TJI GAS ENTERPRISES, LLC v. LACEY GAS, LLC

NOT FOR PUBLICATION WITHOUT THE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-0

A-3170-13T1

TJI GAS ENTERPRISES, LLC, a

New Jersey limited liability

company,

Plaintiff-Respondent,

v.

LACEY GAS, LLC, a

New Jersey limited liability

company; PRASHANT SHAH, individually;

JOHN F. WILEY, JR.; KOMLIKA GILL;

NAVRANG SHAH,

Defendants,

and

BISWAJIT MAZUMDAR, individually,

and VAISHAH MAZUMDAR,

Defendants-Appellants.

TJI GAS ENTERPRISES, LLC, a

New Jersey limited liability

company,

Plaintiff-Respondent,

v.

LACEY GAS, LLC, a

New Jersey limited liability

company; BISWAJIT MAZUMDAR,

individually, JOHN F. WILEY, JR.;

KOMLIKA GILL; VAISHAH MAZUMDAR;

NAVRANG SHAH,

Defendants,

and

PRASHANT SHAH, individually,

Defendant-Appellant.

November 16, 2016

Argued October 19, 2016 Decided

Before Judges Fuentes, Simonelli and Carroll.

On appeal from the Superior Court of New Jersey, Law Division, Somerset County, Docket No. L-614-10.

Jill R. Cohen argued the cause for appellants Biswajit Mazumdar and Vaishah Mazumdar (Eckert Seamans Cherin & Mellott, LLC, attorneys; Michael A. Spero, of counsel and on the briefs; Ms. Cohen, on the briefs).

Elizabeth L. Laurenzano argued the cause for appellant Prashant Shah (The Marchese Law Firm, attorneys; Daniel G.P. Marchese, of counsel and on the brief).

Greg Trif argued the cause for respondent (McElroy, Deutsch, Mulvaney & Carpenter, LLP, attorneys; Louis A. Modugno, of counsel and on the brief; Mr. Trif and Rudolph J. Burshnic, II, on the brief).

PER CURIAM

In these appeals, calendared back-to-back and consolidated for purposes of this opinion, we review a February 4, 2014 order granting summary judgment in favor of plaintiff TJI Gas Enterprises, LLC (TJI) against defendants Biswajit Mazumdar (Biswajit),1 Vaishah2 Mazumdar (Vaishah), and Prashant Shah (Prashant) on count fifteen of plaintiff's amended complaint. For the reasons that follow, we reverse and remand.

I.

This matter has its genesis in an agreement by Lacey Gas, LLC (Lacey) to sell its gas station business to TJI. The subject business is a Shell gas station and convenience store (collectively "the business") in Forked River. Lacey, the business retailer, was founded by defendants Fouad Kashouty and Parag Shah (Parag), each of whom held equal interests in the company.

Motiva Enterprises, LLC (Motiva), which is not a party to this action, was the licensee, gasoline supplier, and landlord of the property on which the business was located. The respective rights and obligations of Lacey and Motiva were governed by a Retail Facility Lease (Motiva lease) and a Retail Sales Agreement (Motiva agreement) (collectively the "Motiva contracts") that were effective from May 1, 2006, through April 30, 2009. The Motiva agreement gave Lacey the right to purchase gasoline from Motiva and to operate, among other things, a car wash and convenience store on the property. However, Motiva retained a right of first refusal in the event Lacey ever sought to transfer its interests. The Motiva agreement also allowed Lacey to sublease the business and to modify the interests of Lacey's stakeholders, but only with Motiva's prior written consent which Motiva could condition on Lacey's satisfaction of all debts and the proposed transferee's acceptance of the terms and conditions of the Motiva contracts.

In April 2008, one year before the Motiva contracts were slated to expire, plaintiff contracted with Lacey to buy the business for $850,000. Biswajit purportedly helped facilitate the transaction as Parag and Kashouty's translator.

