Opinion
DOCKET NO. A-5480-13T2
04-22-2016
ROCHELLE MOCHE, Plaintiff-Respondent/Cross-Appellant, v. RAFAEL LEVY, RIVKA BICHLER, 1199 TEANECK ROAD LLC, LE CHAIM AISHEL FILTERS, LLC and ELIYAHU WEINSTEIN, Defendants, and RAFAEL LEVY and 1199 TEANECK ROAD LLC, Defendants/Third-Party Plaintiffs-Appellants/Cross-Respondents, v. ELIYAHYU WEINSTEIN, Third-Party Defendant. CHARLES M. MOCHE, EZRA S. MOCHE, S. DAVID MOCHE, EZRA MOCHE TRUST A, EZRA MOCHE TRUST B, and CIB MANAGEMENT, LLC, Plaintiffs-Respondents/Cross-Appellants, v. RAFAEL LEVY, RAFAEL, INC. and ELIYAHU WEINSTEIN, Defendants, and RAFAEL LEVY and RAFAEL, INC., Defendants/Third-Party Plaintiffs-Appellants/Cross-Respondents, v. ELIYAHU WEINSTEIN, Third-Party Defendant.
Clement J. Farley argued the cause for appellants/cross-respondents (McCarter & English, LLP, attorneys; Mr. Farley, of counsel and on the briefs; Matthew B. Heimann and James A. Kellar, on the briefs). Joseph H. Neiman argued the cause for respondents/cross-appellants.
NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION Before Judges Espinosa, Rothstadt, and Currier. On appeal from Superior Court of New Jersey, Law Division, Bergen County, Docket Nos. L-4823-11 and L-9319-11. Clement J. Farley argued the cause for appellants/cross-respondents (McCarter & English, LLP, attorneys; Mr. Farley, of counsel and on the briefs; Matthew B. Heimann and James A. Kellar, on the briefs). Joseph H. Neiman argued the cause for respondents/cross-appellants. PER CURIAM
In these consolidated matters, defendants Rafael Levy, Rafael, Inc., and 1199 Teaneck Road LLC ("1199 LLC," together with Rafael, Inc., the "corporate defendants") appeal from three orders for judgment entered following a bench trial, awarding approximately $10 million with prejudgment interest in favor of plaintiffs, Rochelle Moche, Charles M. Moche, Ezra S. Moche, S. David Moche, Ezra Moche Trust A, Ezra Moche Trust B, and CIB Management, LLC (CIB). The dispute centered on the nature of transactions between former friends, and the trial court found that money given by plaintiffs to Levy were loans that he failed to repay. On appeal, defendants argue that any money Levy received from plaintiffs was an investment, rather than a loan, that the addition of prejudgment interest was unjustified, and that the corporate defendants are not liable for any obligations Levy may have incurred individually. Plaintiffs cross-appealed, challenging the court's dismissal of certain claims and refusal to allow an amendment to the complaint.
Because there are several members of the Moche family involved in this litigation, for the sake of clarity each will be referenced by their given name, with no disrespect intended.
We have considered each of the arguments advanced by the parties in light of our review of the record and applicable legal principles. We affirm in part and reverse in part, as we conclude that the evidence did not support a finding that all of the underlying transactions were loans to Levy, that there was no basis to hold the corporate defendants liable, and that the court failed to provide reasons for its award of prejudgment interest.
I.
A.
These actions arose after plaintiffs and Levy lost their money when as the result of an investment scheme perpetrated by defendant and third-party defendant Eliyahu Weinstein. In 2008, Levy approached his long-time friend Charles about a promising opportunity to invest with Weinstein. Over the course of several months, in a series of five transactions, Charles gave Levy millions of dollars, which Levy in turn invested with Weinstein. Charles also gave millions of dollars from his family members and friends to Weinstein directly. In some instances, Levy signed agreements to repay the amount he received plus a return on the investment. Other times, Charles gave Levy money knowing that he was not agreeing to guarantee repayment. When it became clear that Weinstein had been defrauding them, Charles and his family filed suit to recover their losses.
Rochelle filed a complaint against Levy alleging breach of contract based on a promissory note, unjust enrichment, and entitlement to a constructive trust (first action). Charles, Ezra, David, and the two Ezra Moche trusts filed a complaint against Levy and his company, Rafael, Inc., alleging breach of contract, breach of covenant of good faith and fair dealing, breach of fiduciary duty, fraud, fraudulent inducement, conversion, entitlement to a constructive trust, unjust enrichment, and a claim for an accounting (second action). The plaintiffs in each action later filed amended complaints to add allegations of violations of the New Jersey Racketeering Influenced Corrupt Organizations Act (RICO), N.J.S.A. 2C:41-2(a), negligent misrepresentation, aiding and abetting fraud, equitable fraud, and aiding and abetting money laundering. The amendments also added 1199 LLC as a defendant in the first action, and CIB as an additional plaintiff in the second action.
Additional defendants were also added but are not parties to this appeal.
Defendants filed answers, counterclaims, and third-party complaints against Weinstein and other unidentified parties. The court eventually consolidated the two actions and entered default judgments against Weinstein on the third-party complaints.
Defendants voluntarily dismissed their counterclaims at trial.
Two months before trial, plaintiffs sought to further amend their pleadings to add a cause of action under the New Jersey Consumer Fraud Act (CFA), N.J.S.A. 56:8-1 to -80, and a request for equitable relief. The court denied plaintiffs' motion.
The bench trial took place over six days. At the close of plaintiffs' case, defendants moved for involuntary dismissal of all claims pursuant to Rule 4:37-2. The court granted defendants' motion only in part, allowing plaintiffs to proceed on their equitable fraud, negligent misrepresentation, and contract claims, while dismissing their common law fraud and RICO claims. The court also denied defendants' request to dismiss plaintiffs' claims against 1199 LLC and Rafael, Inc., in which they argued that plaintiffs had presented no evidence of a contractual relationship between plaintiffs and the corporate defendants. The court declined to rule on the issue at the time.
Levy's Introduction to Weinstein
The evidence adduced during the trial established the history of each of the parties' transactions. The history began in September 2008 with Levy making successful investments with Weinstein through Levy's accountant. After receiving a $35,000 return on his initial investment of $200,000, Levy invested another $900,000 in November. When making these initial investments, Levy knew his accountant was working with an investor but did not know the investor was Weinstein, whom Levy had not yet met. He later learned not only of Weinstein's identity, but also that if he brought other investors to Weinstein, he would receive a commission based on the amount of money his referrals invested.
Weinstein told his investors he was able to buy mortgage-backed securities at twenty cents on the dollar and had a buyer in place who would buy them at fifty cents on the dollar.
