AMJ CAPITAL OZ FUND I, LLC, et al., Plaintiffs, v. MZF TRUST, et al., Defendants.
Civil Action No. 25-1397 (MAS) (JBD)
UNITED STATES DISTRICT COURT DISTRICT OF NEW JERSEY
September 10, 2025
SHIPP, District Judge
NOT FOR PUBLICATION
SHIPP, District Judge
This matter comes before the Court upon the following three motions: (1) Plaintiffs AMJ Capital OZ Fund I, LLC (“AMJ Capital“) and AMJ Partners Holdings LLC‘s (“AMJ Partners“) (collectively, “Plaintiffs” or the “AMJ Entities“) First Motion for a Temporary Restraining Order (“TRO“) and Preliminary Injunction (“PI“) (the “First TRO and PI Motion“) (ECF No. 11); (2) Defendants MZF Trust, Prospect Capital OZ Fund, LLC (“Prospect Capital“), Michele Zahn (“Michele“), Richard Zahn (“Richard” and together with Michele, the “Zahns“), and BCC Construction, LLC‘s (“BCC“) (collectively, “Defendants” or the “Zahn Entities“) Cross-Motion to Compel Arbitration and to Dismiss Plaintiffs’ Complaint and Application for a TRO and PI (ECF No. 15); and (3) Plaintiffs’ Second Motion for a TRO and PI (the “Second TRO and PI Motion“) (ECF No. 24).
After Plaintiffs filed the First TRO and PI Motion, on May 7, 2025, the Court held a telephone conference with the parties. (See ECF No. 14.) Defendants thereafter filed the Cross-Motion to Compel Arbitration and to Dismiss Plaintiffs’ Complaint and Application for a TRO and PI (ECF No. 15), which Plaintiffs opposed (ECF No. 16), and Defendants submitted a
I. BACKGROUND2
This matter arises from a joint venture to develop a multi-family residential apartment complex in Perry, Florida (the “Project“). (See generally Compl., ECF No. 1.) The crux of the dispute is based on Defendants’ purported self-dealing, misappropriation of funds, and fraudulent conduct in the operation of a joint venture. (Id. ¶¶ 1-5, 80.)
A. Factual Background
In May 2022, the AMJ Entities, along with Prospect Capital and MZF Trust, formed Prospect Perry Holdings, LLC (the “JV Entity“), a Delaware limited liability company created for the purpose of developing, managing, leasing, and operating a residential apartment complex of more than 300 rental units at 800 Everetts Way in Perry, Florida (the “Property“). (Id. ¶¶ 16, 18.) Prospect Perry Apartments LLC—a single-purpose Delaware entity whose sole member is the JV
The JV Entity is governed by a Limited Liability Operating Agreement (the “JV Agreement“).3 (Id. ¶ 17.) Under the terms of the JV Agreement, AMJ Capital agreed to contribute $2,500,000 to the JV Entity, in exchange for a 46.86% membership interest. (Id. ¶¶ 22-23.) Prospect Capital and MZF Trust (collectively, “PREG“) agreed to contribute a combined $2,834,922, in exchange for a combined 53.14% membership interest—specifically, Prospect Capital would be given a 3.48% membership interest in the JV Entity and MZF Trust would be given a 49.66% membership interest in the JV Entity. (Id. ¶ 22.) While AMJ Capital fulfilled its capital commitment in full, PREG only contributed $2,493,879 of their initial required investment to the JV Entity, leaving an unpaid balance of approximately $341,000. (Id. ¶¶ 23-25.) Plaintiffs allege that PREG failed to disclose this shortfall, misrepresented their capital contributions, and improperly diverted the missing funds for unrelated purposes. (Id. ¶¶ 26-29.)
The JV Agreement contains a dispute resolution clause in Section 9.8. (JV Agreement ¶ 9.8, ECF No. 15-3.) Under this provision, any member of the JV Entity who determines that a dispute exists “shall provide written notice of such [d]ispute to the other [m]ember(s), setting forth the nature of the dispute with specificity.” (Id. ¶ 9.8(B).) The dispute shall then be resolved by an arbiter that is designated pursuant to the JV Agreement. (Id. ¶ 9.8(C).) Specifically, after notice of the dispute, each of the members involved in the dispute shall designate a non-affiliated individual,
BCC, which was owned and managed by Michele and/or Richard, served as the general contractor for the Project.4 (Compl. ¶¶ 19, 30-33.) Plaintiffs allege that on October 31, 2022, the JV Entity issued a $1,325,000 loan to BCC (the “Unauthorized Loan“), without their knowledge or required consent, in violation of the JV Agreement‘s provisions governing “Major Decisions,” which requires unanimous member approval for transactions involving related parties, substantial asset transfers, and loans. (Id. ¶¶ 34-44.) Plaintiffs discovered the Unauthorized Loan only after identifying a $271,625.40 receivable labeled “DUE FROM PREG” in the JV Entity‘s balance sheets, which prompted further inquiry and the eventual production of the unsecured promissory note dated October 31, 2022 (the “Unauthorized Note“).5 (Id. ¶¶ 35, 45-46.)