The purchase agreement provided that plaintiff would pay a $250,000 deposit and execute a five-year promissory note for the remaining $600,000. Paragraph twenty-seven granted plaintiff possession of the business upon its payment of the deposit and an additional $30,000 to Lacey's operating account to cover fuel deliveries. A complementary provision in paragraph four stated that the deposit would be released to Lacey once plaintiff took possession of the premises. Paragraph fourteen provided: "If this contract is legally and rightfully canceled, [TJI] can get back the deposit and the parties will be free of liability to each other" (emphasis added).

Paragraph eight called for the transfer of ownership to plaintiff at closing with the delivery of "a bill of sale, and such instruments of transfer as are necessary to transfer to [plaintiff] full title to the business and property . . ." In paragraph twenty-seven, Lacey further agreed that

The Seller's attorney will hold [the] bill of sale in escrow deposit until Shell approves Buyer as Tenant and Dealer at which time [the] bill of sale shall be delivered to Buyer. In the event that Shell does not approve Buyer's entity then Seller will transfer its corporate shares to Buyer.

On June 27, 2008, plaintiff, plaintiff's attorney Komlika Gill, Parag, and Lacey's attorney John Wiley, met to execute the purchase agreement. Biswajit and his wife, Vaishah (collectively the Mazumdars), Prashant, and Navrang Shah (Navrang) attended the meeting but had no role in the transaction.

The next day, plaintiff assumed possession of the business and began operating it. It is unclear from the record whether plaintiff operated the business for its own benefit, or on behalf of Lacey. Plaintiff also paid some of Lacey's prior debts, purportedly in accordance with a modification to the purchase agreement that allowed plaintiff to offset those payments against the balance it owed under the note. Plaintiff denied this characterization of the payments and claimed that it had to pay the debts on Lacey's behalf to keep the business afloat until Motiva approved the assignment.

On July 3, 2008, Wiley issued a $247,010.73 check payable to the order of Parag, Prashant, and Biswajit. Wiley's reasons for issuing the check to those specific individuals are disputed, but defendants claim that the money was used to satisfy loans that Parag had taken from the Mazumdars and Prashant. Among those purported loans were two $200,000 notes from Biswajit to Parag, and a $225,000 term note in favor of Biswajit's company, the Lion Real Estate Group, L.L.C. Some of the proceeds of those loans were purportedly "used for Lacey" but the record does not reflect in what manner.

After discussing how to distribute the deposit funds, Parag, the Mazumdars, Prashant and Navrang established a new bank account that required any checks issued therefrom to be jointly signed by Navrang and either Vaishah or Prashant. Defendants then cashed Wiley's check on October 20, 2008, and made four separate disbursements totaling $247,009: two checks to Vaishah for $83,333 and $25,000; $83,333 to Prashant; and $55,343 to Navrang. For reasons that are unknown, Navrang later gave $10,000 of his portion to Prashant.

On April 8, 2009, Motiva rejected Lacey's proposed assignment of the Motiva lease and agreement on the ground that TJI's projected revenues would be insufficient to maintain a financially sound business. Notwithstanding, plaintiff continued to operate the business until at least October 2009, when the parties purportedly terminated their purchase agreement. Ultimately, on January 7, 2010, Motiva and Lacey mutually terminated the Motiva contracts.

On March 26, 2010, after unsuccessfully seeking return of its $250,000 deposit, plaintiff filed a twelve-count complaint against Lacey, Kashouty, Parag, the Mazumdars, Wiley, and Gill, asserting various claims including breach of contract, negligence, and fraud. On August 9, 2011, plaintiff filed a first amended complaint that, among other things, removed Vaishah, Kashouty, and Parag as defendants, added Prashant as a defendant, and expanded its claims against Biswajit.

On November 8, 2011, plaintiff moved to file a second amended complaint. The court reserved decision on the motion and allowed plaintiff to reapply after discovery. The record is unclear as to whether plaintiff ever filed a second amended complaint, but on July 16, 2012, the court granted plaintiff leave to file a third amended complaint. In that pleading, plaintiff expanded the group of defendants to include Navrang and again add Vaishah. Of the counts asserted, six pertained to Prashant and the Mazumdars, who are the sole remaining defendants involved in the present appeal. Those claims included: unjust enrichment (count five); breach of escrow agreement (count ten); conversion (count thirteen); fraudulent conveyance in violation of the Uniform Fraudulent Transfer Act (UFTA), N.J.S.A. 25:2-20 to -34, and specifically N.J.S.A. 25:2-25 subsections (a) and (b) (counts fourteen and fifteen respectively); and disgorgement (count sixteen).