Charles's First Transaction (November 2008)
Later in November, Levy's accountant told him the investor needed an additional $600,000 to close the deal in which Levy was already participating. Levy had no more money to invest so he approached Charles about the opportunity, as Charles had previously expressed an interest in being apprised of any similar opportunities in which he could become involved. From the beginning, Charles understood that Levy would be turning his money over to an investor and that, through that person's actions, he would get his money back. Levy told Charles that, in return for a $600,000 investment, he would receive $710,000 within forty-five days. On November 28 and December 1, 2008, Charles wired funds totaling $600,000 to Rafael, Inc. from his personal accounts and from CIB, his brother David's business. In connection with the transaction, Levy signed a document, prepared by Charles, memorializing the receipt of funds and "guaranteeing repayment to [Charles] in the amount of $710,000 on or before December 31, 2008." Per the accountant's instructions, Levy wired $100,000 of the funds from his company Rafael, Inc. to Weinstein's, Black Tie Holding, LLC, and sent the accountant a bank check for the remaining $500,000, payable to a law firm.
Levy did not, however, tell Charles that Levy was to receive a ten-percent commission from Weinstein for producing Charles's investment.
Charles's Second Transaction (December 2008)
In mid-December, Levy met Weinstein for the first time. Weinstein told Levy about several real estate ventures he was involved in, his past successes in business, and his impressive business connections in the United States and Israel. Approximately a week later, the accountant and Weinstein contacted Levy to ask for $1.05 million for a real estate opportunity in Brooklyn. Levy spoke to Charles about the opportunity and, in two transactions on December 30, 2008, Charles wired $1.05 million from a sibling trust, Ezra Moche Trust A, to Levy through Levy's company, Rafael, Inc. The following day, Levy wired all but fifty dollars of these funds to Black Tie Holding. Charles understood he was to receive back his initial investment plus an additional $50,000 in interest within two weeks. Levy did not sign any agreements regarding repayment of these funds. By January 16, 2009, Levy received from Weinstein only Charles's principal payment of $1.05 million, which he wired into Charles's account. The $50,000 interest was not paid.
Charles's Third Transaction (Late-January 2009)
In January 2009, Levy learned of additional land-investment opportunities from Weinstein, which he relayed to Charles. On January 21 and 22, Charles wired Levy, through Rafael, Inc., a total of $1.74 million. Levy distributed the funds to Weinstein and other entities in accordance with Weinstein's instructions.
Levy was authorized by Weinstein to keep $40,000 as partial payment for his own investments, though was assured Charles would be credited for the full amount.
Levy did not sign any agreements with Charles relating to the funds Charles gave him in January. However, Charles sent Levy's secretary an email on January 21, 2009, with an attached letter addressed to Levy with the subject line "Investment of $2,500,000." The letter was meant to memorialize Charles's contribution of $2.5 million to the "capital transaction," stating: "Pursuant to our discussion yesterday, I am confirming my participation in the venture with you with my contribution of $2,500,000. The transaction is considered a capital transaction." The $2.5 million was paid by Charles through the $1.74 million wire transmittal and the $760,000 that remained due to Charles from the first two transactions. According to the letter, Charles was to receive $2.75 million within thirty to forty-five days. It also stated "all terms and conditions in this venture are identical to our first deal on which we embarked in late 2008." Levy never responded to this letter.
On January 29, Charles sent another message to Levy, through his secretary, stating he would be transferring an additional $2 million to Levy the following day and asking for confirmation that, as of that transfer, Charles would have given Levy $4.5 million, and that Levy was guaranteeing the return of the full amount, plus an additional $450,000, by the end of March. Upon receiving this message, Levy spoke with Charles on the phone and told him that, because he was investing, there was no guarantee of repayment. On January 30, Charles wired the additional $2 million to Levy via Rafael, Inc., which Levy transferred to Weinstein the same day.
Weinstein and Levy exchanged documents in which they acknowledged that "[L]evy [wa]s borrowing [$4.5 million] from a private lender," and agreed that by February 16, 2009, $5.5 million would be transferred or paid to Levy "to return to his private lender." According to Levy, the documents were in response to Levy's request, after speaking with Charles, for some documentation from Weinstein that Weinstein had received the funds in question. Levy did not discuss the details of the document's wording and "just accept[ed]" what Weinstein sent in response.
The following week, on February 6, 2009, Charles emailed Levy stating that he had decided "the original deal is the more acceptable option," and that the "4.5 mill[ion in] funds that had[d] been transferred to [Levy] plus $400k . . . must [be] return[ed] . . . no later than March 1, as originally promised. No ifs, ands or buts." He further advised that "if you decide to extend this for any period, the cost to you and your friends for keeping my approximately] $5 mill[ion] is $125k per week." Charles asked Levy to "confirm this to [him] in writing." In response, Levy's secretary wrote to Charles advising Levy "states the agreement between you and him is [that] you will get your funds with $450,000 between March 30, 2009 and April 7, 2009. This was discussed verbally [and] agreed upon verbally." In response, Charles wrote back a two word message — "absolutely wrong."
Charles's Fourth Transaction — Akko Deal (March 2009)
Towards the end of March 2009, Weinstein once again approached Levy, this time soliciting $2.5 million for a land deal in Akko, Israel (Akko deal), and Levy told Charles about the opportunity. On March 26 and 27, 2009, Charles wired a total of $2.5 million from Ezra Moche Trust A to Rafael, Inc., and Levy wired the funds out to others in accordance with Weinstein's instructions.
Levy was told by Weinstein that he could keep the $60,000 as payment for money Weinstein owed him, and that the full amount would be credited as invested by Charles.
Charles and Levy did not sign any agreements regarding these funds. According to Charles, he understood that his contribution was not a loan to Levy, but rather the purchase of equity in the company being set up to purchase the Akko deal land, that his role in the Akko deal was that of a shareholder, not a lender, and that, as such, Levy had no obligation to repay him and he was "on [his] own if [he] los[t] this money."
Charles's Fifth Transaction (May-June 2009)
In May 2009, after finally meeting Weinstein, Charles convinced Rochelle and David to invest a total of $1.8 million into Weinstein's ventures. Rochelle gave Weinstein $1.3 million and was to receive back an additional $130,000 in interest by June 5, 2009. David wired $500,000 from CIB and was to receive back an additional $40,000 in interest by June 15, 2009. Rochelle and CIB each received a note and a "heter iska" signed by Levy, memorializing the amounts they contributed and were to receive in return. Both documents secured payment by pledging as collateral property located at 1199 Teaneck Road, Teaneck, NJ (1199 property), which was owned by 1199 LLC, a company in which Levy and his wife each owned a fifty-percent interest.
Charles also brought his brother Sam into the deal, but he is not a party to either case.
A "heter iska" is an agreement "executed by the parties to a loan transaction, which creates a partnership between the borrower and lender in order to avoid a religious prohibition against the charging of interest." Arnav Indus., Inc. v. Westside Realty Assoc., 579 N.Y.S.2d 382, 383 (N.Y. App. Div. 1992).
On June 3, 2009, Weinstein emailed Charles a copy of an offering statement, which he asked Charles to keep confidential. Five days later, Levy gave Charles two checks from Weinstein to repay the loans, one for Rochelle in the amount of $1.43 million, and the other payable to David, rather than CIB, in the amount of $540,000. Charles never gave David his check, and Rochelle saw hers for only a minute before Charles took it back.
