Dirauf v. Berger, Civ. No. 20-5601 (KM) (ESK)

• Decision Date: 11 December 2020
• Docket Number: Civ. No. 20-5601 (KM) (ESK)
• Citation: 506 F.Supp.3d 254
• Parties: Kunlgunda DIRAUF, et al., Plaintiffs, v. Lawrence S. BERGER, Eckart R. Straub, et al., Defendants.
• Court: U.S. District Court — District of New Jersey

506 F.Supp.3d 254

Kunlgunda DIRAUF, et al., Plaintiffs,

v.Lawrence S. BERGER, Eckart R. Straub, et al., Defendants.

Civ. No. 20-5601 (KM) (ESK)

United States District Court, D. New Jersey.

Signed December 11, 2020

David Owen Marcus, Victoria R. Pekerman, Shapiro Croland Reiser Apfel & Di Iorio, LLP, Hackensack, NJ, for Plaintiffs Kunlgunda Dirauf, Ludwig Dirauf, Bruno Eckl, Hildegard Eckl, Doris Fabian, Alexander Fischer, Gerhard Flaig, Karin Flaig, Daniel Gebert, Fritz Gebert, Monika Gebert, Thomas Gebert, Helga Haag, Martin Haag, Anny Hanisch, Anton Hell, Alfred Herrmann, Irene Herrmann, Walter Horber, Christina Klenk, Hermann Klenk (Deceased), Alfons Eckl (Deceased), Volodymyr Koltyarov, Andreas Lober, Erika Marquardt, Manfred Marquardt, Daniel Neff, Marliese Neff, Werner Neff, Erwin Pfeifroth, Dobernek Rainer, Gabriele Reichel, Walter Schmidt, Waltraud Schmidt, Edwin Schott, Ingrid Schott, Ingrid Schott (As Successor to Hermann Schott), Melanie Schroth, Friedrich Schumann, Gudrun Schumann, Karl Stahl, Hans Stein, Christian Strobel, Friedrich Strobel, Hildegard Strobel, Timo Strobel, Dieter Vogt, Karl Weckert, Georg Weybrecht, Eugen Wolz.

Victoria R. Pekerman, Shapiro Croland Reiser Apfel & Di Iorio, LLP, Hackensack, NJ, for Plaintiff Gunther Fabian.

William J. Pinilis, Pinilis Halpern, Morristown, NJ, for Defendants Lawrence S. Berger, Berger And Bornstein Limited Liability Company, 18 Central Shopping Center, L.P., 299 Jefferson Road Limited Partnership, Bank Building Associates Limited Partnership, Blair Road Associates LP, Branchburg Plaza Investors LP, Carlstadt Building Associates, L.P., Express Distribution Building Associates, L.P., Hazelwood Avenue Associates, Limited Partnership, Industrial Avenue Investors, Limited Partnership, King Shopping Center LP, Macarthur Plaza, Limited Partnership, Milik Street Associates Limited Partnership, New Milik Street Property LP, Route 206 Shopping Center, Limited Partnership, Union Shopping Plaza Associates, L.P., United States Land Resources LP, United States Realty Resources, Inc., USLR New Durham Road Associates, L.P., Washington Shopping Center Inc., Washington Shopping Center Investors, Limited Partnership, Waterford Investors LP.

Elliot David Ostrove, Epstein Ostrove LLC, Edison, NJ, for Defendant Success Theuhandgesellschaft GmbH.

Vahbiz P. Karanjia, Elliot David Ostrove, Epstein Ostrove, LLC, Edison, NJ, for Defendant Eckart R. Straub.

KEVIN MCNULTY, U.S.D.J.:

This is a financial fraud case involving parties residing in the United States and Germany. Plaintiffs are a group of German individuals who allege they were defrauded in a financial scheme perpetrated by the defendants. The defendants are numerous limited partnerships, a German business association, and two individuals: Lawrence Berger, a New Jersey resident who is accused of perpetrating the fraud, and Eckart Straub, a German citizen who is alleged to have assisted Berger with the fraud.

The plaintiffs initially brought this case in New Jersey state court, pleading claims under the federal RICO statute, 18 U.S.C. 1964(c), as well as numerous state law claims. Defendant Straub removed the case to federal court, claiming both federal question and diversity jurisdiction. The plaintiffs then withdrew the federal RICO claim, and I remanded the case to state court, concluding that a federal claim was now lacking, that diversity of citizenship, too, was lacking, and that I therefore lacked jurisdiction.

Defendant Straub now moves pursuant to Rule 60(b) to vacate that decision (DE 12); the plaintiffs move for sanctions against Defendant Straub, asserting that the motion to vacate is frivolous (DE 15); and Defendant Straub cross-moves for sanctions against plaintiffs on the ground that the plaintiffs’ motion for sanctions is meritless and filed solely to intimidate (DE 21).

For the reasons stated below, I will DENY all three motions.

