UNITED CAPITAL FUNDING GROUP, LLC v. BRICK CITY BREWING, LLC
2:21-cv-03314
| D.N.J. | Nov 4, 2021Background
- United Capital Funding Group (plaintiff) is a factoring company that purchased three accounts (totaling $239,959.03) from EG Munoz Construction, the subcontractor that invoiced Brick City Brewing (the account debtor).
- Stephen Hughes is a member of Brick City who signed the unpaid invoices that identified United Capital as the assignee and payment recipient; Brick City allegedly paid EG Munoz instead of United Capital.
- United Capital sued Hughes individually for negligent misrepresentation and common-law fraud based on statements in the invoices and alleged misrepresentations that there were no offsets or disputes reducing payment obligations.
- Hughes moved to dismiss under Rule 12(b)(6), arguing (inter alia) that New Jersey law shields LLC members from personal liability for company debts when acting as members and that the fraud claim fails Rule 9(b).
- The court applied New Jersey law and considered doctrines allowing personal liability only where (1) veil piercing is warranted, or (2) an individual is sufficiently involved in the commission of a tort (participation theory), and Rule 9(b) for fraud particularity.
- The court granted Hughes’s motion to dismiss both claims without prejudice, giving United Capital 30 days to amend; dismissal was based on failure to plead an independent duty / tort distinct from contract, failure to plead fraud with particularity, and absence of veil-piercing allegations.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether an LLC member can be held personally liable for statements made while acting for the LLC | Statute does not shield members for intentional torts; members can be liable for their own tortious conduct or via veil piercing | N.J.S.A. 42:2C–30 prevents personal liability "solely" for acting as member; Hughes was acting for Brick City, so no personal liability | Court: Member not personally liable absent veil piercing or sufficient personal involvement in a tort; dismissal granted |
| Negligent misrepresentation against Hughes | Invoices falsely stated no offsets; UCC provision imposes duty on account debtor to pay assignee independent of contract; United Capital relied to its detriment | Claim actually arises from contract/assignment; no independent duty to support tort claim; Hughes protected by LLC status | Court: Claim sounds in contract per Saltiel; no independent duty alleged; negligent misrepresentation dismissed |
| Common-law fraud against Hughes (Rule 9(b) and personal involvement) | Brick City knowingly made false statements intended to induce reliance; Hughes signed the invoices | Fraud pled only in conclusory terms; no specifics on knowledge, intent, or Hughes’s personal role beyond signing | Court: Fraud insufficiently particular under Rule 9(b); fails to allege Hughes’s personal fraudulent conduct or sufficient involvement; fraud claim dismissed |
| Piercing the corporate veil to reach Hughes | Plaintiff alleges veil-piercing is available to impose liability on Hughes | No factual allegations supporting veil-piercing factors (unity of interest or injustice) | Court: Plaintiff failed to plead the significant showing required for veil piercing; cannot hold Hughes liable on that basis |
Key Cases Cited
- Ashcroft v. Iqbal, 556 U.S. 662 (establishes plausibility standard for Rule 12(b)(6))
- Bell Atl. Corp. v. Twombly, 550 U.S. 544 (pleading must contain sufficient factual matter to be plausible)
- Saltiel v. GSI Consultants, Inc., 788 A.2d 268 (N.J. 2002) (participation theory of personal liability inapplicable where dispute is governed by contract and no independent duty exists)
- Frederico v. Home Depot, 507 F.3d 188 (3d Cir. 2007) (fraud claims must plead circumstances with particularity under Rule 9(b))
- Banco Popular N. Am. v. Gandi, 184 N.J. 161 (elements required to prove common-law fraud)