finding “outright refusal to grant the leave without any justifying reason appearing for the denial is not an exercise of discretion; it is merely abuse of that discretion”
How later courts described this case
- finding “outright refusal to grant the leave without any justifying reason appearing for the denial is not an exercise of discretion; it is merely abuse of that discretion”
- stating that, generally, leave to amend should be granted “unless equitable considerations render it otherwise unjust.”
Written by the judges who cited it.
The opinion
NOT FOR PUBLICATION
UNITED STATES DISTRICT COURT
DISTRICT OF NEW JERSEY
EDITA APPLEBAUM,
Plaintiff, Civil Action No. 18-11023 (KM) (JAD)
v. OPINION
WILLIAM P. FABIAN, LAURENCE W.
GOLD, LEAH E. CAPECE, EFRAIM
“FRANK” RAJS, CECILIA KEH,
THOMAS D’AMBROSIO, MAXINE
MELNICK, MICHAEL LACKEY,
GERALD MACKO, DEREK
SCHUMACHER, JIMMY SAMAYOA,
GARRETT APPLEBAUM, YOUSSEF
ABDULAH YOUSSEF, VOYA
FINANCIAL, INC., INTAC ACTUARIAL
SERVICES, INC., ASCENSUS LLC,
SUSAN BAUER, JOHN DOES 1-10, and
ABC CORPS. 1-10,
Defendants.
JOSEPH A. DICKSON, U.S.M.J.
This matter comes before the Court upon Plaintiff Edita Applebaum’s cross-motion for
leave to file a second amended complaint. (ECF No. 59). The Court conducted oral argument
on August 12, 2019. (Tr. of Aug. 12, 2019 Hr’g, ECF No. 89). After carefully considering the
parties’ submissions and arguments, and for the reasons stated below, Plaintiff’s cross-motion is
GRANTED IN PART AND DENIED IN PART.
I. RELEVANT FACTS AND PROCEDURAL HISTORY
In this action, Plaintiff alleges that eleven employees of the Thomas Harris Company
(“THC”), along with two professionals in the company’s employ, engaged in a complex and
sustained conspiracy intended to prevent Plaintiff from obtaining the millions of dollars due her
in accordance with her late husband’s will, and that the conspirators instead used those funds for
illicit purposes. (See generally Compl., ECF No. 1). Plaintiff contends that much, if not all, of
THC’s leadership took part in the conspiracy, which involved a slew of wrongful activities
including bank fraud, payroll fraud, litigation fraud, mail fraud, and wire fraud. (Id.).
a. First Amended Complaint
Plaintiff filed her First Amended Complaint on November 12, 2018. (First Am. Compl.,
ECF No. 39). That document, which spans 208 pages and includes eleven causes of action,
remains Plaintiff’s operative pleading in this matter. The Court must summarize Plaintiff’s
existing allegations and claims in order to provide necessary background and context for
Plaintiff’s motion for leave to amend. The Court stresses that the following is meant to provide
an overview of Plaintiff’s contentions, rather than an inventory.
Plaintiff’s allegations focus on Defendant William Fabian, a longtime business associate
of Plaintiff’s late husband, Todd Harris Applebaum. Fabian’s connection to Mr. Applebaum
appears to go back to at least the early 1990s, when Fabian claims to have loaned THC a sum of
money. (Id. at Preliminary Statement ¶ 8; Count 1 ¶¶ 139, 200). Fabian further represents that
he performed consulting work for THC, subject to a deferred compensation agreement, in the
years prior to Mr. Applebaum’s death. (Id. at Count 1 ¶ 36). Mr. Fabian is also the executor of
Mr. Applebaum’s estate. (Id. at Preliminary Statement ¶ 66). THC’s alleged indebtedness to
Fabian plays a central role in Plaintiff’s allegations.
i. THC’s Dealings with Sun National Bank and Wells Fargo
After Mr. Applebaum died on November 4, 2012, THC continued doing business. (Id. at
Count 1 ¶ 18). Defendant Frank “Efraim” Rajs became president of the company, and “place[d]
defendant Fabian on the THC payroll at a rate of two thousand dollars per week.” (Id.).
Between November 26, 2012 and December 14, 2012, THC made three withdrawals, totaling
$420,000, from THC’s line of credit with Sun National Bank. (Id. ¶ 27). Plaintiff alleges that
THC (through Defendants Rajs, Fabian, and Cecilia Keh) did so by forging the late Mr.
Applebaum’s signature on certain documents. (Id. ¶¶ 19-23). Plaintiff contends that THC made
those withdrawals in order to repay Defendant Fabian for his previous loans and consulting fees.
(Id. ¶ 36).
On June 25, 2013, Sun National Bank filed a civil suit against THC, alleging that Mr.
Applebaum’s death was an “event of default” under the terms of the parties’ agreement, that
THC was therefore prohibited from taking additional advances under the line of credit, and that
THC’s withdrawals in November and December 2012 were fraudulent. (Id. ¶¶ 21-28). On June
27, 2013, THC personnel held a “crisis meeting”, which Plaintiff attended, to discuss Sun
National Bank’s lawsuit and various other issues. (Id. ¶¶ 20, 47-52). During that meeting,
Defendant Fabian allegedly provided THC with a “bailout” loan of nearly $300,000, subject to
certain conditions, including a security interest in THC’s accounts receivable and a personal
guaranty from Plaintiff. (Id. ¶¶ 44-45). Fabian’s “bailout” allegedly provided THC with
additional funds necessary to settle the Sun National Bank lawsuit. (Id. ¶ 44). THC settled with
the bank the following day. (Id. ¶ 41).