I. BACKGROUND¹

Though this case has a lengthy fact pattern stemming from the alleged complex financial fraud committed by the defendants, only a few facts are relevant to my decision. Essentially, the defendants, two individuals and several business associations and partnerships, are accused of inducing fifty German citizens to invest in commercial real estate projects in New Jersey, and then secretly looting the projects’ assets. (Opp. at 4; Compl. ¶¶ 11–61.) Lawrence Berger, a New Jersey resident, is alleged to have been the principal actor in this fraudulent scheme. Eckart Straub, a German citizen, was the plaintiffs’ trustee in the investment agreement through his solely-owned German business association Success Theuhandgesellschaft GMBH ("STG"), and is alleged to have been Mr. Berger's accomplice. (Compl. ¶¶ 62–86.) The scheme was allegedly effectuated through the creation of nineteen New Jersey-based limited partnerships, defendants here, of which either STG or Straub were limited partners. (Id. 3; Opp. at 5.) Thus, for the purposes of my analysis under the relevant diversity jurisdiction statute, this suit was brought by German plaintiffs against New Jersey and German defendants. See 28 U.S.C. § 1332(a)(2).

Plaintiffs commenced this action by filing a complaint in the Superior Court of New Jersey, Morris County on September 12, 2019. (Compl.) Defendant Straub, with the consent of his co-defendants, removed the action to this Court by filing a notice of removal on May 6, 2020. (DE 1.) The notice cited both federal question and diversity jurisdiction as grounds for removal. (Id. ¶¶ 7–13.) A week later, on May 12, 2020, plaintiffs moved to voluntarily dismiss their federal RICO claim pursuant to Federal Rule of Civil Procedure 41(a)(1)(A)(i).² (DE 6.) The next day, I remanded the case to Morris County Superior Court, concluding that: (1) because there were no federal claims remaining in the case, I no longer had jurisdiction over the case pursuant to 28 U.S.C. § 1331 (federal question); (2) the presence of German citizens as both plaintiffs and defendants destroyed complete diversity, so I lacked jurisdiction over the case pursuant to 28 U.S.C. § 1332 (diversity jurisdiction); and (3) because defendant Berger was a citizen of New Jersey, removal on diversity grounds would have, in any event, been precluded by the "forum defendant" rule set out in 28 U.S.C. § 1441(b)(2). (DE 10.)

Straub and STG moved to vacate my remand order, arguing that "extraordinary circumstances" require that I reconsider that order. (MTR at 1.) Specifically, they assert that it was a violation of their due process rights for the action to be remanded before they were permitted to be heard on that issue and that they were entitled to a federal forum. Had they been heard, they assert, they would have argued that (1) plaintiff's dismissal of the federal RICO claim was a nullity because it was done pursuant to Fed. R. Civ. P. 41(a) rather than Fed. R. Civ. P. 15 ; (2) I should first have ruled on defendants’ motion to dismiss for lack of personal jurisdiction before remanding based on lack of subject matter jurisdiction; (3) I should have considered whether defendant Straub was an indispensable party before considering subject matter jurisdiction; (4) the statutory provision which controls diversity jurisdiction in this matter should be read not to require complete diversity; (5) the court should have exercised supplemental jurisdiction over the state law claims after the federal claims were dismissed because the plaintiffs were engaged in forum manipulation; and (6) I abused my discretion by failing to write into the record my analysis of the factors controlling whether supplemental jurisdiction ought to be exercised. (See generally MTR; Reply.)

The parties fully briefed these issues, (MTR; Opp.; Reply), and submitted supplemental briefs in response to my request that they address the following questions: (1) whether the plaintiffs should have been permitted to dismiss their RICO claim under Fed. R. Civ. P. 15 ; (2) whether the forum defendant rule set forth in 28 U.S.C. § 1441(b)(2) prevented removal in the first place; and (3) what was the identity and citizenship of the members of the limited partnership defendants. (DE 16; Def. Supp. Br.; Pl. Supp. Br.)

In response to the motion to vacate, plaintiffs moved for sanctions against Elliot D. Ostrove and Epstein Ostrove, LLC, counsel for Straub and STG, asserting that the motion to vacate was frivolous and dilatory. (Pl. MS.) Ostrove opposed the motion, asserting that the motion to vacate was not frivolous, and filed a cross-motion for sanctions against plaintiffs on the ground that their sanctions motion was intended solely to intimidate Ostrove into withdrawing the motion to vacate. (Def. MS.)

On October 28, 2020, the Honorable Peter Bogaard, J.S.C., of the Morris County Superior Court, denied a motion to dismiss filed in that court by Lawrence Berger and various limited partnerships. The parties’ description of the motion and decision is scanty, but it appears that Judge Bogaard's decision does not directly bear on the motions before this Court. (DE 24, 25.)

II. MOTION TO VACATE

1. Standard of Review

a. Federal Rule of Civil Procedure 60(b)

Defendants have brought their motion to vacate and reopen the order of remand under Rule 60(b). Because defendants claim to have been denied a procedural opportunity to be heard, I have in an abundance of caution elected not to rely on the high Rule 60(b) threshold for relief. Consequently, the arguments for and against finding "extraordinary circumstances" are largely moot. Because the parties have entwined the Rule 60(b) standards with the merits, however, I briefly discuss them here.

Federal Rule of Civil Procedure Rule 60(b) authorizes the Court to issue relief from a final judgment, order, or proceeding. The Rule provides as follows:

On motion and just terms, the court may relieve a party or its legal representative from final judgment, order, or proceeding for the following reasons:

(1) mistake, inadvertence, surprise, or

...