According to Charles, Weinstein called him the night Levy gave him the checks to tell him the checks would not clear because the funds had been reinvested into the "Sixth Avenue Deal." Weinstein also asked Charles not to mention anything about this to Levy. The next morning, Charles sent Weinstein an email stating, "I need something showing our exit strategy." The two exchanged emails the following day regarding a "need for one more day," and on June 12, 2009, Charles sent an email telling Weinstein he was "only interested in [the Sixth Avenue] deal if it [was] an immediate flip." Charles also asked if "we can proceed to cash our checks."
Within a few days, Weinstein called Charles to ask for additional funds, telling him everything that had been given thus far would be lost if they were unable to raise an additional $3 million to put towards the Sixth Avenue Deal. Weinstein promised a return within a matter of days, and Charles raised and gave him an additional $1,275 million — $475,000 from a sibling trust, $500,000 from a friend of his son, and $300,000 from a neighbor.
Charles personally guaranteed the funds provided by his son's friend and his neighbor. Weinstein repaid Charles's neighbor in full, plus interest, and partially repaid his son's friend. Charles settled with his son's friend for $102,000.
For two months after receiving Weinstein's checks, Charles avoided telling Levy he had not cashed the checks or that the funds had been rolled over into the Sixth Avenue Deal. Charles continued to send Weinstein increasingly frantic emails, seeking reassurance that he, his friends, and his family would be repaid in full. In those emails, Charles admitted to doing things he should not have to raise money to invest with Weinstein, and on August 2, 2009, he told Weinstein that if he did not hear from him, he would be "forced to share with [Levy] how [he] did not cash the checks from June 8 that [Weinstein] used for the [Sixth Avenue Deal]."
Three days later, Levy's secretary wrote to Charles inquiring about the status of an email Levy expected from Charles in which he would be "releasing [Levy] from the money given to . . . Weinstein" by "stating [Levy] was no longer responsible for any monies given to [Weinstein] as of today." Charles replied that he was waiting until his meeting with Levy scheduled for that day. Charles never sent the email.
Weinstein signed a note on October 21, 2009, promising to repay Rochelle $1.43 million; no such note was signed in favor of David or CIB. When payment was not forthcoming, Rochelle wrote numerous emails to Weinstein, but he never returned any money to anyone.
On June 29, 2010, Charles sent Levy a draft of a letter he had prepared for Levy's signature. The letter was a proposed acknowledgment of receipt of the funds Charles had given Levy and Weinstein during the prior years, and described the amounts he had paid to Levy to be "the sum of $7 million for investment with [Weinstein] in opportunities in the [U.S.] and Israel." Charles also sought for Levy to confirm he invested $3,869,000 directly with Weinstein and that $500,000 had been returned with $60,000 in interest. Levy did not sign the letter.
A criminal complaint was filed against Weinstein in 2011, and in 2013 he pled guilty to conspiracy to commit wire fraud, 18 U.S.C.A. § 1349, and engaging in monetary transactions in property derived from unlawful activity, 18 U.S.C.A. § 1957. He was sentenced to a 264-month term of imprisonment and ordered to make restitution in the amount of $215,350,459.
B.
After considering the testimony and exhibits admitted into evidence, the trial court placed its decision on the record on June 6, 2014, setting forth its findings supporting its conclusion that none of the transactions were investments, but rather were unconditional loans to Levy that he was obligated but failed to repay, thereby breaching his contract with plaintiffs.
The court began by observing that the cases arose from Weinstein's criminal conduct. It then reviewed Levy's successful involvement with Weinstein and subsequent use of his arrangement with Weinstein to profit by securing additional investors. As a result of Levy's actions while procuring investors like Charles, the court concluded that any money Levy received was a loan. The court stated:
Levy felt it was so good that all he needed to do was borrow the money from friends, turn a quick profit from the deal himself, and in turn give a big payment back
to his friends. He of course described how he would be able to guarantee such payment.
But [Levy] carefully insured [sic] that he not tell his friends who he was in turn entrusting their money to. So that they would not cut him out as a middle man. As he would then not get his ten percent cut.
The Court clearly finds from the totality of the evidence and the credibility of the witnesses that the money was being lent to . . . Levy personally. And, as such, it was a loan he had to repay. . . .
. . . Common sense and the evidence produced at trial is that Mr. Levy, the borrower, had the obligation to return the money from whom it came.
The evidence at trial is clear that Levy was asking for the money and . . . scrupulously hiding the identity of who the funds were going to. . . . Levy was convinced he would make a windfall using the money he borrowed. And, in turn fervently inducing others to give him their money so he could do so.
. . . The Court finds that Levy was totally convinced nothing could go wrong by getting others to give him money.
And that he would make a windfall by keeping . . . Weinstein's name from the people he was borrowing from.
The court reviewed Charles's introduction to investing through Levy, and described how Weinstein hooked both Levy and Charles into his scheme. As described by the court, Weinstein would initially satisfy his obligations to the investors in order to gain their confidence and make them feel comfortable investing more with the hope of obtaining a larger return or, in Levy's case, larger commissions.
According to the court, the various transactions led up to the fourth one — the Akko deal. The court found that, based on the emailed letter sent by Charles to Levy on January 21, 2009, Charles "confirm[ed] the loan that the parties agreed upon." Based on that letter "the Court [found] that the transaction was unconditional." It stated:
Levy was given the money and it was to be returned by Levy. No condition that Weinstein had to pay Levy was ever a basis to the bargain between plaintiff and the defendant. Any claim by . . . Levy that he did not receive the letter . . . is fallacious.
In support of its conclusion, the court relied upon Charles's email and testimony, and the proof of the wire transfers of the $2.5 million targeted for the Akko deal. The court also cited to other wire transfers that, together with the $2.5 million, totaled $3.74 million in transfers. The court observed that not all of the money was turned over to Weinstein, which proved Levy was "treating [Charles's money] as his own and need not make disposition of the whole amount to Weinstein as a condition. Or, that [he] was merely a conduit for [Charles] to Weinstein." However, it also noted that Charles remained interested in new deals because he was "buying Levy's own pitches because Levy believe[d] them."
The court described the emails exchanged by Charles and Levy's secretary on February 6, 2009. It observed that, after that exchange, Weinstein continued to pursue Levy for investments, and Levy in turn pursued Charles for more money. According to the court, this led to the investment in the Akko deal, and after Charles wired money for that investment, Levy "treated it like his own" because he did not turn the full amount over to Weinstein.
The court turned to Rochelle's testimony about her involvement, including Levy signing a note and "heter iska" in her favor for $1.3 million plus interest and in CIB's favor for $500,000 plus interest, and pledging the 1199 property as collateral. The court found the notes to be "unequivocal and . . . [the] personal obligation of" Levy. It rejected Levy's contention that those two debts were satisfied by his delivery of the two checks from Weinstein that could not be cashed, even though Charles only belatedly disclosed to Levy that the funds were never paid or that Charles was, by then, dealing directly with Weinstein, "trying and begging and pleading directly now for the millions of dollars lent to Levy [for] Weinstein."