During the June 27, 2013 crisis meeting, THC personnel also addressed the company’s
application for an “emergency” $250,000 line of credit from Wells Fargo. (Id. at Preliminary
Statement ¶ 26). Plaintiff contends that THC’s leadership sought those funds “to repay [the
company’s] indebtedness to [D]efendant Fabian.” (Id. at Count I, ¶ 113). Plaintiff alleges that
certain defendants agreed to conceal important financial information from Wells Fargo,
including: (1) THC’s indebtedness to Defendant Fabian related to his circa-1990s loans and
subsequent consulting work; (2) Defendant Fabian’s more recent $300,000 “bailout” loan to
THC; (3) Fabian’s associated security interest in THC’s accounts receivable; and (4) Plaintiff’s
personal guaranty of Fabian’s “bailout’ loan. (See, e.g., id. at Preliminary Statement ¶¶ 26-28;
Count I ¶¶ 45-46). Plaintiff further alleges that Defendants Capece and Fabian attempted to
coerce Plaintiff to provide a personal guaranty in support of the Wells Fargo loan application and
that she would not do so. (Id. at Count I ¶¶ 53-58, 98-99). Plaintiff declined to issue a guaranty
because she believed that doing so would constitute “bank fraud” as she had already pledged her
personal assets when guaranteeing Defendant Fabian’s loan to THC. (Id. ¶¶ 98-99). Wells
Fargo ultimately denied the loan, citing Plaintiff’s refusal to provide a guaranty. (Id. at
Preliminary Statement ¶ 29, 32).
ii. Plaintiff’s Employment With THC
Plaintiff alleges that THC hired her in December 2012, the month following Mr.
Applebaum’s death, so that she could “stay connected” to her late husband. (Id. at Count IV, ¶¶
3, 7). Plaintiff had no formal title or duties. (Id. ¶¶ 4-5). Following the June 2013 “crisis”
involving Sun National Bank, Plaintiff began working at THC daily, (id. ¶ 6), and lodged
numerous “complaints” with THC personnel regarding fraud and mismanagement that she
perceived within the company. (Id. ¶ 24-28). Plaintiff further alleges that in response to her
“whistleblower activities”, THC’s leadership took steps to conceal the company’s finances from
her, (¶¶ 16-18), began retaliating against her, (id. ¶¶ 22-23), and ultimately fired her. (Id. ¶¶ 27-
34). Plaintiff also contends that a group of “affiant” defendants (Lackey, Macko, Schumacker,
Samayoa, Applebaum, and Youssef) later colluded with Defendants Capece, Fabian, and Rajs to
create a series of frivolous affidavits intended to serve as a pretextual, post facto justification for
Plaintiff’s termination. (Id. ¶¶ 48-58). Plaintiff further alleges that Defendants’ decision to
terminate her employment was also motivated, in part, by her refusal to provide a personal
guaranty in support of THC’s application for an “emergency” loan from Wells Fargo. (See, e.g.
id. ¶ 43).
iii. Alleged Misappropriation of Mr. Applebaum’s 401K
Plaintiff alleges that her late husband maintained a 401(k) account, and that the account
contained approximately $100,000 at the time of his death. (Id. at Count 1 ¶ 229). Plaintiff
contends that, as Mr. Applebaum’s surviving spouse, she was entitled to the full value of that
account, (id. ¶ 230), and that Defendants Fabian and Keh nevertheless wrongfully caused those
funds to be paid to Mr. Applebaum’s Estate. (Id. ¶ 233). Plaintiff also contends that the
companies that maintained and administered her late husband’s 401(k) account, while not part of
the THC employees’ alleged conspiracy, erred by paying the funds in that account to Mr.
Applebaum’s Estate, rather than Plaintiff. (Id.¶¶ 234-36).
iv. Alleged Payroll Fraud
Plaintiff alleges that several defendants engaged in “payroll fraud” by putting Mr. Fabian
on the payrolls of both Toben Investments, Inc., a company in which Mr. Applebaum owned a
51% interest, and THC. (E.g., id. ¶¶ 18, 335, 361). Plaintiff alleges that the salaries were not
meant to compensate Mr. Fabian for any actual work he performed for those companies but,
rather, served as another illicit means of repaying Fabian the sums THC allegedly owed him for
loans and consulting fees. (Id. ¶¶ 287-89, 293, 299, 361-69).
v. The “Linden Property”
Plaintiff contends that Toben Investments, Inc.’s sole asset was a lucrative commercial
property located in Linden, New Jersey (the “Linden Property”). (E.g., id. ¶¶ 339-52). Plaintiff
alleges that, at the June 27, 2013 “crisis meeting”, certain defendants decided to sell that
property. (Id. ¶ 375). Plaintiff further alleges that an appraiser had valued the Linden Property
at approximately one and a half million dollars in early 2014, (id. ¶ 339), and that Defendants
nonetheless decided, under false pretenses, to sell it for half of that sum during a 2014 “fire sale.”
(E.g., id. ¶¶ 37-76, 382). Plaintiff contends that Defendants used the proceeds of that sale to
reimburse Defendant Fabian for the loans and consulting services he allegedly provided to THC,
(id. ¶¶ 375-79), and that they thereafter sought to create a pretext (i.e., that environmental
damage would eventually render the property unrentable) to fraudulently justify that decision.
(Id. ¶¶ 383-85). Plaintiff alleges that, given her late husband’s 51% interest in Toben
Investments, Inc., which she will eventually inherit, Defendants’ actions have caused her
financial harm. (E.g., id. ¶ 15).
vi. Litigation in the Superior Court of New Jersey
Plaintiff commenced an action in the Superior Court of New Jersey in March 2014, filing
a Verified Complaint and Order to Show Cause (the “State Court Litigation”). (Id. ¶ 237).
Plaintiff alleges that the State Court Litigation, which continues to date, has involved extensive
discovery, including more than a dozen depositions, thousands of interrogatories, and dozens of
subpoenas and other discovery devices that have yielded production of over thirty thousand
documents. (Id. ¶¶ 238-39). Plaintiff alleges that the parties to the State Court Litigation have
also filed “numerous” applications in the Superior Court addressing, among other things,
“requests for the removal of [D]efendant Fabian as executor [of the late Mr. Applebaum’s
estate], accounting and discovery-related issues, and motions for a distribution from the estate to
plaintiff, who has received no formal distribution in six years of estate administration.” (Id. ¶¶
240-41).
Plaintiff alleges that Defendants have used the State Court Litigation as a vehicle for
continuing their conspiracy against her. For instance, Plaintiff contends that Defendants have
twice moved to “disinherit” her – requesting that the probate court force Plaintiff to sell her
interest in THC to a third-party – based on the allegedly baseless affidavits described Section
I(a)(ii), above. (Id. ¶¶ 326-330). Plaintiff alleges that Defendants sought that relief in retaliation
for Plaintiff’s whistleblowing activities and lawsuits. (E.g., ¶¶ 403-05).