BCC was subsequently dissolved in December 2024. (Id. ¶ 49.) Plaintiffs allege that the Zahns orchestrated the dissolution of BCC to avoid repaying the loan—an action that constituted a default under the Unauthorized Note. (Id. ¶¶ 49-51.) They also allege that the Unauthorized Loan
Plaintiffs further contend that the Zahn Entities unilaterally reallocated line items in the Project‘s development budget to increase BCC‘s general contractor fees by more than $500,000 without approval—another action that allegedly required Plaintiffs’ prior consent under the JV Agreement. (Id. ¶¶ 52-56.) According to Plaintiffs, this diversion of funds contributed to project delays and was designed to prevent recovery of the improperly obtained fees following BCC‘s dissolution (Id. ¶ 56.)
The Complaint further asserts that the Zahn Entities failed to meet two capital calls made in 2024, and purportedly contributed only in the form of “materials” rather than the required cash contributions.6 (Id. ¶¶ 57-60, 63-65.) The first, issued on January 8, 2024, sought $658,231.37 (“Capital Call No. 1“). (Id. ¶ 57.) AMJ Capital contributed its full share of $308,800 for Capital Call No. 1, while PREG was obligated to contribute $349,520.86. (Id. ¶¶ 57-59.) PREG claimed that its share for Capital Call No. 1 was fulfilled through materials provided by BCC in lieu of cash, but Plaintiffs allege that these were the same materials already claimed as partial repayment for the Unauthorized Loan. (Id. ¶¶ 60-61.) The second capital call, issued in June 2024, sought $2,060,615.64 (“Capital Call No. 2“). (Id. ¶ 63.) AMJ Capital paid $641,000 toward its $966,428.74 share for Capital Call No. 2, and PREG claimed a $923,625.86 contribution by way of “materials,” again, allegedly unsupported by documentation. (Id. ¶¶ 63-66.)
Under the JV Agreement, if substantial completion of the Project was not achieved by March 15, 2024, liquidated damages would accrue. (Id. ¶ 69.) Plaintiffs allege that the Project was
[m]anager shall provide access to all requested records and books of the [JV Entity], including, without limitation, all contracts, financial information, leases, audits, litigation materials, and all other records and files with respect to the [JV Entity], the [o]wner, the Property, the Project or otherwise, no later than five (5) [b]usiness [d]ays after delivery of a written request (which may occur via email) by any [m]ember to the [m]anager.
(JV Agreement ¶ 8.1.) Plaintiffs contend that the Zahn Entities maintained incomplete and confusing records to conceal improper transfers of funds. (Compl. ¶¶ 78-79.)
On August 9, 2025, Richard unexpectedly passed away. (Suggestion of Death, ECF No. 22.) Plaintiffs subsequently investigated Richard‘s assets and were unable to locate any ongoing estate proceeding. (Second TRO and PI Mot. 5-6, ECF No. 24-1.) Plaintiffs, however, discovered that Defendants had taken certain actions to transfer their assets since the commencement of this litigation. (Id. at 6.) Specifically, Plaintiffs allege that MZF Trust, Richard and Michelle sold one property in Florida on June 19, 2025, listed another property in Florida for sale, and purchased property in names other than those of Defendants. (Id.) Plaintiffs allege that these actions “heighten[] the risk of imminent dissipation” of relevant assets from which Plaintiffs can recover damages. (Id.)
On February 21, 2025, Plaintiffs filed a nine-count Complaint asserting the following causes of action: (1) breach of contract (Count One); (2) breach of duty of loyalty (Count Two); (3) fraud (Count Three); (4) civil conspiracy (Count Four); (5) piercing the corporate veil (Count Five); (6) negligent misrepresentation (Count Six); (7) breach of covenant of good faith and fair dealing (Count Seven); (8) unjust enrichment (Count Eight); and (9) conversion (Count Nine). (See generally id.)