On December 19, 2013, plaintiff moved for summary judgment as to count fifteen, which, as noted, alleged violations of N.J.S.A. 25:2-25(b).3 The trial court noted that subsections (a) and (b) of N.J.S.A. 25:2-25 impose different intent requirements and that while subsection (a) would require plaintiff to show that Lacey transferred the deposit monies with an actual intent to defraud, subsection (b) permitted plaintiff to base its claim on a showing of constructive intent. In the court's view, the undisputed facts established that the transfer was fraudulent within the meaning of N.J.S.A. 25:2-25(b)

[A] [c]ontract was signed providing that a deposit could be returned in the event of cancellation. Then, the day after[4] possession of the premises (and within the time for proper termination of the [c]ontract), that deposit was distributed to four individuals other than Lacey Gas. Next, as the [c]ontract required the deposit be paid to Lacey directly, the transfer was to be treated as a transfer from Lacey Gas to these individuals. That transfer left Lacey with the reasonable probability of future or current debts (namely the potential return of the deposit) and with no means of returning that deposit. Therefore, under Section (b), Lacey Gas, who was aware of the fact it could have a duty to return the deposit, made a transfer to those individuals leaving itself with unreasonably small assets and likely debts beyond their ability to pay as they become due.

The court next found that Lacey had not received an equivalent value for the transfer

Parag Shah may have owed money to those individuals, [but] Lacey Gas is not Parag Shah. The deposit was not made payable to Parag Shah, and the transfer was not between those individuals. Instead, the transfer was between Lacey Gas (a corporate entity) and individuals with no legal relationship or creditor relationship to that corporate entity.

Finally, the court rejected the Mazumdars' reliance on the good-faith transferee defense as set forth in N.J.S.A. 25:2-30. The court found that the defense, which insulates "a person who took in good faith and for a reasonably equivalent value," did not apply because it was only available to transfers voided pursuant to N.J.S.A. 25:2-25(a). Thus, on February 4, 2014, the court entered summary judgment in favor of plaintiff against Prashant for $93,333 plus $5,081.98 in prejudgment interest, and against the Mazumdars for $108,333 plus prejudgment interest of $3,461.24. These appeals followed.

II.

On appeal, the Mazumdars and Prashant argue that the court should not have granted summary judgment on plaintiff's UFTA claim because material disputes of fact remain regarding Parag's loans and plaintiff's rights under the purchase agreement. Plaintiff in turn maintains that summary judgment was proper because these defendants acknowledged that they were not creditors of Lacey, and that the transfer left Lacey unable to pay its debts. Plaintiff also argues that defendants' opposition to the summary judgment motion did not comply with the procedural requirements of Rule 4:46 and hence they are precluded from arguing that an issue of fact exists.

We review a grant of summary judgment de novo, observing the same standard as the trial court. Townsend v. Pierre, 221 N.J. 36, 59 (2015). Summary judgment should be granted only if the record demonstrates there is "no genuine issue as to any material fact challenged and that the moving party is entitled to a judgment or order as a matter of law." R. 4:46-2(c). We consider "whether the competent evidential materials presented, when viewed in the light most favorable to the non-moving party, are sufficient to permit a rational factfinder to resolve the alleged disputed issue in favor of the non-moving party." Davis v. Brickman Landscaping, Ltd., 219 N.J. 395, 406 (2014) (quoting Brill v. Guardian Life Ins. Co. of Am., 142 N.J. 520, 540 (1995)). If no genuine issue of material fact exists, the inquiry then turns to "whether the trial court correctly interpreted the law." DepoLink Ct. Reporting & Litig. Support Servs. v. Rochman, 430 N.J. Super. 325, 333 (App. Div. 2013) (quoting Massachi v. AHL Servs., Inc., 396 N.J. Super. 486, 494 (App. Div. 2007), certif. denied, 195 N.J. 419 (2008)).