Plaintiff further contends that certain Defendants have taken illicit actions during the
State Court Litigation, with the objective of hiding evidence of their wrongdoing. Plaintiff
alleges, for example, that various defendants have filed a frivolous motion to quash a third-party
subpoena, refused to produce documents unless Plaintiff had executed a “non-disclosure
agreement”, and committed perjury. (E.g., id. ¶¶ 258-68; 277-305; 436-39).
vii. Plaintiff’s Causes of Action
Based on the foregoing factual allegations, Plaintiff has asserted eleven causes of action
against Defendants. While Plaintiff focuses the bulk of the pleading on her claim under the
federal Racketeer Influenced and Corrupt Organizations Act (“RICO”), 18 U.S.C. §§ 1961-68,
she also brings claims for: common law fraud (Count II); defamation (Count III); retaliation in
violation of the New Jersey Conscientious Employee Protection Act (Count IV); common law
negligence (Counts V, IX); violation of ERISA (Count VI); intentional infliction of emotion
distress (Count VII); tortious interference with prospective economic advantage (Count VIII);
and violation of the New Jersey RICO statute (Count XI). Plaintiff has also asserted each of her
substantive claims against fictional “John Doe” and “ABC Corp.” defendants (Count X).
b. Motion for Leave to File a Second Amended Complaint
After Plaintiff filed her First Amended Complaint, several defendants filed motions to
dismiss that pleading. (ECF Nos. 53, 54). Plaintiff thereafter filed a cross-motion for leave to
file a second amended complaint. (ECF No. 59). Based on the Court’s review of the
“blacklined” version of Plaintiff’s Proposed Second Amended Complaint (“PSAC”), that
pleading appears to include all of the factual allegations and causes of action set forth in
Plaintiffs’ First Amended Complaint. (Compare First Am. Compl., ECF No. 39 with PSAC,
ECF No. 72). Plaintiff also seeks to add or revise certain factual allegations contained in Counts
I and VI, (PSAC at Count 1 ¶¶ 335-36; Count VI ¶¶ 8-12, ECF No. 72), include five new causes
of action, (id. at Counts XII – XVI), and add Thomas S. Howard, Esq. (counsel representing Mr.
Applebaum’s Estate in the State Court Litigation), Gartenberg Howard LLP (Mr. Howard’s law
firm), and Morey La Rue, Inc. (the entity that sold the Linden Property to Toben Investments,
Inc.) as defendants. (See generally id.).
In her proposed Count XII, Plaintiff alleges that Defendant Fabian and proposed
Defendant Howard are liable, pursuant to 17 C.F.R. § 240.10b-5, for their attempts to force
Plaintiff to sell her interest in THC under false pretenses (described in Section I(a)(vi), above).
(Id. at Count XII ¶¶ 1-8). In proposed Count XIII, Plaintiff alleges that Defendant Fabian
breached his fiduciary duties as the executor of Mr. Applebaum’s Estate by: (1) seeking to force
Plaintiff to sell her interest in THC; and (2) failing to pay Plaintiff any monies from that Estate.
(Id. at Count XIII ¶¶ 1-4). Plaintiff’s proposed Count XIV alleges that Defendants Rajs, Gold,
Capece, the “affiant defendants”, and proposed Defendant Howard “are liable for aiding and
abetting defendant Fabian in his breach of his fiduciary duties as set forth in Count XIII.” (Id. at
Count XIV ¶ 2). Plaintiff’s allegations on this point incorporate her previously pled contentions
of fraud, as set forth at length in Count I of Plaintiff’s First Amended Complaint. (Id. at Count
XIV ¶¶ 3-12). Plaintiff also alleges that proposed Defendant Howard is liable for aiding and
abetting Fabian’s conduct by engaging in fraudulent concealment, as she describes in proposed
Count XV of her PSAC. (Id. ¶ 13).
In proposed Count XV, which accounts for the majority of Plaintiff’s new factual
allegations, Plaintiff alleges that proposed Defendant Howard is liable to her in tort for a series
of fraudulent or otherwise erroneous filings or statements that Howard made before the Superior
Court during the course of the State Court Litigation. (Id. at Count XV ¶¶ 2-58). Plaintiff
further alleges that Defendants Gold and Fabian are similarly liable for providing false
information during those proceedings. (Id. ¶¶ 70-92).
Finally, in Count XVI of the PSAC, Plaintiff asserts a broad common law conspiracy
claim that includes the basic allegations Plaintiff made with regard to her federal RICO count
(e.g., bank, payroll, and litigation fraud intended to enrich Defendant Fabian). (Id. at Count XVI
¶ 2). Plaintiff also contends that all defendants are liable for conspiring to: (1) “disappear” the
2013 Sun National Bank lawsuit in statements and filings made during the State Court Litigation;
and (2) prevent Defendant Laurence Gold’s deposition in the State Court Litigation. (Id. ¶¶ 3-
4). Plaintiff further alleges that proposed Defendant Howard conspired with Fabian about
creating “specious affidavits” for submission in the State Court Litigation, and “conspired with
Mr. Fabian, and others, to carry about this post-suit scheme.” (Id. ¶ 5).
Several Defendants opposed Plaintiff’s motion for leave to amend. (ECF Nos. 66-1, 68-
1, 73, 74, 76). Plaintiff filed reply submissions, (ECF Nos. 78, 80), and this Court conducted
oral argument on August 12, 2019. (Tr. of Aug. 12, 2019 Hr’g, ECF No. 89). Following that
proceeding, the Court directed the parties to submit supplemental briefing. (Aug. 13, 2019
Order, ECF No. 86). The parties have done so, (ECF Nos. 90-94), and Plaintiff’s motion is now
ripe for resolution.
II. LEGAL DISCUSSION
a. Standard Applicable on Motions for Leave to Amend Under Rule 15
Federal Rule of Civil Procedure 15(a) governs a party’s request for leave to amend a
complaint and states, in pertinent part, that a party may amend its complaint after obtaining the
Court’s leave. Fed. R. Civ. P. 15 (a)(2); see also Rivera v. Valley Hospital, Inc., No. 15-5704
(JLL), 2017 WL 916436 at *2 (D. N.J. March, 08 2017) (quoting Wright & Miller § 1484, at
676). The Rule directs that the Court “should freely give leave when justice so requires.” Fed.
