached fiduciary

                               10                          A-1384-14T3
duties to them are inextricably interwoven with the claims they

brought in the 2011 litigation against Banfield and its

customers.

     It is further undisputed that the original freight charges

owed by Banfield to Direct totaled $121,389.38,1 and that Direct

obtained a default judgment against Banfield for $475,851.73,

including "loss-of-discount and/or non-payment penalties . . .

of $354,462.35, almost three times the actual amount of the

alleged debt."   Likewise, although Banfield only owed Selective

$13,870.54, Selective obtained a default judgment against it for

$95,521.10, including loss-of-discount and/or non-payment

penalties of $81,650.56.

     Although claiming they had no obligation to name defendant

in the 2011 litigation, plaintiffs continue to assert that

defendant is precluded from challenging the amount of the

judgments against Banfield in this suit, presumably because of

their contention that defendant was in privity with Banfield.

See Olivieri v. Y.M.F. Carpet, Inc., 186 N.J. 511, 521 (2006)

(noting for the doctrine of collateral estoppel to foreclose

1
  Plaintiffs admitted defendant's allegation in his statement of
material facts in support of his motion for summary judgment
that "[a]ccording to the spreadsheet attached to Direct's 2011
Complaint, the original amount owed is $121,389.38" not the
$128,733.03 demanded before suit was filed.

                               11                           A-1384-14T3
relitigation of an issue, the party asserting the bar must show,

among other things, that "the party against whom the doctrine is

asserted was a party to or in privity with a party to the

earlier proceeding").   Accordingly, we find no error in the

trial court's conclusion that this is precisely the sort of

successive litigation the entire controversy was designed to

prohibit.   See 700 Highway 33 L.L.C. v. Pollio, 421 N.J. Super.

231, 236-37 (App. Div. 2011) (holding once a court determines a

Rule 4:5-1(b)(2) disclosure should have been made in the first

of successive actions, it must decide whether the party's

failure to make the disclosure was "inexcusable," and whether

the undisclosed party's ability to defend the successive action

has been substantially prejudiced).

     Had plaintiffs joined defendant in the 2011 suits,

defendant could have asserted his claim that plaintiffs were not

authorized to assess penalties for late payment2 against Banfield

and asserted cross-claims or third-party claims for contractual

indemnification, which the subsequent bankruptcy of the personal

indemnitor made impossible in this action.   There appearing on

2
  Plaintiffs admitted that Direct sent several letters to
Banfield between 2004 and 2007 agreeing to provide it "a 77%
discount on any freight Direct picks up from The Banfield Group
and is billed to the Banfield Group," none of which "contained
any provisions authorizing Direct to assess Banfield penalties
for late payment."

                               12                           A-1384-14T3
the undisputed facts no reason other than litigation strategy

for plaintiffs to have held back their claims against defendant,

we agree with Judge Paley that to permit this suit to go forward

would impose substantial unfairness upon defendant and

unreasonably fragment the litigation contrary to the fair

demands of judicial economy.   See Baureis, supra, 280 N.J.

Super. at 159.   Plaintiffs' claim that defendant was aware of

the first action and thus should have intervened in order to

protect his interest is without merit.   See id. at 163-64 ("We

are aware of no principle which would require a party to

intervene in a pending lawsuit in order to prevent later

litigation against it.").

    Plaintiffs' argument that their claims are not barred by

the statute of limitations because they "do not seek freight

transportation charges from [defendant]," elevates form over

substance and provides further support for the court's holding

that the case is barred by the entire controversy doctrine

because inextricably intertwined with the 2011 litigation.

There can be no dispute that plaintiffs in this action seek to

hold defendant responsible for the judgments entered against

Banfield for freight transportation charges.   Their argument

that 49 U.S.C. § 14705 "does not apply to bar any of the claims

by plaintiff, Direct, and only some of the claims by plaintiff,

                               13                           A-1384-14T3
Selective," is based on their claim that Direct did not act as a

"motor carrier" and "many of Selective's shipments were

intrastate."