The UFTA provides, in relevant part, that

[a] transfer made or obligation incurred by a debtor is fraudulent as to a creditor, whether the creditor's claim arose before or after the transfer was made or the obligation was incurred, if the debtor made the transfer or incurred the obligation

a. With actual intent to hinder, delay, or defraud any creditor of the debtor; or

b. Without receiving a reasonably equivalent value in exchange for the transfer or obligation, and the debtor

(1) Was engaged or was about to engage in a business or a transaction for which the remaining assets of the debtor were unreasonably small in relation to the business or transaction; or

(2) Intended to incur, or believed or reasonably should have believed that the debtor would incur, debts beyond the debtor's ability to pay as they become due.

[N.J.S.A. 25:2-25.]

The purpose of the UFTA "is to prevent a debtor from placing his or her property beyond a creditor's reach." Gilchinsky v. Nat'l Westminster Bank N.J., 159 N.J. 463, 475 (1999) (citation omitted). Claims brought pursuant to the UFTA "allow the creditor to undo the wrongful transaction so as to bring the property within the ambit of collection." Ibid. (citation omitted).

Notably, the UFTA's remedies are only available to creditors who have a valid "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. Based on that definition, if plaintiff's right to a refund expired once it took possession of the business, plaintiff was arguably not a creditor within the meaning of the UFTA at the time the deposit was transferred. Moreover, if plaintiff was not entitled to collect the funds from Lacey, it follows that plaintiff would not be entitled to recover the deposit monies from the Mazumdars and Prashant. Here, the trial court erred by failing to resolve this threshold question.

Normally, a court's role in contractual matters is to enforce "the intention of the parties as revealed by the language used by them." Homann v. Torchinsky, 296 N.J. Super. 326, 334 (App. Div.), certif. denied, 149 N.J. 141 (1997). The provisions in the purchase agreement are capable of supporting more than one reading. For instance, as the court found and plaintiff continues to argue, it is possible that "the contract" referenced in paragraph fourteen meant the entire transaction. However, it is equally feasible that the phrase only referred to the contract to purchase. Paragraph four, which called for the release of deposit monies upon plaintiff's possession of the premises, would support such a reading. In fact, this ongoing disagreement about whether plaintiff's right to a refund endured beyond its taking possession of the business led the court to deny the motions to dismiss filed by Wiley and Gill earlier in the litigation.

Where "there is uncertainty, ambiguity or the need for parol evidence in aid of interpretation, then the doubtful provision should be left to the jury." Great Atl. & Pac. Tea Co., Inc. v. Checchio, 335 N.J. Super. 495, 502 (App. Div. 2000). Because the relevant provision is reasonably susceptible to more than one reading, further fact-finding is needed to ascertain the specific circumstances under which the parties intended the deposit be refunded. SeeGrow Co., Inc. v. Chokshi, 403 N.J. Super.443, 474-75 (App. Div. 2008) (ruling that ambiguous agreements require extrinsic evidence to ascertain intent).

Even if we are mistaken, or plaintiff can fully establish its status as a creditor with a cognizable UFTA claim, we nonetheless conclude that further fact-finding remains necessary. Pursuant to N.J.S.A. 2C:2-25(b), plaintiff had the burden to establish three things.

First, plaintiff had to show that Lacey did not receive reasonably equivalent value in exchange for the transfers it made to the Mazumdars and Prashant. N.J.S.A.25:2-25(b). In that regard, the law provides that a prior debt can represent a reasonably equivalent value that can support a subsequent "conveyance even though made at a time when the grantor was insolvent." Schwartz v. Battifarano, 2 N.J.478, 485 (1949). Moreover, "[i]t is well settled that it is the right of a debtor who is in failing circumstances or insolvent to prefer one of his creditors . . . ." Ibid.(quoting Hersh v. Levinson Bros., Inc., 117 N.J. Eq. 131 (E. & A. 1934). To exercise such a preference does not necessarily constitute a fraudulent conveyance

True, a creditor who collects from an insolvent debtor fares better than other claimants. Yet if the transfer were set aside in favor of another creditor, there would be but a substitution of one preference for another. For that reason a preference cannot be undone by a competing creditor whether the preference was obtained through judicial process or by a transfer from the debtor, and the Uniform Fraudulent Conveyance Act did not alter that proposition.