R. Civ. P. 15 (a)(2). This standard ensures that claims are decided on their merits rather than on
mere technicalities. See Dole v. Arco Chem. Co., 921 F.2d 484, 487 (3d Cir. 1990) (citing
Wright, Miller and Kane, Federal Practice and Procedure, Vol. 6 § 1471 at 505 (2d ed. 1990)).
While District Courts are vested with the broad discretion to grant or deny a motion for
leave to amend under Rule 15(a), Arab African Int’l Bank v. Epstein, 10 F.3d 168, 174 (3d Cir.
1993) (noting “the grant or denial of leave to amend is a matter committed to the sound
discretion of the district court”), they must exercise that discretion in light of “Rule 15(a)'s
mandate that amendments are to be granted freely in the interests of justice.” Voilas et al. v.
General Motors Corp., et al., 173 F.R.D. 389, 396 (D.N.J. 1997) (internal citations and
quotations omitted); Foman v. Davis, 371 U.S. 178, 182 (1962) (finding “outright refusal to
grant the leave without any justifying reason appearing for the denial is not an exercise of
discretion; it is merely abuse of that discretion”). The United States Court of Appeals for the
Third Circuit has interpreted that mandate as requiring that the District Court grant leave to
amend in the absence of unfair prejudice, futility of amendment, undue delay, bad faith, or
dilatory motive. Grayson v. Mayview State Hosp., 293 F.3d 103, 107-08 (3d Cir. 2002); see also
Arthur v. Maersk, Inc., 434 F. 3d 196, 204 (3d Cir. 2006) (stating that, generally, leave to amend
should be granted “unless equitable considerations render it otherwise unjust.”).
Defendants do not contend that Plaintiff unduly delayed seeking amendment, that
Plaintiff’s proposed amendments would cause any unfair prejudice, or that Plaintiff is acting in
bad faith. (See generally, Defs. Brs., ECF Nos. 66-1, 68, 73, 91, 92, 93; Tr. of Aug. 12, 2019
Hr’g at 5:8-18, ECF No. 89). Nor does it appear, from the Court’s comprehensive review of the
docket, that such arguments would be applicable here. The Court will therefore focus its
analysis on Defendants’ futility arguments.
b. Futility Analysis
A proposed amendment “is futile if the amended complaint would not survive a motion to
dismiss.” County of Hudson v. Janiszewski, 351 F. App’x 662, 666 (3d Cir. 2009) (quoting
Alvin v. Suzuki, 227 F.3d 107, 121 (3d Cir. 2000)); In re NAHC, Inc. Sec. Litig., 306 F.3d 1314,
1332 (3d Cir. 2002) (“An amendment would be futile when ‘the complaint, as amended, would
fail to state a claim upon which relief could be granted.’”) (internal citation omitted). Therefore,
“[t]he futility analysis on a motion to amend is essentially the same as a Rule 12(b)(6) motion.”
Marjam Supply Co. v. Firestone Bldg. Prods. Co., LLC, No. 11-7119 (WJM), 2014 U.S. Dist.
LEXIS 46572, *9-10 (D.N.J. Apr. 4, 2014); In re Burlington Coat Factory Sec. Litig., 114 F. 3d
1410, 1434 (3d Cir. 1997); Allah v. Bartkowski, No. 11-3153(MAS), 2017 U.S. Dist. LEXIS
74826, *6 (D. N.J. May, 17 2017). “To survive a motion to dismiss, a complaint must contain
sufficient factual matter, accepted as true, to ‘state a claim to relief that is plausible on its face.’”
Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544
(2007)). “A claim has facial plausibility when the plaintiff pleads factual content that allows the
court to draw the reasonable inference that the defendant is liable for the misconduct alleged.”
Id. The Court notes that Defendants bear the burden of establishing that Plaintiff’s proposed
amendment is futile, and that, “given the liberal standard applied to the amendment of
pleadings,” that burden is a “heavy” one. Pharmaceutical Sales & Consulting Corp. v. J.W.S.
Delavau Co., 106 F. Supp. 2d 761, 764 (D.N.J. 2000); accord Marjam, 2014 U.S. Dist. LEXIS
46572 at *10. “Therefore, ‘[i]f a proposed amendment is not clearly futile, then denial of leave
to amend is improper.’” Schiano v. MBNA, No. 05-1771 (JLL), 2013 U.S. Dist. LEXIS 81440,
*44 (D.N.J. Feb. 11, 2013) (quoting 6 Wright, Miller & Kane, Federal Practice and Procedure §
1487 (3d ed. 2012)). The Court will evaluate Defendants’ futility arguments under these
standards.
i. Proposed Count XII – Violation of 17 C.F.R. § 240.10b-5
Securities and Exchange Commission Rule 10b-5, codified at 17 C.F.R. § 240.10b-5,
provides:
It shall be unlawful for any person, directly or indirectly, by the
use of any means or instrumentality of interstate commerce, or of
the mails or of any facility of any national securities exchange,
(a) To employ any device, scheme, or artifice to defraud,
(b) To make any untrue statement of a material fact or to omit to
state a material fact necessary in order to make the statements
made, in the light of the circumstances under which they were
made, not misleading, or
(c) To engage in any act, practice, or course of business which
operates or would operate as a fraud or deceit upon any person,
in connection with the purchase or sale of any security.
17 C.F.R. § 240.10b-5. Plaintiff alleges that Defendant Fabian (as Executor of the late Mr.
Applebaum’s Estate) and proposed Defendant Thomas S. Howard, Esq. (as counsel for the
Estate) violated that regulation by filing two “frivolous” applications in the State Court
Litigation seeking to “disinherit” Plaintiff. (PSAC at Count 1 ¶¶ 318-32; Count XII ¶¶ 2-8, ECF
No. 72). Plaintiff refers to the Estate’s August 2017 and October 2018 requests that the probate
court authorize the sale of THC stock that would otherwise be due Plaintiff under her late
husband’s will, on the grounds that Plaintiff’s continued presence as a shareholder would
damage the company. (Id. at Count 1 ¶¶ 467-68; Count XII ¶¶ 2-8). The Court understands
Plaintiff’s allegations to mean that, if the Appellate Division upholds the probate court’s decision
to grant the Estate’s application, Plaintiff will receive a cash distribution in lieu of any shares.