Approximately two and a half months later, on May 2, 2025, Plaintiffs filed the First TRO and PI Motion, requesting that the Court compel Defendants “to provide access to financial information and documents related to the JV Entity.” (First TRO and PI Mot., ECF No. 11-1.) In opposition, Defendants filed the Cross-Motion to Compel Arbitration and to Dismiss Plaintiffs’ Complaint and Application for a TRO and PI. (ECF No. 15.) Defendants move to dismiss Plaintiffs’ Complaint in part for want of personal jurisdiction. (See id.) Plaintiffs replied in further support of the First TRO and PI Motion and opposed the Cross-Motion to Compel Arbitration and to Dismiss Plaintiffs’ Complaint. (ECF Nos. 16, 17.) Without leave of Court, Defendants filed a reply in further support of their Cross-Motion to Compel Arbitration and to Dismiss Plaintiffs’ Complaint (ECF No. 20), which Plaintiffs request that this Court strike as procedurally improper (ECF No. 21).7
On September 6, 2025, Plaintiffs filed the Second TRO and PI Motion, requesting that this Court additionally freeze Defendants’ assets pending the resolution of the instant claims because
II. LEGAL STANDARDS
A. Motion to Dismiss for Lack of Personal Jurisdiction
Under
A federal district court may exercise two types of personal jurisdiction: general jurisdiction and specific jurisdiction. O‘Connor v. Sandy Lane Hotel Co., 496 F.3d 312, 317 (3d Cir. 2007) (citing Helicopteros Nacionales de Colombia, S.A. v. Hall, 466 U.S. 408, 414-15 n.9 (1984)). General jurisdiction exists when a defendant‘s “affiliations with the State are so ‘continuous and systematic’ as to render [it] essentially at home in the forum State.” Daimler AG v. Bauman, 571 U.S. 117, 127 (2014) (quoting Goodyear Dunlop Tires Operations, S.A. v. Brown, 564 U.S. 915, 919 (2011)). “The ‘paradigm’ forums in which a corporate defendant is ‘at home’ are the corporation‘s place of incorporation and its principal place of business.” BNSF Ry. Co. v. Tyrrell, 581 U.S. 402, 413 (2017)
“For an individual, the paradigm forum for the exercise of general jurisdiction is the individual‘s domicile.” Goodyear, 564 U.S. at 924. Specific jurisdiction allows a court to exercise jurisdiction over a non-resident defendant where: (1) the defendant “purposefully avail[ed] itself of the privilege of conducting activities within the forum“; (2) the litigation “aris[es] out of or relate[s] to the defendant‘s contacts with the forum“; and (3) the exercise of jurisdiction “does not offend traditional notions of fair play and substantial justice.” Id. at 923-24 (alterations in original) (citations omitted).
When the district court does not hold an evidentiary hearing, “the plaintiff need only establish a prima facie case of personal jurisdiction[,] and the plaintiff is entitled to have its allegations taken as true and all factual disputes drawn in its favor.” Miller Yacht Sales, Inc., 384 F.3d at 97 (citations omitted). Once the plaintiff has shown minimum contacts, the burden shifts to the defendant, who must show that the exercise of jurisdiction would be unreasonable. See Mellon Bank (East) PSFS v. Farino, 960 F.2d 1217, 1226 (3d Cir. 1992).
B. Motion to Compel Arbitration
The Federal Arbitration Act (“FAA“) dictates that written arbitration agreements entered into in connection with “a contract evidencing a transaction involving commerce . . . shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract . . . .”
The Third Circuit has enumerated a standard for district courts to apply when deciding a motion to compel arbitration. The Third Circuit explained:
When it is apparent, based on the face of a complaint, and documents relied upon in the complaint, that certain of a party‘s claims are subject to an enforceable arbitration clause, a motion to compel arbitration should be considered under a Rule 12(b)(6) standard without discovery‘s delay.
But if the complaint and its supporting documents are unclear regarding the agreement to arbitrate, or if the plaintiff has responded to a motion to compel arbitration with additional facts sufficient to place the agreement to arbitrate in issue, then the parties should be entitled to discovery on the question of arbitrability before a court entertains further briefing on [the] question.
Guidotti v. Legal Helpers Debt Resol., L.L.C., 716 F.3d 764, 776 (3d Cir. 2013) (alteration in original) (internal quotation marks and citations omitted); Young v. Experian Info. Sols., Inc., 119 F.4th 314, 319-20 (3d Cir. 2024) (clarifying Guidotti‘s directive and explaining that when “a complaint does not set forth clearly that the claims are subject to an arbitration agreement,” pre-arbitration discovery may be warranted). After limited discovery, the court may entertain a renewed motion to compel arbitration, this time judging the motion under the summary judgment standard of Rule 56. Guidotti, 716 F.3d at 776.
