Strike PCH, LLC v. Stern

• Docket Number: A-3918-19
• Decision Date: 15 November 2021
• Parties: STRIKE PCH, LLC, Plaintiff-Respondent, v. ISAAC STERN and DAVID GLASS, Defendants, and JEFFREY REECE, CHANG JIN KIM, and PINNEX CAPITAL HOLDINGS, LLC, Defendants-Appellants.
• Court: New Jersey Superior Court — Appellate Division

1

STRIKE PCH, LLC, Plaintiff-Respondent, v. ISAAC STERN and DAVID GLASS, Defendants, and JEFFREY REECE, CHANG JIN KIM, and PINNEX CAPITAL HOLDINGS, LLC, Defendants-Appellants.

No. A-3918-19

Superior Court of New Jersey, Appellate Division

November 15, 2021

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.

Argued October 19, 2021

On appeal from the Superior Court of New Jersey, Chancery Division, Union County, Docket No. C-000084-19.

Jared Newman (Herrick, Feinstein, LLP) of the New York bar admitted pro hac vice, argued the cause for appellants (Herrick, Feinstein, LLP, attorneys; Avery Mehlman, on the briefs).

Jonathan T. Suder (Friedman, Suder &Cooke) of the Texas bar, admitted pro hac vice, argued the cause for respondent (Pinilis Halpern, LLP, Jonathan T. Suder and Glenn S. Orman (Friedman, Suder &Cooke) of the Texas bar, admitted pro hac vice, attorneys; Jonathan T. Suder, Glen S. Orman and William J. Pinilis, on the brief).

Before Judges Messano, Accurso, and Rose.

PER CURIAM

Defendants Pinnex Capital Holdings, LLC (Pinnex), Jeffrey Reece, and Chang Jin Kim (collectively, the Pinnex Defendants) appeal from the trial court's March 20, 2020 order (the March 20 order) that: 1) dismissed the second amended complaint filed by plaintiff, Strike PCH, LLC (Strike), without prejudice and 2) further provided that "[t]he parties shall take all necessary steps to return the matter to [a]rbitration." We affirm in part, to the extent the order required only plaintiff and defendant Isaac Stern to return to arbitration. We reverse in all other respects including the dismissal of the complaint against the Pinnex Defendants and defendant David Glass, who never participated in the arbitration to which the court ordered the parties to "return." ^[1]

I.

Strike's second amended complaint was dismissed on the Pinnex Defendants' motion to dismiss for failure to state a claim. R. 4:6-2(e). Routinely, on such motions the trial court "limit[s] its review to 'the pleadings themselves.' If the court considers evidence beyond the pleadings . . ., that motion becomes a motion for summary judgment, and the court applies the standard of Rule 4:46." Dimitrakopoulos v. Borrus, Goldin, Foley, Vignuolo, Hyman &Stahl, PC, 237 N.J. 91, 107 (2019) (quoting Roa v. Roa, 200 N.J. 555, 562 (2010)). We review the trial court's decision under either rule de novo. Id. at 108; Woytas v. Greenwood Tree Experts, Inc., 237 N.J. 501, 511 (2019) ("We review a grant of summary judgment de novo, applying the same standard as the trial court." (citing Bhagat v. Bhagat, 217 N.J. 22, 38 (2014))).

In its second amended complaint, Strike set forth the alleged relationship of the parties. Strike and Stern are the only members of Sokaor Capital, LLC (Sokaor), a separate holding company which "sole purpose . . . [wa]s to invest in and own shares of Pinnex." Stern is a managing member and CEO of Pinnex, a Delaware limited liability company, and holds a majority Class A membership interest in the LLC. Reece and Kim are also members of Pinnex's board of managers, and Glass is purported to be "a former co-founder and owner of Pinnex," with "no formal title," but "actively advising Stern and taking action on behalf of Pinnex."

The Sokaor operating agreement required mandatory arbitration of any dispute under the agreement. In October 2017, alleging Stern engaged in deceptive practices that limited its ability to participate in the purchase of additional Pinnex shares, Strike commenced American Arbitration Association (AAA) arbitration proceedings (the Arbitration) against Stern claiming minority member oppression, fraud, tortious interference, conversion, unjust enrichment, and veil piercing/alter ego. The final arbitration award (the Award) in Strike's favor required Stern to transfer 446, 018 Sokaor Series A Units to Strike. Because the Sokaor units were tied directly on a one-to-one basis with the units Sokaor held in Pinnex, the award effectively reduced the amount of shares Stern held in Pinnex.