Fabian and Howard argue that Plaintiff’s proposed claim fails on multiple grounds,
including that Plaintiff has failed to establish a plausible claim for relief under Rule 10b-5, and
that Plaintiff’s claims are barred under New Jersey’s “litigation privilege.” (Def. Br. at 9-11, 14,
ECF No 93). This Court agrees.
First, as the United States Court of Appeals for the Third Circuit has observed, “[t]he
Supreme Court has held that only a purchaser or seller of a security has standing to bring a
private 10b-5 securities fraud action for money damages.” Trump Hotels & Casino Resorts, Inc.
v. Mirage Resorts Inc., 140 F.3d 478, 485 (3d Cir. 1998) (citing Blue Chip Stamps v. Manor
Drug Stores, 421 U.S. 723, 95 S.Ct. 1917, 44 L.Ed.2d 539 (1975)). Plaintiff here has not alleged
that she purchased or sold the security in question. Rather, she contends that she would have
inherited it but for Defendants’ actions. Indeed, Plaintiff alleges throughout her PSAC that she
has never received any distribution from her late husband’s Estate, (e.g., PSAC at Preliminary
Statement ¶¶ 38, 57, 63, ECF No. 72), and, in fact, explicitly alleges that she never received the
shares in question. (Id. at Count 1 ¶ 309). Thus, Rule 10b-5 is inapplicable on its face.
While Plaintiff alleges that she qualifies as a “de facto seller” or “forced seller” of THC
shares, (id. at Count XII ¶ 6), that approach presents its own pitfalls. Even assuming that courts
would extend Rule 10b-5 to such a situation, the Court finds that Plaintiff’s theory would
inevitably trigger the “probate exception” to federal jurisdiction. That exception “is a
jurisdictional limitation on the federal courts originating from the original grant of jurisdiction in
the Judiciary Act of 1789”, Three Keys Ltd. v. SR Utility Holding Co., 540 F.3d 220, 226 (2008),
and embodies “the general idea that federal courts lack jurisdiction to adjudicate ‘probate
matters.’” Id. Interpreting Supreme Court guidance on the breadth of the exception, the Third
Circuit has written:
It is clear after [Marshall v. Marshall, 547 U.S. 293, 126 S. Ct.
1735, 164 L. Ed. 2d 480 (2006)] that unless a federal court is
endeavoring to (1) probate or annul a will, (2) administer a
decedent’s estate, or (3) assume in rem jurisdiction over property
that is in the custody of the probate court, the probate exception
does not apply.
Id. at 227. In order for the Court to apply Plaintiff’s “de facto seller” concept, it would have to
make a threshold determination that she was entitled to THC shares from Mr. Applebaum’s
Estate (and thus in a position to “sell” them). That is a probate function and, this Court finds,
would trigger the probate exception. It would therefore be futile to allow Plaintiff to proceed on
such a theory. Having made these findings, the Court need not consider the parties’ other
arguments regarding Plaintiff’s proposed Count XII.
ii. Proposed Count XIII – Breach of Fiduciary Duty
In her proposed Count XIII, Plaintiff contends that Defendant Fabian owed her a
fiduciary duty in his role as the executor of Mr. Applebaum’s Estate, and that he breached that
duty by: (1) filing motions to “disinherit” Plaintiff, as described above; (2) failing to pay
Plaintiff any money from the Estate from 2012 to present; and (3) defaming Plaintiff “in stating
that plaintiff is acting out of ‘anger’, when in reality her concerns stem from the Sun Bank Fraud
lawsuit of 2013 as well as other documented instances of fraud…” (PSAC at Count XIII ¶¶ 1-4).
Defendants argue that that Plaintiff’s fiduciary duty claims are barred by the probate
exception and/or New Jersey’s “litigation privilege.” (Def. Supp. Br. at 6-8, 12-15). This Court
agrees.
Defendant Fabian’s first two alleged breaches are restated challenges to the way in which
Fabian administered Mr. Applebaum’s Estate. To find that Mr. Fabian failed in those actions
would require this Court to usurp the probate court’s role. Moreover, to find that Plaintiff
suffered any damages as a result of that conduct (e.g., that Plaintiff would have received a
different inheritance but for Fabian’s alleged actions) would require this Court to probate Mr.
Applebaum’s Estate. Both would run afoul of the probate exception.
Defendant’s third alleged breach is likewise deficient. First, the Court would run into the
same “probate exception” issues when calculating any potential damages. More fundamentally,
however, Plaintiff has not pled sufficient factual content regarding Defendant Fabian’s alleged
defamatory statement. Plaintiff contends that Fabian defamed her by stating that she was “acting
out of ‘anger.’” (PSAC at Count XIII ¶ 4). Plaintiff does not provide any details regarding
Fabian’s alleged statement, such as when he said it, or who he told. (Id. ¶¶ 1-4). Nor has the
Court been able to locate details regarding that allegedly defamatory statement elsewhere in
Plaintiff’s PSAC. While Plaintiff seeks to assert a standalone defamation claim, those
allegations concern statements regarding Plaintiff’s responsibility for Wells Fargo’s decision to
deny THC an emergency line of credit, and that Plaintiff would “destroy” THC if permitted to
remain involved with the company. (E.g., id. at Count III ¶¶ 1-28). Indeed, a search for the
word “anger” turns up only one result in Plaintiff’s 248-page PSAC: the single reference in
Count XIII.
The context of Fabian’s allegedly defamatory statement is critical. Based on the other
new factual allegations that Plaintiff has included in her PSAC, it appears that Plaintiff may be
referencing a position that Defendant Fabian took during the State Court Litigation. (See id. at
Count XV). If that is the case, then Fabian’s statements would be subject to New Jersey’s
litigation privilege.
“‘The privilege shields any communication (1) made in judicial or quasi-judicial
proceedings; (2) by litigants or other participants authorized by law; (3) to achieve the objects of
the litigation; and (4) that have some connection or logical relation to the action.’” Williams v.