“Preliminary injunctive relief is an extraordinary remedy and should be granted only in limited circumstances.” Kos Pharms., Inc. v. Andrx Corp., 369 F.3d 700, 708 (3d Cir. 2004) (internal quotation marks and citation omitted). This remedy should be granted only if plaintiffs establish that: (1) “they are likely to succeed on the merits of their claims“; (2) “they are likely to suffer irreparable harm without relief“; (3) “the balance of harms favors them“; and (4) “relief is in the public interest.” Issa v. Sch. Dist. of Lancaster, 847 F.3d 121, 131 (3d Cir. 2017) (citation omitted). “A plaintiff‘s failure to establish any element in its favor renders a preliminary injunction inappropriate.” NutraSweet Co. v. Vit-Mars Enters., Inc., 176 F.3d 151, 153 (3d Cir. 1999) (citation omitted). With respect to the first factor, “on an application for injunctive relief, the movant need only make a showing of reasonable probability, not the certainty, of success on the merits.” Atl. City Coin & Slot Serv. Co. v. IGT, 14 F. Supp. 2d 644, 657 (D.N.J. 1998) (internal quotation marks and citations omitted). In the end, however, “[t]he burden is on the moving party ‘to convince the district court that all four factors favor preliminary relief.‘” Peter v. Att‘y Gen. of N.J., No. 23-3337, 2023 WL 4627866, at *1 (D.N.J. July 19, 2023) (quoting AT&T v. Winback & Conserve Program, Inc., 42 F.3d 1421, 1427 (3d Cir. 1994)).
Defendants oppose Plaintiffs’ First TRO and PI Motion on several grounds.10 (See generally Defs.’ Opp‘n Br., ECF No. 15-1.) First, Defendants contend that the Complaint and application for injunctive relief should be dismissed because the JV Agreement requires arbitration of the claims. (Id. at 8-17.) Second, Defendants argue that this Court lacks personal jurisdiction over them. (Id. at 17-18.) More specifically, Defendants assert that Plaintiffs have failed to allege facts sufficient to establish personal jurisdiction. (See id.)
A. Personal Jurisdiction11
The Court begins with Defendants’ arguments regarding personal jurisdiction “[b]ecause the issue of whether this Court may exercise personal jurisdiction over [Defendants] is dispositive to the viability of the entire suit[.]” See Exporting Commodities Int‘l, LLC v. S. Mins. Processing, LLC, No. 16-9080, 2017 WL 5513682, at *3 (D.N.J. Nov. 17, 2017).
In the Complaint, Plaintiffs assert that this Court has specific jurisdiction over Defendants because they:
([1]) accepted and received monies that originated from New Jersey; ([2]) participated in meetings related to the subject matter in New Jersey; ([3]) had regular telephone communications with a New Jersey entity; ([4]) solicited an entity in the State of New Jersey for business; and ([5]) sent emails and mailings to an entity in the State of New Jersey.
At the outset, the Court finds that the Complaint is not insufficiently “group pled” to warrant dismissal.12 The Court will thus proceed to evaluate whether Plaintiffs have met their burden to show that this Court has specific jurisdiction over Defendants.
“[O]nce the defendant raises the question of personal jurisdiction, the plaintiff bears the burden to prove, by a preponderance of the evidence, facts sufficient to establish personal jurisdiction.” Carteret Sav. Bank, FA v. Shushan, 954 F.2d 141, 146 (3d Cir. 1992). The Supreme Court has articulated two tests for specific jurisdiction: (1) the “traditional” test—also called the “minimum contacts” or purposeful availment test, Burger King Corp. v. Rudzewicz, 471 U.S. 462, 474 (1985) (quoting Int‘l Shoe Co. v. State of Wash., Off. of Unemployment Comp. & Placement, 326 U.S. 310, 316 (1945)); and (2) the so-called ”Calder effects test,” see Calder v. Jones, 465 U.S. 783, 787 & n.6 (1984). The Calder effects test and the traditional test have distinct requirements, and both tests should be considered. See Hasson v. FullStory, Inc., 114 F.4th 181,
The traditional test for specific jurisdiction focuses on a defendant‘s “minimum contacts” with the forum state and entails a three-step analysis. O‘Connor, 496 F.3d at 317. First, the defendant must have “purposefully avail[ed] itself of the privilege of conducting activities within the forum state.” Toys “R” Us, Inc. v. Step Two, S.A., 318 F.3d 446, 451 (3d Cir. 2003) (quoting Asahi Metal Indus. Co. v. Super. Ct. of Cal., 480 U.S. 102, 109 (1987)). This prong of the analysis requires that the defendant had “minimum contacts with the forum state that show the defendant took a deliberate act reaching out to do business in that state.” Hepp v. Facebook, 14 F.4th 204, 207 (3d Cir. 2021) (citation omitted). Second, the plaintiff must show its claims “arise out of or relate to” at least one of those contacts or activities. Marten v. Godwin, 499 F.3d 290, 296 (3d Cir. 2007) (quoting Helicopteros, 466 U.S. at 414). Courts have consistently emphasized that “[f]or the contacts to satisfy the second prong, there must be “a strong relationship among the defendant, the forum, and the litigation.” Hepp, 14 F.4th at 208 (citation modified). Third, even where the foregoing requirements are met, the Court must “be satisfied that the exercise of personal jurisdiction ‘comports with traditional notions of fair play and substantial justice’ such that the defendant ‘should reasonably anticipate being haled into court’ in that forum.” Toys “R” Us, 318 F.3d at 451 (quoting World-Wide Volkswagen Corp. v. Woodson, 444 U.S. 286, 297 (1980)).