The court concluded that plaintiffs proved their claim for breach of contract against Levy, essentially finding that Levy took the risk of giving the money to Weinstein. It stated:
The contracts with each of the plaintiffs were certain that Levy would pay back what he borrowed. And, he breached the agreement when he did not.
There is no credible evidence that the promise by Levy to pay back the money borrowed was conditioned on Weinstein coming through for Levy. Levy, in fact, tried to hide Weinstein's involvement and name as much as possible.
He convinced the plaintiffs it was certain he would pay them back because he was certain Weinstein had come through for him in the past. [He] may have been somewhat embolden[ed] as he was betting with mostly unsecured funds he got from his good friend Charles. . . .
However, the court found plaintiffs had failed to establish their equitable fraud claims because the evidence showed Levy was himself a victim of Weinstein's fraud, and therefore had made no misrepresentations. It also confirmed that, for the same reasons, there was no basis for plaintiffs' RICO and common law fraud claims.
The court addressed plaintiffs' damages, awarding them the full amount they loaned to Levy, but refusing to enforce the "indefinite amounts and the exorbitant amounts of interest" purportedly due under the terms of the loans.
The court found the corporate defendants were liable for Levy's personal obligations — Rafael, Inc. "for the amounts deposited into [its] bank account" because, "by using the entit[y's] account for deposit, [Levy] disregarded any separate and distinct nature" the business may have had, and 1199 LLC for the amount due under notes because the 1199 property had been pledged as collateral.
On June 13, the court entered judgment in plaintiffs' favor on their breach of contract claims and dismissed the remaining claims. The court entered three orders of judgment in favor of CIB and against Levy and 1199 LLC in the amount of $540,950, representing the $500,000 loaned plus prejudgment interest (first order); in favor of Rochelle and against Levy and 1199 LLC in the amount of $1,406,470, representing the $1.3 million loaned plus prejudgment interest (second order); and in favor of Charles, Ezra, Ezra Moche Trust A, and Ezra Moche Trust B, and against Levy and Rafael, Inc., in the amount of $7,400,196, representing the $6.84 million loaned plus prejudgment interest (third order).
This appeal followed.
II.
The scope of our review of a judgment entered in a non-jury case is limited. Seidman v. Clifton Sav. Bank, S.L.A., 205 N.J. 150, 169 (2011). "[I]n reviewing the factual findings and conclusions of a trial judge, we are obliged to accord deference to the trial court's credibility determination[s] and the judge's 'feel of the case' based upon his or her opportunity to see and hear the witnesses." N.J. Div. of Youth & Family Servs. v. R.L., 388 N.J. Super. 81, 88 (App. Div. 2006) (citation omitted), certif. denied, 190 N.J. 257 (2007); see also Monogram Credit Card Bank of Ga. v. Tennesen, 390 N.J. Super. 123, 130-31 (2007). "Findings by the trial judge are considered binding on appeal when supported by adequate, substantial and credible evidence," and "should not be disturbed unless . . . they are so wholly insupportable as to result in a denial of justice." Rova Farms Resort, Inc. v. Inv'rs Ins. Co. of Am., 65 N.J. 474, 483-84 (1974) (alteration in original) (citation omitted). However, we owe no special deference to the judge's legal conclusions. Manalapan Realty, L.P. v. Twp. Comm. of Manalapan, 140 N.J. 366, 378 (1995). "When deciding a purely legal issue, review is de novo." Kaye v. Rosefielde, 223 N.J. 218, 229 (2015) (quoting Fair Share Hous. Ctr., Inc. v. N.J. State League of Municipalities, 207 N.J. 489, 493 n.1 (2011)).
A.
With these principles in mind, we turn to the parties' specific contentions on appeal, beginning with Levy's arguments that the court erred in finding that all of the money he received from plaintiffs constituted a personal loan to him and failed to account for money he returned to plaintiffs. Plaintiffs argue the court correctly determined that five of the six transactions were indeed loans for which Levy was liable, and that, to the extent any were not, Levy was liable for the return of funds because he was Weinstein's "partner."
We begin our review by considering each transaction to determine if there was sufficient evidence supporting the trial court's determination that each was a loan made to Levy for which he and the corporate defendants were liable. A loan, according to its common dictionary definition is "an amount of money that is given to someone for a period of time with a promise that it will be paid back." Merriam-Webster, Definition of Loan, http://www.merriam-webster.com/dictionary/loan (last visited Apr. 6, 2016). "[T]the standard dictionary definition of the word 'invest' is 'to lay out [money or capital] in business with the view of obtaining an income or profit.' Making loans is, therefore, a form of investing as 'investing' is commonly understood." Suburban Sav. & Loan Ass'n v. Comm'r of Banking, 150 N.J. Super. 339, 349 (App. Div.), certif. denied, 75 N.J. 27 (1977). The distinction between the two is the promise of repayment that accompanies a loan.
We turn first to the fourth transaction because Charles testified at trial that he understood it was an investment. The trial court found, however, the investment was a loan. Plaintiffs concede that it was an investment rather than a loan, but argue that Levy was a fiduciary and, when Weinstein failed to invest their money in the Akko deal, he became liable for Weinstein's malfeasance. In support of their argument, plaintiffs rely upon dictionary definitions for fiduciary and related terms, and case law relating to a fiduciary's obligation to follow his principal's directions or be held accountable for his failure to do so.
We find plaintiffs' arguments to be without sufficient merit to warrant further discussion in a written opinion. R. 2:11-3(e)(1)(E). Suffice it to say, Levy did exactly what he was supposed to do with the funds — give them to the investor, Weinstein — he did not, in doing so, become an insurer against Weinstein's wrongdoing. Moreover, in light of the trial court's finding that Levy was also swindled by Weinstein, there was no factual basis to impute any knowledge of Weinstein's wrongdoing to Levy. Because we conclude from our review of the record that there was no evidence to support the court's conclusion that the fourth transaction was a loan, we vacate the third order of judgment to the extent it ordered Levy and Rafael, Inc. to repay the $2.5 million invested in the Akko deal plus prejudgment interest.
We find no merit to plaintiffs' contention that they were in a fiduciary relationship with Levy. "A fiduciary relationship arises between two persons when one person is under a duty to act for or give advice for the benefit of another on matters within the scope of their relationship." F.G. v. MacDonell, 150 N.J. 550, 563 (1997); see also McKelvey v. Pierce, 173 N.J. 26, 57 (2002).
Turning our attention to the first transaction, we agree with the trial court's conclusion the plaintiffs made a loan to Levy in the principal amount $600,000, for which Levy guaranteed the repayment in writing. We conclude from our review that the trial court's findings that neither Levy, nor anyone on his behalf, ever repaid the amount owed and that the $1.05 million repayment was attributable to the second transaction were supported by the evidence in the record, and, therefore, that the trial court properly entered judgment in plaintiffs' favor for the $600,000 principal.