BASF Catalysts LLC, 765 F.3d 306, (3d Cir. 2014) (quoting Loigman v. Twp. Committee of Twp.
of Middletown, 889 A.2d 426, 437 (N.J. 2006)). The litigation privilege “functions as a form of
civil immunity: it ‘generally protects an attorney [litigant, or representative] from civil liability
arising from words he has uttered in the course of judicial proceedings.’” Williams, 765 F.3d at
317 (quoting Loigman, 889 A.2d at 333). “The privilege reflects ‘the need for unfettered
expression’ in adversarial proceedings.” Id. (quoting Hawkins v. Harris, 661 A.2d 284, 287
(1995)). In short, “[s]tatements by attorneys, parties and their representatives made in the course
of judicial or quasi-judicial proceedings are absolutely privileged and immune from liability.”
Peterson v. Ballard, 292 N.J. Super. 575, 581, 679 A.2d 657, 659 (App. Div. 1996) (citing
Erickson v. Marsh & McLennan Co., Inc. 117 N.J. 539, 563, 569 A.3d 793 (1990)). While often
applied in the context of defamation, courts have recognized the privilege as barring a variety of
“‘tort-related claims.’” Williams, 765 F.3d at 318 (quoting Loigman, 889 A.2d at 436). The
privilege is not unlimited, however, as the United States Court of Appeals for the Third Circuit
has recognized that it does not extend to “systemic fraud” intended to undermine the judicial
process or otherwise “prevent a fair proceeding.” Id. at 318. Similarly, the Third Circuit found
that it would not apply to cases of “malicious prosecution”, “criminal perjury”, or “claims of
spoliation, which concerns a party’s conduct and not the party’s statements.” Id. at 319.
To the extent Plaintiff alleges that Defendant Fabian defamed her by making inaccurate
statements regarding Plaintiff’s “anger” in the context of the State Court Litigation, the litigation
privilege would clearly apply. Any such claim would be barred, and it would be futile to include
it in an amended pleading. The Court will therefore deny Plaintiff’s motion with regard to her
proposed Count XIII.
iii. Proposed Count XV – Fraudulent Concealment
In her proposed Count XV, Plaintiff alleges that Defendants Fabian and Gold, along with
proposed Defendant Howard, are liable for the tort of fraudulent concealment in connection with
their activities in the State Court Litigation. (See generally PSAC at Count XV, ECF No. 72).
To establish a claim of fraudulent concealment in the litigation setting under New Jersey law, a
plaintiff must demonstrate:
(1) That defendant in the fraudulent concealment action had a legal
obligation to disclose evidence in connection with an existing or
pending litigation;
(2) That the evidence was material to the litigation;
(3) That plaintiff could not reasonably have obtained access to the
evidence from another source;
(4) That defendant intentionally withheld, altered or destroyed the
evidence with purpose to disrupt the litigation;
(5) That plaintiff was damaged in the underlying action by having
to rely on an evidential record that did not contain the evidence
defendant concealed.
Rosenblit v. Zimmerman, 166 N.J. 391, 406-07, 766 A.2d 749, 758 (N.J. 2001); accord Williams,
765 F.3d at 320-21. The Court will consider Plaintiff’s allegations as to each defendant with
these elements in mind.
A. Proposed Defendant Thomas Howard
Plaintiff devotes the bulk of her proposed Count XV to Mr. Howard’s activities as
counsel for Mr. Applebaum’s Estate, (PSAC at Count XV ¶¶ 1-87), so the Court will begin its
analysis with him. As an initial point, the Court notes that Plaintiff does not allege that Mr.
Howard “intentionally withheld, altered, or destroyed” any evidence. Rather, Plaintiff takes
issue with filings, statements, and arguments that Mr. Howard allegedly made during the State
Court Litigation, alleging that he knowingly provided inaccurate information. (Id.).
Specifically, Plaintiff alleges that Mr. Howard:
(1) filed a purported employment agreement between Defendant Fabian and THC in
order to conceal THC’s “payroll fraud” vis-à-vis Defendant Fabian; (id. ¶¶ 10-21);
(2) filed and/or prepared certifications wherein Defendant Fabian sought to refute his
previous admissions regarding the “payroll fraud” issue; (id. ¶¶ 22-27, 87);
(3) misrepresented whether Sun National Bank had, in fact, filed a lawsuit alleging fraud
against THC; (id. ¶¶ 28-53, 86);
(4) misled the probate court regarding the status of discovery in the State Court
Litigation; (id. ¶¶ 54-58);
(5) knowingly misinterpreted and misrepresented the content of certain affidavits and the
state of the law when making arguments in the State Court Litigation; (id. ¶¶ 59-69); and
(6) made various misrepresentations to both the probate court and the Appellate Division;
(id. ¶¶ 82-84).
Every one of these instances appears to be the sort of litigation conduct that would be
protected under the litigation privilege, as discussed above. Even assuming that it is not,
Plaintiff has failed to state a claim for fraudulent concealment. Simply put, plaintiff has not
alleged that she was unable to obtain any of the information Mr. Howard purportedly “withheld”
or “altered” from other sources, or that she had to rely on an evidentiary record devoid of
appropriate evidence. Her extensive allegations in this case appear to foreclose her from doing
so.
For instance, with regard to the payroll fraud issue, Plaintiff alleged that Defendant
Fabian “explicitly admitted the fraud” during a recorded meeting with Plaintiff and her prior
counsel in August 2013, (id. at Count 1, ¶¶ 425-26), and that former Defendant Capece did the
same. (Id. ¶ 135). Indeed, Plaintiff alleges that Fabian “set forth the scheme in its entirety and in
startling detail.” (Id. ¶ 137). If Plaintiff possessed a recorded admission of the “entirety” of the
allegedly fraudulent scheme in 2013, how could Mr. Howard hide it from her years later, let
alone cause Plaintiff to proceed without critical evidence on that issue?
Similarly, Plaintiff alleges that she has personally known about the Sun National Bank
lawsuit since the June 27, 2013 “crisis meeting.” (Id. ¶¶47-48). As would the six others who,
Plaintiff claims, attended that meeting. (Id.). One would also suspect that Sun National Bank
would know if it had filed a lawsuit, as would the court in which Sun filed it. Plaintiff cannot,
therefore, plausibly allege that she was unable to reasonably obtain access to information
regarding the lawsuit’s existence because Mr. Howard made erroneous statements during the
State Court Litigation.
