Jurista v. Amerinox Processing, Inc., Civ. No.12-3825 (NLH/JS)

• Court: United States District Courts. 3th Circuit. United States District Courts. 3th Circuit. District of New Jersey
• Writing for the Court: NOEL L. HILLMAN
• Parties: STEVEN Z. JURISTA, as Disbursing Agent under First Amended Liquidating Plan of Reorganization of Jermax, Inc. d/b/a Gulf & Northern Trading Corporation, Plaintiff, v. AMERINOX PROCESSING, INC., ROBERT CARTER, SETH YOUNG, ARTHUR GERWITZ, and GENERAL ELECTRIC CAPITAL CORPORATION Defendants.
• Docket Number: Civ. No.12-3825 (NLH/JS)
• Decision Date: 28 March 2013

STEVEN Z. JURISTA, as Disbursing Agent under First Amended Liquidating Plan of Reorganization
of Jermax, Inc. d/b/a Gulf & Northern Trading Corporation, Plaintiff,
v.
AMERINOX PROCESSING, INC., ROBERT CARTER, SETH YOUNG, ARTHUR GERWITZ,
and GENERAL ELECTRIC CAPITAL CORPORATION Defendants.

Civ. No.12-3825 (NLH/JS)

UNITED STATES DISTRICT COURT DISTRICT OF NEW JERSEY

DATED: March 28, 2013

OPINION

APPEARANCES:

LEONARD C. WALCZYK, ESQUIRE
WASSERMAN, JURISTA & STOLZ, P.C.
Attorney for Plaintiff Steven Z. Jurista, as Disbursing
Agent for Jermax, Inc., d/b/a Gulf & Northern Trading
Corporation,

RONALD L. GLICK, ESQUIRE
STEVENS & LEE
Attorney for Defendant Amerinox Processing, Inc.,

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JOHN VENA FIORELLA, ESQUIRE
ARCHER & GREINER, PC
Attorney for Defendants Robert Carter and Seth Young,

EVAN A. BLAKER, ESQUIRE
BYLER & BLAKER, LLC
Attorney for Defendant Arthur Gerwitz,

LISA S. BONSALL, ESQUIRE
McCARTER & ENGLISH, LLP
Attorney for Defendant General Electrical Capital
Corporation.

TABLE OF CONTENTS

I. Factual Background and Procedural History ....... 5

II. Standing ....... 13

A. Constitutional Standing ....... 14
B. Prudential Standing ....... 17
C. In Pari Delicto Defense ....... 23

III. The Motion to Strike ....... 34

A. Standard of Law Under Rule 12(f) ....... 34
B. Discussion of the Motion to Strike ....... 36

IV. The Motion to Dismiss ....... 43

A. Standard of Law Under Rule 12(b)(6) ....... 44
B. Discussion of the Motion to Dismiss ....... 47

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1. The Fraud Claims ....... 47

i. Counts 1 and 8: Avoidance and Recovery of Fraudulent Transfers under 11 U.S.C. § 548(a)(2) ....... 49
ii. Counts 2, 4, 9 and 11: Avoidance and Recovery of Fraudulent Transfers under N.J.S.A. §§ 25:2-25(a)(b) and 25:2-27 (a)(b) ....... 51
iii. Counts 3 and 10: Avoidance and Recovery of Fraudulent Transfers Pursuant to 11 U.S.C. § 548(a)(1) ....... 60

2. Count 5: Conversion ....... 67
3. Count 6: Unjust Enrichment ....... 68
4. Count 7: Turnover under 11 U.S.C. § 542 ....... 72
5. Count 13: Breach of the Implied Covenant of Good Faith and Fair Dealing ....... 74
6. Count 14: Breaches of Fiduciary Duties ....... 80

i. Fiduciary Duty of Care ....... 84
ii. Fiduciary Duty of Loyalty and Good Faith ....... 87

7. Counts 15, 16, 21 and 22: The Aiding and Abetting Claims ....... 90
8. Count 17: Successor Liability ....... 98
9. Count 18: Piercing the Corporate Veil ....... 103
10. Count 19: Misappropriation of Assets, Trade Secrets, Proprietary Information and Other Assets ....... 110
11. Count 20: Constructive Trust ....... 114
12. Count 23: Avoidance of Post-Petition Transfers ....... 116
13. Count 24: Avoidance and Recovery of Transfers to Mediate and Immediate Transferees ....... 119

V. The Cross-Motion for Imposition of Prejudgment Temporary Restraints Against Transfers by Defendants Amerinox, Carter, Young, and Gerwitz ....... 126

A. Likelihood of Success on the Merits ....... 129
B. Irreparable Harm ....... 136

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C. Balance of the Equities ....... 139
D. The Public Interest ....... 141
E. The Bond Requirement ....... 142

VI. CONCLUSION ....... 144

HILLMAN, District Judge:

Currently pending before the Court are: (1) the Joint Motion to Strike or Dismiss Plaintiff's Complaint by Defendants Amerinox Processing, Inc., Robert Carter, Seth Young, and Arthur Gerwitz [Docket Nos. 14 & 16.];¹ (2) Plaintiff Steven Z. Jurista's Cross-Motion for Imposition of Prejudgment Temporary Restraints Against Transfers by Defendants Amerinox, Carter, Young, and Gerwitz [Docket No. 19.]; and (3) the Motion to Dismiss Any and All Claims Asserted Against Defendant General Electric Capital Corporation [Docket No. 26.] For the reasons set forth below, Defendants Amerinox, Gerwitz, Young, and Carter's Motion to Strike will be denied, but their Motion to Dismiss will be granted in part and denied in part. Furthermore, Plaintiff's Cross-Motion will be denied, and Defendant General Electric Capital Corporation's Motion to Dismiss will be granted in part and denied in part.