We disagree with the court's conclusion that the second transaction was a loan. In that deal, although there were no documents memorializing whether the $1.05 million payment was a loan to Levy or an investment, the evidence at trial confirmed that the total amount was paid back to Charles and his family. To the extent the trial court's judgment accounts for that amount, we vacate its entry.
We next address the third transaction. In that transaction, Charles attempted to extract from Levy an acknowledgment that the amounts Charles paid were subject to the same terms as the first transaction in 2008, and was therefore a loan. There was no evidence in the record, however, that Levy agreed to these terms, although he remained silent in response to Charles's letter. That silence, however, did not establish his assent. Moreover, the record indicated that despite the dispute between Charles and Levy as to whether Levy was obligated to repay the amount invested, Charles went ahead and forwarded additional funds to him without resolution of that disagreement.
We conclude from our review of the record that there was no evidence to support the court's conclusion that Levy guaranteed the funds or that the funds were a loan from Charles to Levy. We therefore vacate the order for judgment to the extent it included an amount in excess of the amount rolled over from the first transaction.
Finally, as to the fifth transaction, defendants assert the trial court erred in determining they remained liable for the amounts due under the notes signed by Levy in connection with the fifth transaction. They contend Levy's obligation to Rochelle and CIB, as evinced by the notes and "heter iska" agreements signed by Levy, was discharged because plaintiffs accepted the checks that were intended to satisfy the notes and led Levy to believe the checks had been honored when, in fact, the funds had been reinvested with Weinstein. Specifically, they argue this conduct constituted a novation or an accord and satisfaction, and that the trial court misapplied these doctrines in rejecting their defenses. We disagree.
The trial court dismissed defendants' argument that the notes had been satisfied, stating, "[t]he concept that someone else's bad check now discharges your personal obligation is absolute folly . . . [and] the fact that Charles . . . did not disclose it to Levy is equally as spurious a defense." The court also rejected the idea that the notes were discharged or that a novation was created by plaintiffs' attempts to get from Weinstein the money they had lent to Levy.
"A novation may be broadly defined as the substitution of a new contract or obligation for an old one which is thereby extinguished." Fusco v. City of Union City, 261 N.J. Super. 332, 336 (App. Div. 1993). A novation requires "(1) a previously valid contract; (2) an agreement to make a new contract; (3) a valid new contract; and (4) an intent to extinguish the old contract." Wells Reit II-80 Park Plaza, LLC v. Dir., Div. of Taxation, 414 N.J. Super. 453, 466 (App. Div. 2010). When determining whether there has been a novation, "intent is the primary inquiry." Id. at 467. Although a novation need not be express, but may be implied, "the burden of proof rests on the defendant to show the intention by the obligee to discharge the original debtor." Fusco, supra, 261 N.J. Super. at 337.
Similar to a novation, "[a]n accord and satisfaction is an agreement which, upon its execution, completely terminates a party's existing rights and constitutes a defense to any action to enforce pre-existing claims." Gunter v. Ridgewood Energy Corp., 32 F. Supp. 2d 166, 183 (D.N.J. 1998) (quoting Nevets C.M., Inc. v. Nissho Iwai Am. Corp., 726 F. Supp. 525, 536 (D.N.J. 1989), aff'd, 899 F.2d 1218 (3d Cir. 1990)). It traditionally involves a dispute regarding the amount of money owed and the offering and acceptance of a lesser amount in satisfaction of the amount claimed. See Zeller v. Markson Rosenthal & Co., 299 N.J. Super. 461, 463 (App. Div. 1997). "[A]n accord and satisfaction requires a clear manifestation that both the debtor and the creditor intend the payment to be in full satisfaction of the entire indebtedness." Ibid.
Given the importance of the element of intent to both defenses, the question of whether there has been accord and satisfaction or a novation is one of fact, best left to the factfinder. See Wells Reit, supra, 414 N.J. Super. at 467; Zeller, supra, 299 N.J. at 465. As such, the scope of our review is not de novo, as argued by defendants, but limited. See Mountain Hill, L.L.C. v. Twp. of Middletown, 399 N.J. Super. 486, 498 (App. Div. 2008); see also Rova Farms, supra, 65 N.J. at 484.
The trial court's decision here rested largely on its credibility determinations. Charles testified he was told by Weinstein that the checks Levy gave him would not be honored and that Rochelle's and CIB's funds had already been reinvested, and not to tell Levy about the reinvestment or the checks not being cashed. Defendants point to language in the emails between Charles and Weinstein following the reinvestment of the funds and argue it is indicative of Charles's willingness to reinvest. In contrast, Charles testified he was told by Weinstein that if he did not contribute additional funds, everything his family had invested thus far would be lost. In any event, there was no evidence that Rochelle or CIB directly, or through Charles, intended to enter into a new contract with Levy or Weinstein such that Levy's obligations under his notes were extinguished. Nor did any plaintiff receive payment of a lesser amount that they accepted in full satisfaction of the amount owed to them by Levy. The trial court's finding that there was no accord and satisfaction or novation was wholly supported by, and consistent with, the evidence presented in this case. See Wells Reit, supra, 414 N.J. Super. at 467; Zeller, supra, 299 N.J. at 465.
B.
Defendants next contend the trial court erred in entering judgment against Rafael, Inc. and 1199 LLC for the personal debts of Levy, arguing the court's action violated the basic legal principle that corporations and limited liability companies are entities distinct from their shareholders and members. In support, they rely upon the trial court's specific finding that the debts were owed by Levy personally, and argue that any other finding would have been unsupported by the evidence presented. We agree.
The trial court found the transactions in question were loans made "to Rafael Levy personally," and that the notes given to Rochelle and CIB in connection with the fifth transaction were "personal obligation[s] of Raf[ael] Levy." Nevertheless, the trial court entered judgment against Rafael, Inc. for the amounts deposited in its account because it found that, "by using the entit[y's] account for deposit, [Levy] disregarded any separate and distinct nature" the corporation may have had. The court also entered judgments against 1199 LLC for the amounts due under the notes, based on its finding that the 1199 property was pledged as collateral.
The court's findings did not support its legal conclusion that the corporate defendants were liable for Levy's debt. In order to ignore the well-recognized separation of a corporation or limited liability company from its shareholders or members for purposes of imposing liability, see Verni ex rel. Burstein v. Harry M. Stevens, Inc., 387 N.J. Super. 160, 198 (App. Div. 2006), certif. denied, 189 N.J. 429 (2007), there must be proof that the "corporate veil" should be pierced "to prevent an independent corporation from being used to defeat the ends of justice, to perpetrate fraud, to accomplish a crime, or otherwise to evade the law." State, Dep't of Envtl. Prot. v. Ventron Corp., 94 N.J. 473, 500 (1983). In order to pierce a corporate veil, there must be "a finding that the [corporate insider] so dominated the [corporation] that it had no separate existence but was merely a conduit for the [individual]." Id. at 501; see also Canter v. Lakewood of Voorhees, 420 N.J. Super. 508, 519 (App. Div. 2011) (piercing corporate veil to hold limited partner liable for limited partnership's obligations). To determine whether there has been such dominance, "courts engage in a fact-specific inquiry considering whether the [entity] was grossly undercapitalized, the day-to-day involvement of the [individual], and whether the [entity] fails to observe corporate formalities, pays no dividends, is insolvent, lacks corporate records, or is merely a facade." Canter, supra, 420 N.J. Super. at 519 (quoting Verni, supra, 387 N.J. Super. at 200). "[T]he party seeking an exception to the fundamental principle that a corporation is a separate entity from its principal bears the burden of proving that the court should disregard the corporate entity." Verni, supra, 387 N.J. Super. at 199 (alteration in original) (quoting Tung v. Briant Park Homes, Inc., 287 N.J. Super. 232, 240 (App. Div. 1996)). Once the corporate veil has been pierced, courts can impose a corporation's liability upon the individuals found to have exploited the corporate form. See Ventron, supra, 94 N.J. at 500.