The alternative test, the ”Calder effects test,” was recognized by the Supreme Court in Calder v. Jones, holding that under certain circumstances involving intentional torts, the
(1) The defendant committed an intentional tort;
(2) The plaintiff felt the brunt of the harm in the forum such that the forum can be said to be the focal point of the harm suffered by the plaintiff as a result of that tort; [and]
(3) The defendant expressly aimed his tortious conduct at the forum such that the forum can be said to be the focal point of the tortious activity . . . .
Christie v. Nat‘l Inst. for Newman Stud., 258 F. Supp. 3d 494, 500 (D.N.J. 2017) (quoting IMO Indus., Inc. v. Kiekert AG, 155 F.3d 254, 265-66 (3d Cir. 1998)). The Calder effects test, as interpreted by the Third Circuit, requires that a defendant‘s “conduct and connection with the forum State [must be] such that [the defendant] should reasonably anticipate being haled into court there.” Marten, 499 F.3d at 297 (quoting World-Wide Volkswagen Corp., 444 U.S. at 297). To assert specific personal jurisdiction, Plaintiffs must allege “claim-specific jurisdiction over Defendants,” meaning “an affiliatio[n] between the forum and the underlying controversy.” Christie, 258 F. Supp. 3d at 499 (second alteration in original) (quoting Walden v. Fiore, 571 U.S. 277, 283 n.6 (2014)).
In the Complaint, Plaintiffs assert contractual, quasi-contractual, and tort claims against Defendants. (See generally Compl.) Because a specific personal jurisdiction analysis is claim-specific, the Court typically analyzes claims separately.13 See Remick v. Manfredy, 238 F.3d
Here, Plaintiffs’ contractual, quasi-contractual, and tort claims stem from the same underlying factual circumstances—namely, the conduct surrounding the JV Entity and the JV Agreement—and the parties have likewise addressed the issue of specific personal jurisdiction without differentiating between specific claims. The Court, therefore, will not employ a claim-specific approach to discern whether it may properly exercise specific personal jurisdiction over Defendants. See Grant Indus., Inc. v. Isaacman, No. 21-13094, 2022 WL 2358422, at *10 n.12 (D.N.J. June 30, 2022) (analyzing breach of contract, misappropriation of confidential information and trade secrets, fraud, and conversion claims together because they arose from the “same sequence of events and factual allegations“). Because the Supreme Court has instructed that in assessing personal jurisdiction, “[e]ach defendant‘s contacts with the forum State must be assessed individually,” Calder, 465 U.S. at 790, the Court will separately assess each defendant‘s contacts with New Jersey.
In the Complaint, Plaintiffs bring several contractual claims.14 (See generally Compl.) Under the traditional test, “an individual‘s contract with an out-of-state party . . . [cannot] automatically establish sufficient minimum contacts in the other party‘s home forum . . . .” Burger King, 471 U.S. at 478; BP Chems. Ltd. v. Formosa Chem. & Fibre Corp., 229 F.3d 254, 261 (3d Cir. 2000) (citation omitted) (“[A] non-resident‘s contracting with a forum resident, without more, is insufficient to establish the requisite ‘minimum contacts[.]‘“). Instead, “in contract claims[,] [the Third Circuit] analyze[s] the totality of the circumstances surrounding a contract to determine
The Supreme Court has stressed that “the plaintiff cannot be the only link between the defendant and the forum. Rather[,] it is the defendant‘s conduct that must form the necessary connection with the forum State that is the basis for its jurisdiction over him.” Walden, 571 U.S. at 285. A defendant‘s communication, by telephone, email message, or regular mail, directed at a plaintiff located within the forum state, albeit in furtherance of the parties’ business relationship, does not establish a substantial connection between the defendant and the forum itself. Exporting Commodities Int‘l, 2017 WL 5513682, at *8 (holding that, although the subject contract was negotiated by email messages and phone calls directed by the defendant to the New Jersey plaintiff, those contacts did not justify personal jurisdiction over a non-forum defendant because “these are communications not so much to New Jersey as they are into the electronic ether“); see also Merco, Inc. v. So. Cal. Edison Co., No. 06-5182, 2007 WL 1217361, at *6 (D.N.J. Apr. 24, 2007) (finding that the non-resident defendant‘s exchange of correspondence with the New Jersey-based plaintiff, using “interstate mail, [email messages], and telephone service to negotiate the contract and discuss the [p]roject‘s progress” did not constitute sufficient contacts to confer specific jurisdiction over the defendant).
