Pepe v. General Motors Acceptance Corp.

• Decision Date: 18 March 1992
• Docket Number: No. A-4129-90T5,A-4129-90T5
• Citation: 604 A.2d 194,254 N.J.Super. 662
• Parties: Virginia I. PEPE, Plaintiff-Appellant, v. GENERAL MOTORS ACCEPTANCE CORPORATION a/k/a GMAC and Richard Stanley, individually, David Molinar, individually, Sam Ballou, individually, John Doe (1) and John Doe (2), Defendants-Respondents. Richard T. PEPE, Plaintiff-Appellant, v. GENERAL MOTORS ACCEPTANCE CORPORATION a/k/a GMAC and Richard Stanley, individually, David Molinar, individually, Sam Ballou, individually, John Doe (1) and John Doe (2), Defendants-Respondents.
• Court: New Jersey Superior Court — Appellate Division

Page 662

254 N.J.Super. 662

604 A.2d 194

Virginia I. PEPE, Plaintiff-Appellant, v. GENERAL MOTORS ACCEPTANCE CORPORATION a/k/a GMAC and Richard

Stanley, individually, David Molinar,

individually, Sam Ballou, individually,

John Doe (1) and John Doe (2),

Defendants-Respondents.

Richard T. PEPE, Plaintiff-Appellant, v. GENERAL MOTORS ACCEPTANCE CORPORATION a/k/a GMAC and Richard

Stanley, individually, David Molinar,

individually, Sam Ballou, individually,

John Doe (1) and John Doe (2),

Defendants-Respondents.

No. A-4129-90T5.

Superior Court of New Jersey Appellate Division.

Argued Jan. 29, 1992.

Decided March 18, 1992.

Kevin P. McCann, Bridgeton, for plaintiffs-appellants (Chance & McCann, attorneys; Laura J. Scruggs, on the brief).

Kenneth L. Steinthal, New York City, for defendants-respondents General Motors Acceptance Corp., Richard Stanley, David Molinar and Sam Ballou (Montano, Summers, Mullen, Manuel, Owens & Gregorio, Cherry Hill, and Weil, Gotshal & Manges, New York City, of the New York Bar, attorneys; G. Wesley Manuel, Jr., Cherry Hill, Kenneth L. Steinthal and Nancy S. Scherer, New York City, on the brief).

Before Judges GAULKIN, MUIR, Jr. and LANDAU.

The opinion of the court was delivered by

GAULKIN, P.J.A.D.

Plaintiffs Virginia I. Pepe and Richard T. Pepe brought these actions against defendant General Motors Acceptance Corporation (GMAC) and certain of its agents to recover damages arising out of what the Pepes called "the demise of the Pepe empire" of automobile dealerships, then in bankruptcy. Judge Kleiner dismissed the complaints upon his finding that the Pepes "may not proceed as individuals to assert a cause of action against the defendants" and that "[i]f there is a cause of action for the defendants' acts, it is a chose in action, which is the property right of the trustee in bankruptcy." The Pepes appeal. We affirm.

The Pepes owned and operated, in corporate form, ten automobile dealerships in South Jersey. According to their complaints, the corporations developed a relationship with GMAC, "the lending branch of General Motors," pursuant to which GMAC loaned money for floor plan financing, dealership acquisition, capitalization loans, acquisition of inventory and equipment and purchase of real estate. Starting in late 1987, GMAC altered its practices and "made it very difficult to conduct business," thereby causing "untold financial problems and reputation problems to the Pepe dealerships." In pursuit of a scheme "to bankrupt and destroy ... the Pepe automobile empire," GMAC placed "keepers" in the dealerships "for the purpose of monitoring the transactions taking place." Having thus "actually assumed control" of the dealerships, GMAC "destroyed" their business. The dealerships filed for Chapter 11 bankruptcy relief on August 24, 1988.

Based on those allegations, the Pepes asserted eleven overlapping and duplicative causes of action against GMAC and its agents, for (1) "breach of the covenant of good faith and fair dealing," (2) fraud, (3) negligent misrepresentation, (4) intentional misrepresentation, (5) intentional, negligent and reckless destruction of the dealerships, (6) bad faith conduct designed to "squeeze and destroy" the dealerships, (7) intentional destruction of the dealerships, (8) malicious interference with the Pepes' contractual relations with the franchisors and banks, (9) negligent destruction of "the Pepe empire," (10) wilful or negligent destruction of Richard Pepe's "name" in their "financial dealings with others" and (11) again, intentional destruction of the dealerships. The complaints demanded compensatory damages of $115,000,000 as well as punitive damages.

The complaints were filed on August 2, 1990, almost two years after the Bankruptcy Court had approved a lengthy and comprehensive stipulation entered into by the dealerships, the Pepes, the bankruptcy trustee for the dealerships and the principal secured creditors including GMAC. The stipulation recited that it had been "proposed" by the debtors "to encourage and induce GMAC [and the other secured creditors] to permit the use of cash collateral by Debtors and thereby enable the Debtors to obtain and replenish an inventory of motor vehicles, parts and supplies which are necessary for the operation of the Debtors' respective businesses." Paragraph 58 of the stipulation provided as follows:

As part and parcel of the consideration for entering into this stipulation, the debtors, trustee, and debtor-in-possession hereby release and discharge the secured creditors, their respective officers, agents, employees, successors, assigns, subsidiary and parent corporations, and insurers of and from any claim, demand, right or cause of action of any nature whatsoever, without limitation, specifically, including any and all claims, demands, rights or causes of action for lender liability resulting from secured creditors' prior dealings with the debtors and the principals. The claims from which the debtors, trustee and debtor-in-possession are releasing secured creditors include, but are not limited to, fraud, constructive fraud, duress, interference with corporate governments or contractual relations, breach of contract and defamation.

The stipulation was approved by Bankruptcy Judge Wizmur and entered of record in the Bankruptcy Court on October 12, 1988. ¹

The causes of action pleaded by the Pepes all assert losses sustained by them as the result of the destruction of their corporations. As such, the claims are entirely derivative of causes of action which, but for their release by the bankruptcy stipulation, would be available to the corporations. The law is clear and uniform: shareholders cannot sue for injuries arising from the diminution in value of their shareholdings resulting from wrongs allegedly done to their corporations. See, e.g., Kauffman v. Dreyfus Fund, Inc., 434 F.2d 727, 732 (3d Cir.1970), cert. denied, 401 U.S. 974, 91 S.Ct. 1190, 28 L.Ed.2d 323 (1971); Ash v. I.B.M., 353 F.2d 491, 493-494 (3d Cir.1965), cert. denied, 384 U.S. 927...