Plaintiff’s contention regarding Mr. Howard’s alleged misrepresentation regarding the
status of discovery in the State Court Litigation also fails. First, the information Mr. Howard
allegedly withheld – the true status of discovery in that case – was not “evidence” at all. Second,
Mr. Howard was not the only source of such information. As Plaintiff alleges, her own attorney
had filed a motion to compel discovery in the State Court Litigation, (id. at Count XV ¶ 8), and
therefore obviously believed that some discovery remained outstanding.
Plaintiff’s argument that Mr. Howard engaged in fraudulent concealment by
mispresenting the content of certain affidavits as well as the applicable law is also without merit.
Plaintiff does not allege that she lacked access to those affidavits, let alone that Mr. Howard was
the only source of their content. With regard to Mr. Howard’s alleged misstatements of law, that
is not “evidence.” Nor has Plaintiff alleged that Mr. Howard somehow prevented her from
accessing the relevant law.
Finally, the Court turns to Plaintiff’s allegations that Mr. Howard made certain
misrepresentations to the Chancery Division and Appellate Division. (Id. ¶¶ 82-84). Plaintiff
does not, however, allege that Mr. Howard hid evidence regarding the facts at issue, that Mr.
Howard was the only source of such evidence, or that Plaintiff was forced to litigate her case
without that evidence. Plaintiff instead argues that Mr. Howard made misstatements regarding
existing evidence. Such allegations are not sufficient to establish a claim for fraudulent
concealment under New Jersey law.
In sum, while Plaintiff has identified several different situations involving Mr. Howard,
she has not alleged facts suggesting that any of them might support a claim for fraudulent
concealment. The Court will therefore deny Plaintiff’s motion to the extent she seeks to add
such a claim against Mr. Howard.
B. Defendant Gold
Plaintiff alleges that Defendant Gold engaged in fraudulent concealment by: (1)
misrepresenting whether Sun National Bank had filed a lawsuit against THC; and (2)
misrepresented to Wells Fargo that THC owed Mr. Applebaum’s Estate for the “bailout” loan,
when it actually owed Defendant Fabian. (Id. ¶¶ 78-81). The former claim fails for the same
reasons discussed above in connection with proposed Defendant Howard. With regard to the
latter, Plaintiff has not pled facts establishing how an alleged misrepresentation to a bank at some
point in time might constitute the concealment of evidence in a later piece of litigation. Nor has
Plaintiff pled that she lacked reasonable access to information regarding the true source of the
“bailout” funds. Indeed, Plaintiff alleges that she learned that Defendant Fabian would provide
those funds as far back as the June 23, 2017 “crisis” meeting. (E.g., id. at Count I ¶ 76).
Plaintiff has therefore not pled a viable fraudulent concealment claim against Defendant Gold.
C. Defendant Fabian
Plaintiff alleges that Defendant Fabian engaged in fraudulent concealment by making
various misstatements (first in a certification and then during a deposition) regarding the “payroll
fraud” issue. (Id. at Count XV ¶¶ 88-92). As discussed above in connection with proposed
Defendant Howard, Plaintiff has alleged that she has had full details regarding the alleged
payroll fraud scheme since August 2013. Plaintiff has, thus, not pled a plausible fraudulent
concealment claim against Defendant Fabian.
iv. Proposed Count XIV – Aiding and Abetting Liability
In her proposed Count XIV, Plaintiff contends that proposed Defendant Howard, as well
as Defendants Rajs, Gold, Capece, and the “affiant defendants” are liable for “aiding and
abetting” Defendant Fabian’s alleged breach of fiduciary duty and fraudulent concealment. (Id.
at Count XIV ¶¶ 1-13). Those claims fail on multiple grounds. First, Plaintiff’s claims are
barred under the probate exception to the same extent Plaintiff’s underlying fiduciary duty
claims against Fabian are so barred. Second, Plaintiff’s aiding and abetting claim fails as a mater
of law.
The Third Circuit has recognized that “[t]he elements of aiding and abetting are: (1) the
commission of a wrongful act; (2) knowledge of the act by the alleged aider-abettor; and (3) the
aider-abettor knowingly and substantially participated in the wrongdoing.” Morganroth &
Morganroth v. Norris, McLaughlin & Marcus, P.C., 331 F.3d 406, 415 (3d Cir. 2003). As
discussed above, Plaintiff has not plead viable claims for breach of fiduciary duty or fraudulent
concealment against Defendant Fabian. As Plaintiff has not established that Fabian’s alleged
actions were “wrongful”, her related aiding and abetting claim necessarily fails.
v. Proposed Count XVI – Civil Conspiracy
In Count XVI, Plaintiff appears to assert a common law conspiracy claim against all
defendants. First, Plaintiff incorporates her existing RICO allegations, and contends that all
defendants have conspired to conduct the various forms of fraud discussed therein. (PSAC at
Count XVI ¶ 1, ECF No. 72). Plaintiff also seeks to expand that conspiracy to include additional
alleged conduct in the State Court Litigation. For instance, referring to Count XV, Plaintiff
alleges that all defendants “conspired to ‘disappear’ the Sun Bank Lawsuit of 2013, and they
conspired to misrepresent the nature of Mr. Fabian’s payroll scheme.” (Id. ¶ 3). Plaintiff further
alleges – once again citing her allegations in Count XV – that all defendants conspired to prevent
Defendant Gold’s deposition and other discovery in the State Court Litigation. (Id. ¶ 4). Finally,
Plaintiff alleges that proposed Defendant Howard conspired with Defendant Fabian “and others”
to “create specious affidavits” and otherwise “carry about this post-suit scheme.” (Id. ¶ 5).