In this case, the court actually engaged in reverse-veil-piercing, imposing the liability of an individual upon a corporation. See 718 Arch St. Assocs. v. Blatstein (In re Blatstein), 192 F.3d 88, 100-01 (3d Cir. 1999). Our research had not revealed a reported decision in New Jersey authorizing reverse-veil-piercing to hold a company liable for the debts of its principals, officers, or shareholders. However, the courts that have addressed the issue have applied the same or similar analyses used for classic veil-piercing. See, e.g., ibid.
The established facts in this case do not support holding Rafael, Inc. or 1199 LLC liable for the money owed to plaintiffs. With respect to Rafael, Inc., the court's veil-piercing is supported only by its finding that Levy disregarded the corporate form by using the corporate bank account for the transactions in question. With respect to 1199 LLC, the court held the company liable under the notes signed by Levy in connection with the fifth transaction based only on its finding that the 1199 property was pledged as collateral. There was no evidence or testimony presented regarding either company's corporate form other than their ownership, Levy's use of Rafael, Inc.'s bank account in connection with the five transactions at issue, and his pledging of 1199 LLC's property as collateral. The court conducted no fact-specific inquiry to determine whether either entity had any existence beyond Levy himself or was entirely dominated by Levy. No evidence was presented regarding the companies' operations, adherence to other corporate formalities, maintenance of corporate records, or capital — the factors courts consider in determining dominance. See Canter, supra, 420 N.J. Super. at 519; Verni, supra, 387 N.J. Super. at 200. As such, the court's reverse-veil-piercing analysis was insufficient to support judgment against Rafael, Inc. and 1199 LLC for the personal debts of Levy. See Canter, supra, 420 N.J. Super. at 519; Verni, supra, 387 N.J. Super. at 200; see also In re Blatstein, supra, 192 F.3d at 100-01. The judgments against both companies must therefore be vacated.
C.
Defendants also argue the trial court abused its discretion in awarding plaintiffs prejudgment interest because there was no tortious conduct or equitable basis to justify such an award. Specifically, defendants argue that Rule 4:42-11 provides for prejudgment interest in tort actions only, that such interest is available in contract claims only when demanded by principles of equity, and that, because the court entered judgment in plaintiffs' favor based only on their contract claims and explicitly found defendants were also victims of Weinstein's scheme, neither of these circumstances apply to justify the court's award of prejudgment interest.
In its decision, the court found the "indefinite amounts and the exorbitant amounts of interest . . . are unenforceable," and awarded "contract damages . . . [only] for the amounts actually lent by the respective plaintiffs . . . [plus] judgement [sic] interest." The court then entered judgments in plaintiffs' favor for a total of $8.64 million, plus prejudgment interest totaling $707,616 pursuant to Rule 4:42-11.
"[T]he award of prejudgment interest in a contract case is within the sound discretion of the trial court," as is "the rate at which [such] interest is calculated," Litton Indus., supra, 200 N.J. at 390, and "the date on which [it] starts to run." Pressler & Verniero, supra, comment 3.1 on R. 4:42-11 (citing Cnty. of Essex v. First Union Nat'l Bank, 186 N.J. 46, 61-62 (2006)). As a matter within the trial court's discretion, we consider only whether the "decision [wa]s made without a rational explanation, inexplicably departed from established policies, or rested on an impermissible basis." Flagg v. Essex Cnty. Prosecutor, 171 N.J. 561, 571 (2002) (citation omitted). Thus, "[u]nless the allowance of prejudgment interest 'represents a manifest denial of justice, an appellate court should not interfere.'" Litton Indus., supra, 200 N.J. at 390 (quoting Cnty. of Essex, supra, 186 N.J. at 61).
Though Rule 4:42-11 addresses prejudgment interest only in the context of tort actions, "it is clear that prejudgment interest may run on contract claims . . . as well, not as a matter of right but rather in accordance with equitable principles." Pressler & Verniero, Current N.J. Court Rules, comment 3.1 on R. 4:42-11 (2016) (citing Bak-A-Lum Corp. of Am. v. Alcoa Bldg. Prods., Inc., 69 N.J. 123 (1976)); see also Belmont Condo. Ass'n, Inc. v. Geibel, 432 N.J. Super. 52, 92 (App. Div.), certif. denied, 216 N.J. 366 (2013). "Generally, the equitable purpose of an award of prejudgment interest in a contract action is to compensate or indemnify the claimant for the loss of what the money due would presumably have earned if the payment had not been delayed." Taddei v. State Farm Indem. Co., 401 N.J. Super. 449, 466 (App. Div. 2008); see also Litton Indus., Inc. v. IMO Indus., Inc., 200 N.J. 372, 390 (2009); Belmont, supra, 432 N.J. Super. at 92. However, absent unusual circumstances, prejudgment interest should be calculated at the same rate as post-judgment interest under Rule 4:42-11(a). See Benevenga v. Digregorio, 325 N.J. Super. 27, 34-35 (App. Div. 1999), certif. denied, 163 N.J. 79 (2000).
Here, the court gave no explanation for its decision to award prejudgment interest or for the amount of interest imposed. Thus, we are left entirely without any guidance as to how the interest award was calculated, despite the court's obligation to provide an explanation for its decision. For that reason, we must vacate the award and remand it for explanation and recalculation in light of our previous determinations.
D.
Turning to plaintiffs' cross-appeal, they contend the trial court erred in granting defendants' motion for involuntary dismissal with respect to plaintiffs' common law fraud and RICO claims. As to the common law fraud claims, the court found plaintiffs failed to demonstrate that Levy knew any of his pertinent statements were false or that he acted with the intent to deceive plaintiffs. As to the RICO claims, the court found plaintiffs failed to establish the existence of a predicate offense upon which to rest their claim.