     Plaintiffs, however, contended in the 2011 litigation that

both Selective and Direct were motor carriers and admitted the

same in this suit in response to defendant's statement of

undisputed material facts.3   Although conceding that Selective is

a motor carrier, plaintiffs assert "its transportation for

Banfield was mostly in New Jersey" and thus the federal statute

of limitations would not apply.      In their reply brief,

plaintiffs assert that "at bare minimum, both [p]laintiffs are

entitled to over $11,000 of unpaid freight transportation

charges," noting "[o]f course, these are [d]efendant's

3
  In their reply brief, plaintiffs assert that although Direct is
concededly a freight forwarder and a freight forwarder is a
motor carrier under the ICCTA, "not all shipments tendered to a
freight forwarder are actually transported by the freight
forwarder (i.e. it is brokered to another motor carrier)."
Plaintiffs thus insist that "Direct's pursuit of unpaid freight
transportation charges from its customer Banfield, and against
its customer's principal herein" as a freight forwarder are not
inconsistent positions. We add the emphasis to note the
inconsistency between this statement and plaintiffs' assertion
that they are not seeking unpaid freight charges against
Banfield. Plaintiffs have also not attempted to identify among
the many hundreds of pages of invoices in the record which ones
reflect Direct acting only as a "broker" or those that reflect
charges for intrastate travel.

                                14                           A-1384-14T3
calculations based on the discounted basis and not the non-

discounted basis which is permitted under federal law."

    It bears emphasizing that plaintiffs have sued defendant on

judgments totaling over $500,000, that they have insisted

elsewhere in their papers that their claims are not for unpaid

freight charges, that federal law does not control their cause

of action against defendant and that this is not a successive

action to those they failed to join defendant to in 2011.     As

plaintiffs concede that the federal statute of limitations bars

at least part of their claim and have made no effort to quantify

how much survives beyond asserting that "at bare minimum, both

[p]laintiffs are entitled to over $11,000 of unpaid freight

transportation charges," we cannot conclude on this record that

the trial court erred in finding their claim barred by 49 U.S.C.

§ 14705.   See State v. Hild, 148 N.J. Super. 294, 296 (App. Div.

1977) (noting a court is not obligated to search the record to

substantiate an argument advanced in an appellate brief).

    Plaintiffs' claims that defendant "as a corporate principal

owed a duty to bona fide creditors not to misappropriate

corporate funds and, as a broker, not to comingle trust funds,"

ignores the undisputed evidence in the record that defendant

sold his interest in Banfield at the end of 2008 and only retook

control in 2010 pursuant to the agreement to surrender assets to

                               15                           A-1384-14T3
him as Banfield's only secured creditor.    Plaintiffs have not

cited any authority to suggest that a secured creditor in

possession of a perfected security interest as defendant here

owes a fiduciary duty to unsecured creditors such as plaintiffs.

Accordingly, we need not consider the claim further. See Weiss

v. Cedar Park Cemetery, 240 N.J. Super. 86, 102 (App. Div. 1990)

(noting the failure to adequately brief an issue permits the

court to treat it as waived).

    Plaintiffs' claim for counsel fees and costs as a condition

of vacating a prior default against Peterson and for obtaining

the dismissal of his counterclaims with prejudice; and

defendant's cross-appeal from the denial of his motion to impose

fees and costs on plaintiffs and their counsel for pursuing

frivolous litigation and violating the rules of professional

conduct require only brief comment.   It is well established that

"fee determinations by trial courts will be disturbed only on

the rarest of occasions, and then only because of a clear abuse

of discretion."   Rendine v. Pantzer, 141 N.J. 292, 317 (1995).

    The court vacated the default judgment entered against

defendant here following a plenary hearing in which it

determined defendant was never served.     Accordingly, there was

no basis for imposing on defendant the obligation of plaintiffs'

fees as a condition of vacating the judgment under Rule 4:50-1.

                                16                          A-1384-14T3
See Reg'l Constr. Corp. v. Ray, 364 N.J. Super. 534, 543 (App.

Div. 2003).   As for securing the dismissal of defendant's

counterclaims, Judge Paley declined to find the claims were

frivolous or brought in bad faith.    Defendant's claim for

frivolous litigation sanctions is barred by the failure to

observe the Rule's requirements.     See Trocki Plastic Surgery

Ctr. v. Bartkowski, 344 N.J. Super. 399, 406 (App. Div. 2001),

certif. denied, 171 N.J. 338 (2002).    In no event could we find

Judge Paley abused his considerable discretion in declining to

award either party fees on this record.    See Packard-Bamberger &

Co. v. Collier, 167 N.J. 427, 444 (2001).

    The parties' remaining arguments, to the extent we have not

addressed them, lack sufficient merit to warrant discussion in a

written opinion.   See R. 2:11-3(e)(1)(E).

    Affirmed.

                               17                             A-1384-14T3