With the appropriate standards laid out, the Court now turns to its first inquiry under the traditional test—whether Defendants purposefully directed contacts at New Jersey such that it can be said they purposefully availed themselves of the privilege of operating in and, thus, benefited from the protection of New Jersey‘s laws. Burger King, 471 U.S. at 475-76. Here, Defendants solicited business from Plaintiffs and initiated the contractual relationship with Plaintiffs—New Jersey residents. This weighs in favor of asserting jurisdiction over Defendants. See Remick, 238
In addition to soliciting and initiating the business relationship, Defendants relied on regular contacts with Plaintiffs’ New Jersey offices. Under these circumstances, it can be said that Defendants “deliberately ‘reach[ed] out beyond one state and create[d] continuing relationships and obligations’ with Plaintiffs so as to satisfy the purposeful availment requirement.” Id. at 473 (quoting Travelers Health Ass‘n v. Commonwealth of Va. ex rel. State Corp. Comm‘n, 393 U.S. 643, 647 (1950)); see also Williams v. Zhou, No. 14-5544, 2018 WL 648354, at *4-5 (D.N.J. Jan. 30, 2018) (purposeful availment requirement met where defendants had one meeting in New Jersey and sent email and correspondence into the state).
The Court next turns to its second inquiry under the traditional test—whether Plaintiffs demonstrate that their claims “arise out of or relate to” at least one of those contacts or activities. Marten, 499 F.3d at 296. In the context of contract cases, “this test examines whether any of the defendant‘s contacts with the forum are relevant to the merits of the plaintiff‘s claim.” See
Here, regardless of whether the Court views it through a contract or tort lens, the Court finds that Plaintiffs have sufficiently demonstrated their claims arise out of or relate to Defendants’ contacts with New Jersey. Defendants sent numerous communications into New Jersey and arranged an in-person meeting in New Jersey that purportedly dealt with the parties’ business relationship. (See generally Desai Decl.) More specifically, Defendants sent communications to New Jersey to contact Plaintiffs’ New Jersey offices, went to New Jersey to meet regarding that business relationship, and continued to send communications into New Jersey to facilitate the business relationship. (See id.) And that business relationship is now the subject of this litigation. As such, the Court finds that Plaintiffs have demonstrated that their claims arise out of or relate to the contacts with New Jersey.
The final step of the specific jurisdiction analysis under the traditional test is whether “the exercise of jurisdiction would otherwise comport with ‘traditional notions of fair play and substantial justice.‘” O‘Connor, 496 F.3d at 324 (citation omitted). Jurisdiction is at this point presumptively constitutional. Id. (citation omitted). A defendant “must present a compelling case that the presence of some other considerations would render jurisdiction unreasonable.” Burger King, 471 U.S. at 477. Relevant considerations are “the burden on the defendant, the forum State‘s interest in adjudicating the dispute, the plaintiffs’ interest in obtaining convenient and effective
B. Compel Arbitration
Having found that this Court has personal jurisdiction over Defendants, the Court next turns to Defendants’ Cross-Motion to Compel Arbitration. In determining whether to compel arbitration, a court must consider: “(1) whether there is a valid agreement to arbitrate between the parties[;] and, if so, (2) whether the merits-based dispute in question falls within the scope of that valid agreement.” Flintkote Co. v. Aviva PLC, 769 F.3d 215, 220 (3d Cir. 2014) (citation omitted).
At the outset, the Court notes that the parties do not dispute that: (1) the signatory defendants, MZF Trust and Prospect Capital (collectively, the “Signatory Defendants“), entered into a valid and binding agreement to arbitrate, i.e., the JV Agreement; and that (2) the arbitration provision contained in the JV Agreement (Section 9.8) is broad in scope. (See Pls.’ Opp‘n Br. 11.) The non-signatory defendants Michele, Richard, and BCC (collectively, the “Non-Signatory Defendants“), however, dispute the existence of a binding arbitration agreement. (Pls.’ Opp‘n Br. 18-20.) The Court must therefore determine whether the arbitration provision in the JV Agreement
1. Whether the Parties Entered an Arbitration Agreement.
Under Delaware law, which governs here,17 “[a] valid contract requires an offer, acceptance, and consideration, and the parties must have intended that the contract would bind them.” Shilling v. Shilling, 332 A.3d 453, 462 (Del. 2024). The contract must also “contain all material terms in order to be enforceable” and “sufficiently definite” terms. Id.
Here, Section 9.8 of the JV Agreement requires arbitration of “[a]ny dispute between the [m]embers relating to the [JV Entity] or this Agreement, either directly or indirectly . . . .” (JV Agreement ¶ 9.8.) It is not disputed that Michele, Richard, and BCC are not signatories to the JV Agreement, nor were they ever formally made parties to the JV Agreement in some other way. Plaintiffs, however, seek to bind the Non-Signatory Defendants to the JV Agreement under the doctrine of “equitable estoppel,” which “prevent[s] a non-signatory from embracing a contract, and then turning its back on the portions of the contract, such as an arbitration clause, that it finds distasteful.” E.I. DuPont de Nemours & Co. v. Rhone Poulenc Fiber & Resin Intermediates, S.A.S., 269 F.3d 187, 199-200 (3d Cir. 2001).