Plaintiffs argue the evidence presented in their case was sufficient to establish the rudimentary presence of the deceit and predicate-offense elements of their fraud and RICO claims, respectively. They argue they presented "evidence of crimes and racketeering" and that, "[g]iven that all reasonable inferences were to go in favor of plaintiff[s] without hearing from defendant, [their common law fraud and RICO] claims should not have been dismissed." Specifically, plaintiffs argue these elements were established by testimony and evidence that Levy borrowed money he failed to repay, did not give Weinstein the full amount received from plaintiffs, told others he lied at his deposition about receiving money, referred to Weinstein as his partner, initially hid Weinstein's identity, gave Charles the checks from Weinstein at night when banks are closed, took funds in cash from a third-party, and threatened third-parties. They also argue that two inferences could be drawn from Levy repeatedly asking Charles whether Weinstein's checks had been cashed: first, that Levy knew the checks were bad because Weinstein had told him, and second, that Levy knew Weinstein had told Charles not to discuss Charles's involvement in the Sixth Avenue Deal with Levy. More generally, plaintiffs argue that Levy was generally dishonest and that his cooperation with the FBI's investigation of Weinstein was motivated only by a desire to avoid prosecution for his own wrongdoing.
In our review of the entry of an involuntary dismissal, we apply the same standard as the trial court. See Hitesman v. Bridgeway, Inc., 218 N.J. 8, 25-26 (2014). Rule 4:37-2(b) "requires the court to enter judgment in favor of defendant if, after the presentation of plaintiff's evidence, 'upon the facts and upon the law the plaintiff has shown no right to relief.'" Fox v. Millman, 210 N.J. 401, 428 (2012) (quoting R. 4:37-2(b)). When evaluating a motion for involuntary dismissal, the court must "accept[] as true all the evidence which supports the position of the [plaintiff] and accord[] him the benefit of all inferences which can reasonably and legitimately be deduced therefrom." Verdicchio v. Ricca, 179 N.J. 1, 30 (2004) (quoting Estate of Roach v. TRW, Inc., 164 N.J. 598, 612 (2000)). "The trial court is not concerned with the worth, nature or extent (beyond a scintilla) of the evidence, but only with its existence, viewed most favorably to the party opposing the motion." Perez v. Professionally Green, LLC, 215 N.J. 388, 407 (2013) (quoting Dolson v. Anastasia, 55 N.J. 2, 5-6 (1969)). If the court "finds that 'reasonable minds could differ,' then 'the motion must be denied.'" ADS Assocs. Grp., Inc. v. Oritani Sav. Bank, 219 N.J. 496, 511 (2014) (quoting Verdicchio, supra, 179 N.J. at 30). "Conversely, 'a dismissal is appropriate when no rational jury could conclude from the evidence that an essential element of the plaintiff's case is present.'" Perez, supra, 215 N.J. at 404 (quoting Pron v. Carlton Pools, Inc., 373 N.J. Super. 103, 111 (App. Div. 2004)).
We consider first the dismissal of plaintiffs' common law fraud claims. To establish a prima facie case of common law fraud, plaintiffs must provide evidence of "(1) a material misrepresentation of a presently existing or past fact; (2) knowledge or belief by the defendant of its falsity; (3) an intention that the other person rely on it; (4) reasonable reliance thereon by the other person; and (5) resulting damages." Gennari v. Weichert Co. Realtors, 148 N.J. 582, 610 (1997).
The parties' dispute on appeal, as it relates to plaintiffs' common law fraud claims, focuses on the court's finding regarding the second element — whether Levy knew that his statements pertaining to the subject transactions were false. At trial, Charles testified that Levy did not deliberately lie to him. The trial court agreed, finding the evidence plaintiffs argued established Levy's knowledge of the falsity of his statements to be no more than "a lot of smoke." With no apparent evidence of knowingly false statements by Levy, the court found "there ha[d] been no showing that, with intent to deceive the plaintiff[s], [Levy] induced the plaintiff[s] to give the money." Quite to the contrary, the court believed, "the evidence is undisputed that [Levy] may have fallen prey himself to [Weinstein's] misrepresentations."
Notably, Charles did not say he could not prove that Levy lied, but rather said plainly that Levy did not deliberately deceive him.
Plaintiffs' contentions before the trial court and on appeal are simply belied by the record. Accordingly, plaintiffs' common law fraud claims were properly dismissed. See Fox, supra, 210 N.J. at 428; R. 4:37-2(b).
We reach the same conclusion regarding plaintiffs' RICO claims. After dismissing plaintiffs' common law fraud claims, the trial court determined plaintiffs similarly failed to establish a prima facie case for their RICO claims. The court found that, while plaintiffs had alluded to fraud, money laundering, theft, and tax evasion as potential predicate offenses, they were simply trying to "throw enough out there" but offered neither proof of these offenses nor even the statutes upon which they relied. Accordingly, with no evidence of any predicate offenses upon which to rest their RICO claims, the court dismissed these claims as well.
New Jersey's "civil RICO" statute, N.J.S.A. 2C:41-4, confers a right of private action upon individuals "damaged . . . by reason of a [RICO] violation," and provides for recovery of treble damages and litigation costs. N.J.S.A. 2C:41-4(c). To constitute a "pattern of racketeering activity," there must be at least two predicate offenses committed within ten years of one another and "[a] showing that the incidents . . . embrace criminal conduct that has either the same or similar purposes, results, participants . . . or are otherwise interrelated by distinguishing characteristics and are not isolated incidents." N.J.S.A. 2C:41-1(d). The qualifying predicate offenses, or "racketeering activit[ies]," are limited to those provided by the RICO statute, and include tax-related offenses, theft offenses, and fraudulent practices. N.J.S.A. 2C:41-1(k), (n), (o). To be criminally or civilly liable for a RICO violation, an individual must have known of the existence and criminal nature of the enterprise in question. See State v. Ball, 141 N.J. 142, 155, 186-87 (1995), cert. denied, 516 U.S. 1075, 116 S. Ct. 779, 133 L. Ed. 2d 731 (1996).
We find plaintiffs' argument that the court's order was erroneous to be without sufficient merit to warrant further discussion in a written opinion. R. 2:11-3(e)(1)(E). The trial court correctly determined plaintiffs failed to present any evidence of any offense they now argue supported their RICO claim.
In support of their argument that the trial court erred in dismissing their RICO claims, plaintiffs claim they proved the predicate offenses of theft by deception, N.J.S.A. 2C:20-4; theft by failure to make required disposition, N.J.S.A. 2C:20-9; and liability for the conduct of another, N.J.S.A. 2C:2-6. Plaintiffs also suggest money laundering, witness tampering, and tax evasion as predicate offenses to establish a prima facie civil RICO case.
E.
Plaintiffs also contend the trial court abused its discretion in denying their pre-trial motion for leave to amend the complaint in the second action to assert claims under the CFA, pertaining to the Akko deal. In support, they argue that the proposed claim was meritorious and that amendment would not have prejudiced defendants, maintaining the proposed amendment was one of form rather than substance, as it alleged no new facts, required no additional discovery, and stated a claim that could be inferred from the existing allegations. Without conceding the validity of the proposed CFA claim, defendants counter, arguing the claim exposed them to harsher penalties under a lower threshold for liability, and therefore raised issues not adequately addressed by the parties' discovery, leaving them without evidence sufficient to maintain a proper defense. Plaintiffs summarily dismiss this argument without discussion, and do not, on appeal or before the trial court, address or explain their significant delay in seeking leave to amend their complaint to add the proposed CFA claim.