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I. FACTUAL BACKGROUND AND PROCEDURAL HISTORY

The instant matter is an adversary proceeding stemming from the bankruptcy filing of Jermax, Inc. ("Jermax" or "Debtor"). Plaintiff Steven Z. Jurista has been appointed as the Disbursing Agent to represent the Debtor's interests in this suit. Jermax and corporate Defendant Amerinox Processing, Inc. ("Amerinox") are stainless steel and aluminum processing corporations based in Camden, New Jersey. Amerinox is a corporate affiliate of and substantially owned by the same shareholders as Jermax. Individual Defendants Carter, Young, and Gerwitz ("individual Defendants" or "Insider Defendants") are alleged to be the sole shareholders, officers, and directors of both Debtor Jermax and Defendant Amerinox. Defendant General Electric Capital Corporation ("GE") previously provided financing for the Debtor.

According to the facts alleged in the Complaint,² Jermax formerly operated a profitable business engaged in the

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distribution of stainless steel coil, sheet, and plate products in Camden, New Jersey. (Compl. ¶¶ 12, 13.) Jermax was wholly owned and operated by individual Defendants Young, Carter, and Gerwitz during this time. (Id. ¶¶ 8-10.) These same individuals also wholly owned and operated Jermax's affiliate, Defendant Amerinox. (Id. ¶¶ 7, 13.) Amerinox also owns and operates a facility in Camden. (Id. ¶ 13.) Beginning in approximately 2008, the individual Defendants allegedly began to siphon funds from Jermax for the benefit of Amerinox. (Id. ¶¶ 19-63.) Specifically, the Complaint alleges that Amerinox stopped paying rent that it owed to Jermax for leasing its equipment, discontinued paying interest on loans it owed to Jermax, and transferred valuable equipment from Jermax to Amerinox for essentially no consideration. (Id. ¶¶ 23-26, 30-32, 66(f)-(g).) The Insider Defendants also used Jermax's funds to pay Amerinox's bills, including its employee salaries, medical benefits, and costs for repairs. (Id. ¶¶ 66(a)-(i).) These actions placed significant financial strain on Jermax, causing it to become unable to pay its various creditors, default on several of its loans, and eventually become

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insolvent. (Id. ¶¶ 38-63.) Despite its precarious financial condition, the Insider Defendants nonetheless issued dividends to themselves totaling over $1 million and advanced $250,000 to Amerinox in October of 2008. (Id. ¶¶ 34-37, 49, 62.)

In 2005, Defendant GE had made a loan to Debtor Jermax. (Id. ¶ 186.) By February of 2009, the balance due on the loan was $1,536,918. (Id.) Also in February of 2009, Jermax allegedly transferred a substantial amount of its equipment - alleged to be worth at least $2.5 million on the transfer date - to Defendant Amerinox. (Id. ¶¶ 22-27, 186, 190.) GE, however, allegedly conspired with Amerinox to set the purchase price for the equipment at $1,536,918 - the amount that remained outstanding on the GE loan. (Id. ¶¶ 186, 198-99.) In reaching this amount, the parties allegedly did not consider the fair market value of the equipment, nor did they include Jermax in its negotiations as the owner of the property. (Id. ¶ 198.) Jermax, however, apparently paid a fee of $413,172.75 to GE in exchange for its consent to transfer the equipment to Amerinox for this price. (Id. ¶ 27.) Plaintiff asserts that Jermax was insolvent at the point of the transfer, and that GE was fully aware of Jermax's distressed financial status during this time. (Id. ¶¶ 189, 192, 199.)

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As a result of its mass debt and inability to repay its loans as they became due, Jermax filed a Chapter 11 bankruptcy petition in the United States Bankruptcy Court for the District of New Jersey on June 24, 2010. On July 11, 2011, Jermax filed its First Amended Liquidating Plan of Reorganization ("the Plan" or "the reorganization plan"). During the course of the plan confirmation proceedings, one of Jermax's creditors objected to the Plan's confirmation on the grounds that certain claims it held against the Debtor were not addressed in the Plan. The creditor and Jermax eventually agreed to the appointment of an Examiner to conduct a limited investigation into whether such causes of action actually exist. Accordingly, on September 12, 2011, the Bankruptcy Court entered an order ("the Examiner Order") directing the United States Trustee to appoint an Examiner to investigate and report on certain limited matters. On September 23, 2011, the Trustee appointed Alfred T. Giuliano as the Chapter 11 Examiner for the Debtor's estate. The Bankruptcy Court approved the appointment by order dated September 28, 2011.

The Examiner Order delineated the issues for the Examiner to investigate. Specifically, the Order provided that the Examiner was appointed for the limited purpose of investigating and reporting on the following issues:

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1. Whether the Debtor's officers and directors breached fiduciary duties that they owed to the Debtor

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