“It is not unusual for courts to require arbitration of claims involving parties who were not formally parties to an arbitration agreement, a situation that especially arises when affiliates of signatories are subject to or make claims.” McLaughlin v. McCann, 942 A.2d 616, 627 (Del. Ch. 2008). “Courts have recognized at least five theories for binding non[-]signatories to arbitration
Under Delaware law, a non-signatory to a contract can compel a signatory to arbitrate under an equitable estoppel theory. Wilcox & Fetzer, Ltd. v. Corbett & Wilcox, No. 2037-N, 2006 WL 2473665, at *4 (Del. Ch. Aug. 22, 2006). This theory applies in two circumstances:
First, equitable estoppel applies when the signatory to a written agreement containing an arbitration clause must rely on the terms of the written agreement in asserting its claims against the non[-]signatory. When each of a signatory’s claims against a non[-]signatory makes reference to or presumes the existence of the written agreement, the signatory’s claims arise out of and relate directly to the written agreement, and arbitration is appropriate. Second, application of equitable estoppel is warranted when the signatory to the contract containing an arbitration clause raises allegations of substantially interdependent and concerted misconduct by both the non[-]signatory and one or more of the signatories to the contract. Otherwise the arbitration proceedings between the two signatories would be rendered meaningless and the federal policy in favor of arbitration effectively thwarted.
Here, the Court finds that, at the very least, the second circumstance referenced in Wilcox & Fetzer applies here. Indeed, Plaintiffs, themselves, have conceded that it does apply, acknowledging that their allegations against both the Signatory Defendants and Non-Signatory Defendants set forth facts of “a concerted scheme between signatories and non-signatories to defraud Plaintiffs.” (Pls.’ Reply Br. 20, ECF No. 18.) Plaintiffs, in their Complaint, expend a lot of ink articulating that Defendants—which include Signatory Defendants and Non-Signatory Defendants—acted in concert with one another to engage in their scheme to defraud Plaintiffs. (See generally Compl.); Lismore v. Societe Generale Energy Corp., No. 11-6705, 2012 WL 3577833, at *7 (S.D.N.Y. Aug. 17, 2012) (finding that a signatory’s claims are intertwined when
2. Whether the Dispute at Issue Falls Within the Scope of the Arbitration Agreement.
Plaintiffs assert contractual, quasi-contractual, and tort claims against Defendants. (See Compl. ¶¶ 81-143.) Where, as here, the parties dispute the arbitrability of a claim, Delaware law requires a two-step analysis. First, the court must determine whether the arbitration clause is broad or narrow in scope. Wilcox, 2006 WL 2473665, at *3. Second, the court should apply the relevant scope of the provision to the asserted legal claim to determine whether the claim falls within the scope of the contractual provision that require arbitration. Id.
Section 9.8 of the JV Agreement provides that “[a]ny dispute between the [m]embers relating to the [JV Entity] or this Agreement, either directly or indirectly, will be resolved in accordance with the provisions of this Section 9.8.” Here, as previously noted, the parties do not dispute that the arbitration provision in the JV Agreement is broad in scope. (See Pls.’ Opp’n Br. 10.) And, the Court finds no reason to find that the JV Agreement’s arbitration provision, under Section 9.8, is narrow in scope. See Ishimaru v. Fung, No. 929, 2005 WL 2899680, at *14 (Del. Ch. Oct. 26, 2005) (finding an arbitration provision that stated “all controversies arising between [m]embers, or one or more [m]embers and the [c]ompany, concerning this [a]greement” to be broad). The Court, therefore, turns to the second step of its analysis—whether the claims asserted in Plaintiffs’ Complaint and the First and Second TRO and PI Motions fall within its scope.
Having found that the arbitration provision in the JV Agreement is broad, the Court “will defer to arbitration on any issues that touch on contract rights or contract performance.” Parfi Holding AB v. Mirror Image Internet, Inc., 817 A.2d 149, 155 (Del. 2002). As to whether asserted
Defendants, on the one hand, assert that Plaintiffs’ claims in their Complaint touch on contract rights or contract performance and are thus subject to arbitration. (Defs.’ Opp’n Br. 10-13.) Plaintiffs, on the other hand, contend that “Delaware Courts recognize that some claims, specifically those of civil conspiracy, fraud, unjust enrichment, piercing the corporate veil and conversion, not only fall outside the scope of the provision but will also need to be asserted along with other traditional contract claims.”18 (Pls.’ Reply Br. 11.)