Plaintiffs specifically withdraw their appeal of the court's denial of leave to amend the complaint in the first action. They appeal the court's decision only as it pertains to the second action, and concede on appeal that the CFA applies only to the Akko Deal.
Plaintiffs also sought to amend the relief demanded under their previouslyalleged equitable fraud count to include equitable remedies. As this issue was not raised in plaintiffs' briefs, it need not be addressed by the court.
At the motion hearing, the trial court found plaintiffs' "attempt to amend . . . untimely" and the proposed CFA claim to be without support. As the cases had been filed nearly three years prior and plaintiffs offered no justification for their delay, the court found amendment "would unduly delay the litigation and prejudice the defendants . . . and [that] further delay on the eve of trial [could not] be sustained." The court did not further detail the prejudice it found defendants would suffer. As to the substance of the proposed amendment, the court did not believe the facts could support a claim under the CFA. For these reasons, the court denied plaintiffs leave to amend their complaint.
We review a denial of leave to amend for abuse of discretion. Port Liberte II Condo. Ass'n v. New Liberty Residential Urban Renewal Co., 4 35 N.J. Super. 51, 62 (App. Div. 2014). To constitute an abuse of discretion, the court's decision must be "made without a rational explanation, inexplicably depart[] from established policies, or rest[] on an impermissible basis." Flagg, supra, 171 N.J. at 571 (citation omitted).
"'Rule 4:9-1 requires that motions for leave to amend be granted liberally' and that 'the granting of a motion to file an amended complaint always rests in the court's sounds discretion.'" Notte v. Merchs. Mut. Ins. Co., 185 N.J. 490, 501 (2006) (quoting Kernan v. One Washington Park Urban Renewal Assocs., 154 N.J. 437, 456-57 (1998)). In exercising this discretion, courts must consider "whether the non-moving party will be prejudiced, and whether granting the amendment would nonetheless be futile." Ibid.
The court must make its determination "without consideration of the ultimate merits of the amendment," but must view the application "in light of the factual situation existing at the time [the] motion is made." Ibid. (quoting Interchange State Bank v. Rinaldi, 303 N.J. Super. 239, 256-57 (App. Div. 1997)). Thus, "the analysis is not complete until the requested amendment is examined to determine whether it is futile, that is, whether the amended claim will nonetheless fail and, hence, allowing the amendment would be a useless endeavor." Ibid. "More specifically, 'courts are free to refuse leave to amend when the newly asserted claim is not sustainable as a matter of law.'" Ibid. (quoting Interchange State Bank, supra, 303 N.J. Super. at 256-57). "Lateness of the motion coupled with apparent lack of merit virtually dictates denial." Verni, supra, 387 N.J. Super. at 197 (citation omitted).
In determining whether prejudice will result from the requested amendment, courts may consider the timeliness of the request, particularly if the moving party provides no justification for its delay. See Bldg. Materials Corp. of Am. v. Allstate Ins. Co., 424 N.J. Super. 448, 484-85 (App. Div.), certif. denied, 212 N.J. 198 (2012). "It is well-settled that . . . the trial court [may] refuse[] to permit new claims . . . to be added late in the litigation and at a point at which the rights of other parties to a modicum of expedition will be prejudicially affected." Du-Wel Prods., Inc. v. U.S. Fire Ins. Co., 236 N.J. Super. 349, 364 (App. Div. 1989), certif. denied, 121 N.J. 617 (1990); see also Bldg. Materials, supra, 424 N.J. Super. at 484. Though a court should consider whether denial of leave will bar the party seeking amendment from bringing the proposed claim in the future, the negative consequences of the entire controversy doctrine are not dispositive and do not necessarily outweigh the prejudice caused by late amendment. Fisher v. Yates, 270 N.J. Super. 458, 467 (App. Div. 1994).
Though plaintiffs make conclusory statements in support of their claim of error, they do not explain why the trial court's denial of leave constituted an abuse of discretion. Nor do they argue the underlying issues — why their amendment was not futile or why, even if amendment would not have prejudiced defendants, the denial was not justified by untimeliness alone — to demonstrate the court's error.
The amendment plaintiffs sought was to be their second in an action that had been before the court for nearly three years and was scheduled for trial within the month. This alone could have justified the court's denial, as it would have meant prolonging the litigation, forcing defendants to proceed without discovery related to the consumer fraud claim, or both. See Du-Wel, supra, 236 N.J. Super. at 364. Though plaintiffs claim defendants could have inferred the consumer fraud claim from the remaining allegations and, therefore, would suffer no prejudice as a result of amendment, plaintiffs' counsel "didn't [initially] believe that a consumer fraud . . . claim was stated," belying their contention that defendants could have reasonably inferred the CFA claim.
The court specifically found "amendment to the complaint at [the] late junction would unduly delay the litigation and prejudice the defendants." With no justification for the delay offered by plaintiffs to counterbalance the prejudice to defendants found by the court, plaintiffs have failed to demonstrate error in the court's finding of undue prejudice in support of its denial of plaintiffs' motion to amend.
Plaintiffs have similarly failed to demonstrate error in the court's finding regarding the futility of their proposed amendment. Their proposed amended complaint alleged defendants' conduct violated the CFA provision that defines "[f]raud . . . in connection with sale or advertisement of any merchandise or real estate . . . [as] an unlawful practice." N.J.S.A. 56:8-2. This claim rests upon their allegation that "[t]he aforementioned interest in [d]efendants' entities [was] a 'sale' as defined in N.J.S.A. 56:8-1(e)." However, fraud in the sale of securities or equity interests falls beyond the purview of the CFA. Lee v. First Union Nat'l Bank, 199 N.J. 251, 262 (2009). Accordingly, the trial court did not abuse its discretion in denying plaintiffs' motion to amend their complaint to add a claim under the CFA because the attempt was untimely and the proposed amendment was futile. See Verni, supra, 387 N.J. Super. at 197.
III.
In sum, we affirm the trial court's first and second June 13, 2014 orders for judgment in favor of CIB and Rochelle, in the amounts of $500,000 and $1.3 million respectively, but vacate them as to the corporate defendants and the award of prejudgment interest. We remand those two orders to the trial court for an explanation of its calculation of prejudgment interest and entry of new order. As to the third order for judgment in favor of Charles, Ezra, and the two sibling trusts, we vacate the award and remand for recalculation of the principal amount to reflect only the $600,000 given to Levy in connection with the first transaction — broken down by the specific plaintiff to whom the money is owed — plus prejudgment interest, with an explanation as to how the interest was calculated, and for entry against Levy alone.
Affirmed in part, reversed in part, and remanded for further action consistent with our opinion. We do not retain jurisdiction. I hereby certify that the foregoing is a true copy of the original on file in my office.
CLERK OF THE APPELLATE DIVISION