Cave v. Cave

LOWELL CAVE; HEATHER CAVE; SHORE SAND &GRAVEL, LLC; 20 MAPLE AVENUE, LLC; 2324 COLUMBIA AVENUE, LLC; and CAVE HOLDINGS/ROUTE 130, LLC; Plaintiffs, v. AARON CAVE; RIVER FRONT RECYCLING &AGGREGATE, LLC; JOHN DOES I-X; ABC CORPORATIONS I-X Defendants/Counterclaimants Third-Party Plaintiffs v. LEX NOVA LAW, LLC; PETER R. SPIRGEL; DARREN H. GOLDSTEIN; and WILLIAM S. SKINNER Third-Party Defendants

No. BUR-L-243-21

Superior Court of New Jersey, Burlington

December 29, 2022

EDITED BY THE COURT

ORDER

Hon Aimee R. Belgard, P.J. Cv.

THIS MATTER having come before the Court by Plaintiffs Shore Sand &Gravel, LLC, Lowell Cave, and Heather Cave by and through their counsel, Lex Nova Law, LLC, and the Court having reviewed the moving papers, any opposition thereto, the arguments of counsel, and for good cause shown:

IT IS on this 29^th day of November 2022:

ORDERED that all derivative claims in Defendants' Counterclaim and Third-Party Complaint are DISMISSED with PREJUDICE;

IT IS FURTHER ORDERED that counsel shall meet and confer in person no later than December 16, 2022, to address amending the Counterclaim and Third-Party Complaint to remove all derivative claims. Thereafter, the Court will hold a Case Management Conference on January 4, 2023, at 10:00 AM at which time Plaintiffs will be given a deadline for the filing of responsive pleadings and discovery deadlines will be set.

IT IS FURTHER ORDERED that the moving party shall serve a copy of this Order on all parties not otherwise served via eCourts within seven (7) days of receipt.

[X] Motion Opposed [ ] Motion Unopposed

STATEMENT OF REASONS PURUSUANT TO R. 1:6-2(f)

I. PRELIMINARY STATEMENT

Plaintiffs Lowell Cave, Heather Cave, and Shore Sand &Gravel (hereinafter "SSG") filed a Motion to Dismiss with prejudice under R. 4:6-2(e). The Plaintiffs seek to dismiss all derivative claims in the Counterclaim brought by Defendant Aaron Cave in the BUR-L-243-21 action and the derivative claims brought as part of the Third-Party Complaint filed by Defendant Aaron Cave and Defendant River Front Recycling &Aggregate, LLC. Plaintiffs contend that the Defendants cannot bring their derivative claims as their interests directly conflict with the interests of the other members of SSG, Heather Cave and Lowell Cave. Additionally, the Plaintiffs argue that antagonism exists between Aaron Cave and the other members of SSG such that the basic purposes of a derivative action are frustrated in this case.

In opposition, Defendants contend that the Revised Uniform Limited Liability Company Act does not require that a derivative action fairly represent the interests of the other shareholders or members of the company and instead only requires that a member filing the derivative action be a member at the time the action is commenced and remains a member as the action continues. Alternatively, the Defendants argue that Aaron Cave does fairly and adequately represent the interests of SSG and therefore the derivative action should proceed.

For the reasons set forth herein, the Court GRANTS Plaintiffs' Motion to Dismiss, dismissing the Defendants' derivative claims with prejudice.

II. STATEMENT OF FACTS AND PROCEDURAL HISTORY

This matter arises from a dispute over the contract and managerial rights between the members of SSG which is a closely held LLC owned by members of the Cave family. Defendant Aaron Cave and Plaintiff Heather Cave both retain a 48% interest in the company with Plaintiff Lowell Cave retaining a 4% interest in the company. Plaintiffs brought this lawsuit on September 15, 2020, and subsequently amended the Complaint twice, filing the Second Amended Complaint on August 15, 2022. The Second Amended Complaint includes multiple causes of action such as breach of contract, unjust enrichment, mismanagement, breach of fiduciary duty, trespass, and promissory estoppel. The Defendants have since brought Counterclaims and Third-Party claims against the Plaintiffs. This action is also consolidated with two other Law Division actions, BURL-2145-21, and BUR-L-2768-21.

Plaintiffs filed the instant Motion to Dismiss on October 18, 2022. The Defendants filed their Opposition on November 14, 2022, with the Plaintiffs then filing their Reply Brief on November 22, 2022. The current discovery end date in this action is set for February 28, 2023.

III. ARGUMENTS

a. Plaintiffs' Motion to Dismiss

Plaintiffs first argue that "the only reason Aaron asserts derivative claims is to conjure a conflict of interest where one does not exist." (Pl. Br., 13). Plaintiffs contend that the Defendants only filed their derivative claims to support the Defendants' pending Motion to Disqualify. Id.