The Court notes that its review on this motion has been limited to Plaintiff’s proposed
amendments. Questions regarding the sufficiency of Plaintiff’s existing allegations are not
currently before the Court. Defendants had previously moved to dismiss Plaintiff’s First
Amended Complaint, (ECF Nos. 53, 54), and the District Court administratively terminated
those motions “to be refiled if appropriate after the determination of Plaintiff’s Cross-Motion for
Leave to File a Second Amended Complaint.” (Jan. 25, 2019 Order, ECF No. 64). The purpose
of that Order was to allow Defendants to file, and the District Court to consider, a single motion
to dismiss Plaintiff’s operative pleading. Defendants have already announced their intention to
renew their motion dismiss Plaintiff’s existing RICO claims. (See Tr. of Aug. 12, 2019 Hr’g at
7:22-24, ECF No. 89) (“But the reason why Your Honor should deny this motion for second
amended complaint and then allow us to come back and argue on the motion to dismiss are
simply threefold.”). To the extent that Plaintiff’s proposed common law conspiracy claim is
based on the same facts as her previously pled RICO claims, Plaintiff’s proposed amendment is
largely ministerial. The District Court will have to make determinations regarding that alleged
conspiracy regardless of how this Court resolves Plaintiff’s motion for leave to amend. For
reasons of judicial economy, and so as to avoid burdening the District Court with potentially
undesirable findings, the Court will permit Plaintiff to amend her Complaint to add a common
law conspiracy claim based on the facts underlying her existing RICO claims. Plaintiff’s
proposed expansions on that conspiracy claim, however, do not pass muster.
With regard to Plaintiff’s claim that Defendants conspired to hide the Sun National Bank
Lawsuit from the probate court in the State Court Litigation, she has incorporated her allegations
from Count XV. (PSAC at Count XVI ¶ 3, ECF No. 72). In that Count, however, Plaintiff has
not alleged sufficient facts regarding any conspiracy. Rather, she contends that both proposed
Defendant Howard and Defendant Gold independently and knowingly misrepresented the
existence of the Sun National Bank lawsuit. (See generally id. at Count XV).
Similarly, Plaintiff has not alleged facts regarding any conspiracy to deprive Plaintiff of
discovery in the State Court Litigation. Plaintiff instead alleges that one person, Mr. Howard,
misled the probate court regarding the state of discovery. (Id. ¶¶ 54-58). Plaintiff then alleges,
in sweeping fashion, that “it was Mr. Howard’s design to conspire with the co-defendants to
prevent [Mr. Gold’s ] deposition from taking place.” (Id. ¶ 58). Such conclusory pleading is
insufficient.
Finally, Plaintiff alleges that proposed Defendant Howard conspired with Defendant
Fabian “and others” to accomplish a “post-suit scheme.” (Id. at Count XVI ¶ 5). Plaintiff
provides no specifics as to that conspiracy. Indeed, it appears that the closest thing to
coordinated activity that Plaintiff has identified is that Mr. Howard either prepared or relied upon
Mr. Fabian’s certifications regarding the payroll fraud issue. (Id. at Count XV at 87). To the
extent Plaintiff bases her conspiracy claim on the fact that an attorney worked with his client
representative to prepare documents for filing in the State Court Litigation, that conduct is
protected by the litigation privilege.
In sum, Plaintiff’s motion is granted to the extent Plaintiff seeks to assert a common law
conspiracy claim based on the facts she previously pled in connection with her existing RICO
claims. Plaintiff’s motion is denied to the extent she seeks to include the items set forth in
paragraphs 3-5 of Count XVI in her conspiracy claims.
vi. Gartenberg Howard LLP and Morey La Rue, Inc.
Plaintiff seeks to add Mr. Howard’s law firm, Gartenberg Howard LLP, as well as the
entity Morey La Rue, Inc., as defendants. With regard to Gartenberg Howard, Plaintiff has
simply alleged Mr. Howard’s affiliation with the firm, and asserts that the firm is liable for
fraudulent concealment, but has not provided any information as to what the firm itself either did
or failed to do in connection with this case. (PSAC Count 1 ¶336; Count XIV ¶ 13, Count XV ¶
53, ECF No. 72). As for Morey La Rue, Inc., Plaintiff alleges that Toben Investments, Inc.
purchased the Linden Property from that entity in 2011, (id. at Count 1 ¶ 345, 352), and that
Defendant Fabian may have used Morey La Rue as a “shell” to commit “financial crimes.”
(E.g., id. ¶ 7). Plaintiff does not, however, plead any facts connecting Morey La Rue, Inc. to any
of her claims in this matter. The Court will therefore deny Plaintiff’s motion to the extent she
seeks to add either Gartenberg Howard LLP or Morey La Rue, Inc. as Defendants.
vii. Claims Against Previously Dismissed Defendants
On November 20, 2018, Plaintiff filed a “Notice of Dismissal”, wherein she voluntarily
dismissed her claims against Voya Financial Services, Inc., Intac Actuarial Services Inc., and
Ascensus LLC with prejudice. (ECF No. 40). The Hon. Jose L. Linares, U.S.D.J. “So Ordered”
Plaintiff’s Notice the following day, effectuating that dismissal with prejudice. Plaintiff has
nevertheless asserted claims against those entities in her PSAC. (PSAC at Count V, Count VI,
ECF No. 72). Those claims, set forth in Count V and Count VI, are the same claims that Judge
Linares dismissed with prejudice. Plaintiff’s motion is therefore denied to the extent Plaintiff
seeks to reassert such claims against Voya Financial Services, Inc., Intac Actuarial Services Inc.,
or Ascensus LLC.
Similarly, while this motion was pending, Plaintiff filed a “Notice of Dismissal”
regarding Defendant Capece, which the Hon. Kevin McNulty, U.S.D.J. “So Ordered” on
December 30, 2019. (ECF No. 103). While Plaintiff has not removed her claims against Ms.
Capece from the PSAC, the Court believes that this is likely an oversight. In any event, the
Court will deny Plaintiff’s motion to the extent it includes claims against Defendant Capece.
III. CONCLUSION
Based on the foregoing, Plaintiff’s cross-motion for leave to file a second amended
complaint, (ECF No. 59), is GRANTED IN PART AND DENIED IN PART. Plaintiff’s
motion is granted to the extent she seeks to allege additional facts regarding the causes of action
previously pled in her First Amended Complaint. It is likewise granted to the extent Plaintiff
seeks to assert a common law conspiracy claim based on the same factual allegations underlying
her existing RICO claims. Plaintiff’s motion is denied in all other respects. Further, the Court
specifies that Plaintiff shall remove her claims against the now-dismissed Voya Financial
Services, Inc., Intac Actuarial Services Inc., Ascensus LLC, and Leah Capece when filing her
Second Amended Complaint. A appropriate form of Order accompanies this Opinion.
October 30, 2020 s/ Joseph A. Dickson
Joseph A. Dickson
United States Magistrate Judge