One day after the issuance of the final award, Stern sent an email informing Strike that the Pinnex board of managers planned to commence a forfeiture of the transferred shares. In relevant part, Stern stated:

I regret to inform you that I have been notified that we . . . are in violation of the Pinnex Operating Agreement. It seems there is a restriction against the indirect transfer of Pinnex units. Transferring the additional shares in Sokoar [sic] per the panel's award is a violation of this covenant. As a penalty, I am being told that the board plans to impose a forfeiture upon us of 446, 018 Pinnex units. The Board or corporate counsel will forward any communications regarding this forfeiture directly to you.

On July 3, 2019, Reece and Kim executed a written consent in lieu of meeting and approved a resolution; Stern voted "no." The resolution deemed the transfer contemplated by the Award to be a "Prohibited Indirect Transfer" under Pinnex's operating agreement. As a result, the resolution deemed Sokaor to have forfeited 446, 018 Series A Units in Pinnex, with the forfeited units to be distributed among the "remaining Series A members of [Pinnex] pro-rata in accordance with their respective ownership of the Series A Units ...."

In the interim, on June 21, 2019, Strike filed a complaint against Stern seeking summary confirmation of the Award. See N.J.S.A. 2A:23B-22. Strike subsequently filed a first and second amended complaint adding Glass and the Pinnex Defendants and alleging various causes of action, including minority member oppression, fraud, and tortious interference with contractual rights. In its second amended complaint, Strike contended the Award's forced transfer of units was not a "prohibited transfer" under the Pinnex operating agreement:

This "written consent" expressly violates the Pinnex Operating Agreement, which states that these types of transfers are permitted if they are "required by a legal authority of competent jurisdiction" when that transfer would otherwise by a prohibited one. The Panel's May 15, 2019 Final Award was undoubtedly issued by "a legal authority of competent jurisdiction."

The Pinnex Defendants, Stern, and Glass filed separate motions to dismiss the second amended complaint. The Pinnex Defendants asserted several grounds supporting dismissal, and the judge heard oral arguments from all counsel. During argument, counsel for the Pinnex Defendants noted, "this is a dispute about an arbitration that we weren't even a party to." He explained further:

The problem here is how the arbitrators phrased and put their award together. You can't have somebody put an award together and bound [sic] the party that was never there and handcuff a party that was never there not to be able to do what it's obligated to do and what it can do under it's [sic]operating agreement.

[(alteration in original).]

Strike made substantive arguments to rebut those made by the Pinnex Defendants. At one point, counsel explained Strike's tortious interference claim:

[A]n agreement to go to arbitration is . . . the agreement to be bound by the arbitration and to let the arbitration control. And the conduct of Pinnex . . . thwarted the whole purpose of the arbitration.

Pinnex says we . . . have no privity. We have no relationship. And what we say is their conduct tortiously interfered with the benefits that should have flowed to us by virtue of our contract.

When the judge expressed her concern about the enforceability of the Award, Strike's counsel seemingly recognized the limitation of the arbitration provision in the Sokaor operating agreement, by continuing: "If you go back to arbitration, how do you get the arbitrator to change what Pinnex did? . . . You can't. You have to come here to do that." The judge reserved decision on the motions.

Several weeks later, the judge sent a letter to all counsel. She indicated she was vacating an order previously entered confirming the Award, noting she was unaware that a timely objection was filed. The judge wrote:

I am not going to sign any order confirming an arbitration award which has clearly been entered as a result of incorrect information before the Panel. Accordingly, I am going to order the plaintiff to take whatever steps are necessary to reopen the award.

I do not think the motion before me is ripe given the lack of a confirmed arbitration award[, ] and I have denied the motion without prejudice pending action from an Arbitration Panel.

[(Emphasis added).]

Several weeks after, the judge sent all counsel another letter: "As you know, I have ordered the parties to return to Arbitration . . . based on the fact that the award calls for a transfer of Sokaor shares which was not permitted according to Sokaor's Operating Agreement.^[2] As a result, I am dismissing the case without prejudice." The March 20 order filed the same day stated: "The parties shall take all necessary steps to return the matter to Arbitration. . . . The case is dismissed without prejudice." (Emphasis added.)

Five days later, Strike commenced a new arbitration proceeding with AAA against Stern, Glass, and the Pinnex Defendants asserting claims of minority member oppression, fraud, tortious interference, conversion, and unjust enrichment. The Pinnex Defendants wrote to AAA stating they were "not signatories to any arbitration agreement with Strike" and "not subject to the jurisdiction" of the arbitration panel. AAA notified the parties that the motion judge had "ordered all of the parties named in the [c]ourt caption to appear in the return to arbitration,...