Next, Plaintiffs argue that Aaron Cave does not have standing to bring derivative claims on behalf of SSG. Id. Plaintiffs point to R. 4:32-3 which states that a derivative action may not be maintained if the plaintiff does not fairly represent the interests of the shareholders. Id. Plaintiffs cite several cases from the 3^rd Circuit which have dismissed derivative claims because the interest of the party asserting the claims are antagonistic to the other shareholders and the company he seeks to represent. (Pl. Br., 14-15). Plaintiffs argue that several factors determine whether a plaintiff's interests are antagonistic to those of the relevant shareholder class, including: economic antagonisms between the representative and the class; the remedy sought by the plaintiff in the derivative action; other litigation pending between plaintiff and defendants; the relative magnitude of the plaintiff's personal interests as compared to his interest in the derivative action itself; plaintiff's vindictiveness toward the defendants; and the degree of support plaintiff was receiving from the shareholders he purported to represent. (Pl. Br., 15, citing Vanderbilt v. Geo-Energy Ltd., 725, F.2d 204, 207 (3d Cir. 1983)).

Plaintiffs contend that Aaron's counsel cannot competently represent SSG derivatively while also suing SSG and defending Aaron against claims brought by SSG. Id. Plaintiffs argue that Aaron is precluded from suing derivatively on behalf of SSG because SSG has pending claims, including fraud, against Aaron. Plaintiffs contend that courts routinely dismiss derivative claims when the party seeking to assert the claims is involved in litigation against the company that the party seeks to represent derivatively. (Pl. Br., 16-17).

Plaintiffs also argue that Aaron is precluded from suing derivatively because he is causing his wholly owned company, River Front Recycling, to sue SSG. Plaintiffs contend that Aaron cannot possibly purport to represent SSG's best interests and act in a fiduciary capacity for SSG while simultaneously causing his wholly owned company to sue SSG for approximately $1.5 million. (Pl. Br., 17).

Plaintiffs point to the factors outlined in Vanderbilt v. Geo-Energy Ltd. to assert that a derivative action is inappropriate here because Aaron has exhibited economic antagonism towards SSG and the other owners of SSG; because the remedies being sought by Aaron (personally and derivatively) create a conflict of interest; because other litigation is ongoing between the parties; because Aaron's loyalty here is to River Front and to himself, not to SSG; because of the vindictiveness shown by Aaron which overshadows any desire to enforce SSG's rights; and because of the lack of support from any other owners of SSG for his derivative claims. (Pl. Br., 18-23).

Lastly, Plaintiffs assert that derivative claims are not appropriate in disputes involving closely-held companies and that Aaron will not be prejudiced by dismissal of the derivative claims. Plaintiffs argue that courts will treat derivative claims by an owner of a closely-held company as individual claims if the court finds that recovery will not: (1) unfairly expose the company or the defendants to a multiplicity of actions, (2) materially prejudice the interests of the creditors of the company, or (3) interfere with a fair distribution of the recovery among all interested persons. (Pl. Br., 24). Plaintiffs argue that dismissal of the derivative claims here will not expose SSG to further litigation, would not prejudice the creditors of SSG, and will not interfere with the distribution of any recovery because Aaron, individually, would receive any recovery to the extent of his damages. Dismissing Aaron's derivative claims will not preclude Aaron from alleging any supposed wrongdoing against Lowell or Heather. (Pl. Br., 24). Plaintiffs lastly assert that the derivative claims here are not in SSG's interests. (Pl. Br., 25).

b. Defendants' Opposition

Defendants argue that the derivative claims filed by Aaron on behalf of SSG are strictly in accordance with N.J.S.A. 42:2C-68. (Def. Br., 2). Defendants contend that the Plaintiffs rely on case law and statutes relating to corporations to support their motion. However, the provisions governing derivative actions under the New Jersey Business Corporation Act are different from the provisions governing derivative actions in the New Jersey Revised Uniform Limited Liability Company Act. (Def. Br., 3).

According to Defendants, the New Jersey Revised Uniform Limited Liability Company Act (N.J.S.A. 42:2C-68) states that a member may maintain a derivative action to enforce a right of a limited liability company if a demand for action by management is made and refused, or if such a demand would be futile. (Def. Br., 3). Defendants argue that the only precondition of the statute is that the member filing the derivative action is a member at the time the action is commenced and remains a member as the action continues. (Def. Br., 3, citing N.J.S.A. 42:2C-69).

Defendants contend that the Plaintiffs rely on case...