[Smith v. Whitman, 39 N.J.397, 402 (1963).]5

The record here shows that Parag borrowed money from defendants and used some of the funds "for Lacey." The court, nonetheless, concluded that no value had been exchanged because "Lacey Gas [was] not Parag Shah." However, Parag's reasons for borrowing the money cannot be discerned from the current record. A fact-finder could reasonably conclude that Parag took loans from defendants as a principal of Lacey, thereby establishing a legitimate debtor-creditor relationship between defendants and Lacey. SeeN.J.S.A.42:1A-13(a) ("Each partner is an agent of the partnership for the purpose of its business. An act of a partner . . . binds the partnership . . . .").

Plaintiff next had to show that Lacey's post-transfer assets were unreasonably small in relation to the pending transaction. N.J.S.A.25:2-25(b)(1). The only finding the court made with respect to this element was the self-evident fact that Lacey had not repaid plaintiff. The summary judgment record contained no information regarding other assets that could be attributed to Lacey.

Finally, plaintiff was obliged to demonstrate that Lacey "[i]ntended to incur, or believed or reasonably should have believed that" it would incur, debts beyond its "ability to pay as they become due." N.J.S.A.25:2-25(b)(2). While the court correctly found that plaintiff was not required to show that defendants had an "actual intent" to defraud, the plain text of the law still required an examination of defendants' intentions and beliefs. The court made no such determinations here, and because "issues hinging upon a party's mental state are not appropriate for resolution by way of summary judgment," further fact-finding is necessary to determine the contracting parties' intentions. Jones v. Jones, 242 N.J. Super. 195, 206 (App. Div.), certif. denied, 122 N.J.418 (1990).

In sum, we conclude the trial court granted summary judgment prematurely and that further fact-finding is needed to determine: (1) the specific circumstances under which the parties intended the deposit to be refunded; (2) whether Parag, Prashant, and the Mazumdars were creditors of Lacey; and (3) whether Lacey had the ability to satisfy its debts after it transferred the deposit. Since we conclude that reversal is warranted on this basis, we need not reach defendants' additional arguments that: (1) the court's grant of summary judgment violated the law of the case doctrine because it was contrary to the court's earlier denial of Wiley's and Gill's motions to dismiss plaintiff's negligence and malpractice claims; and (2) Lacey was not insolvent as defined by the UFTA when it paid defendants because its note from plaintiff was an asset.

Reversed and remanded. We do not retain jurisdiction.

1 Since some of the parties share a common surname, we occasionally use their first names for ease of reference and to avoid confusion. We intend no disrespect by this informality.

2 This name is spelled "Vaishah" in some parts of the record and "Vaishali" in others. For consistency, we use the name as it appears in the complaint.

3 The record is inconclusive, but it appears that by this stage all of the other parties and claims had either settled or been dismissed.

4 The court's chronology is incorrect. As previously noted, the record shows that plaintiff assumed possession of the business on June 28, 2008, and that Wiley did not release the funds to defendants until July 3, 2008.

5 We note that Schwartz, Hersh, and Smith were decided under the UFTA's predecessor statute, the Uniform Fraudulent Conveyance Act (UFCA), N.J.S.A. 25:2-7 to -19, repealed by L. 1988, c. 74, 1, (N.J.S.A. 25:2-34), eff. Jan. 1, 1989. However, as one commentator has observed, "[t]he UFTA is still closely tied to . . . [the UFCA and] . . . [t]he two Acts display language and structural similarities, causing New Jersey cases under the UFCA to be an important guide to an interpretation of the UFTA." Paul A. Rowe, N.J. Business Litigation (2d ed.), 11.1 at 267 (2006) (citing Richard E. Cherin, Fraudulent Transfers Redefined Under New Act, 122 N.J.L.J. Index Page 1362 (1988)).