Here, the Court finds that Plaintiffs’ claims in the Complaint are arbitrable as they either directly or indirectly relate to the JV Entity or the JV Agreement. To begin, Plaintiffs’ allegations underpinning their contractual claims for breach of contract (Count One) and breach of covenant of good faith and fair dealing (Count Seven) touch on contract rights or contract performance.
This leaves the Court with Plaintiffs’ fraud claim (Count Three). In the Complaint, Plaintiffs allege that:
[The Zahns], by and through the Zahn Entities and on behalf of themselves, made false representations about: (1) the use of funds in
connection with the Project; (2) effectuating the purpose of the JV Entity; (3) loans made to BCC; (4) amounts paid to BCC; (5) purchase of materials for the Project; (6) status of the Project; and (7) the financial condition of the JV Entity.
(Compl. ¶ 97.) These allegations, which concern the Project, JV entity, and BCC, relate to the JV Entity and the JV Agreement. Indeed, Plaintiffs’ fraud claim arises out of the JV Agreement.
Moreover, to the extent that Plaintiffs argue that Defendants used “the JV Entity as a vehicle to enrich themselves through the use of deceptive tactics and maneuvers,” (Pls.’ Reply Br. 15), when “the allegations underlying the claims touch matters covered by an arbitration agreement, then those claims must be arbitrated, whatever the legal labels attached to them.” Brayman Constr. Corp. v. Home Ins. Co., 319 F.3d 622, 626 (3d Cir. 2003) (citation modified). Furthermore, “[u]nder Delaware and federal law, a party cannot escape a valid . . . arbitration clause[] by arguing that the underlying contract was fraudulently induced or invalid for some reason unrelated to the forum selection or arbitration clause itself.” Carlyle Inv. Mgmt. L.L.C. v. Nat‘l Indus. Grp. (Holding), No. 5527, 2012 WL 4847089, at *10 (Del. Ch. Oct. 11, 2012), aff‘d, 67 A.3d 373 (Del. 2013). Plaintiffs do not contend that the JV Agreement, or Section 9.8 of the JV Agreement, was procured by fraud. The Court, therefore, sees no reason to find that Plaintiffs’ fraud claim is non-arbitrable.
Notwithstanding this, Plaintiffs contend that there is no objective indication that the parties contemplated arbitrating claims of fraud, civil conspiracy, corporate veil piercing, conversion, and unjust enrichment. (Pls.’ Reply Br. 16.) Plaintiffs further contend that “[i]t is unfathomable that a dispute of this nature can be ‘resolve[d] . . . on an expedited basis and in any event within ten (10) [b]usiness [d]ays after the [d]ispute is first submitted to the [a]rbiter.” (Id. at 17-18 (quoting JV Agreement ¶ 9.8(G).) The Court disagrees with both contentions. To the extent that Plaintiffs disagree with the intent of the parties, the JV Agreement provides that “[a]ny dispute between the
The [m]embers acknowledge that since development of the Project as well as operations of the components of the Project after construction are time sensitive and since lengthy delays caused by unresolved [d]isputes cannot be tolerated, the [a]rbiter will be directed to commence and pursue the [d]ispute resolution process set forth in this Section 9.8 and resolve the [d]ispute on an expedited basis and in any event within ten (10) [b]usiness [d]ays after the [d]ispute is first submitted to the [a]rbiter.
(JV Agreement ¶ 9.8(G) (emphasis added).) As such, the Court sees no reason to find that the parties did not contemplate arbitration of claims for fraud, unjust enrichment, civil conspiracy, and conversion.20 Based on the foregoing, the Court grants Defendants’ Cross-Motion to Compel Arbitration.
Finally, the Court considers Plaintiffs’ motions for injunctive relief. In the First TRO and PI Motion, Plaintiffs seek an order compelling Defendants to provide Plaintiffs access to financial records and documents, including construction loan draw information and documents related to the JV Entity. (See generally First TRO and PI Mot.) Plaintiffs’ arguments rest in part on the contention that the JV Agreement entitles them to this information. (Id. at 9.) In the Second TRO and PI Motion, Plaintiffs request that the Court additionally freeze Defendants’ assets pending the resolution of the dispute, asserting that “Defendants have taken action since the commencement of this litigation to move assets around” and that the continued “dissipation of assets” would render any eventual judgment “a moral win and nothing else.” (Second TRO and PI Mot. 10.)
Preliminary injunctions are reserved for “extraordinary situations” and present numerous concerns, including the nature of proceedings, the granting of a remedy based upon a prediction of the law, and the prejudging of the merits of a case. Del. State Sportsmen‘s Ass‘n, Inc. v. Del. Dep‘t of Safety & Homeland Sec., 108 F.4th 194, 198-200 (3d Cir. 2024). When faced with a motion for preliminary injunction and a motion to compel arbitration, courts generally do not reach the merits of the underlying dispute because their jurisdiction “is limited to staying the civil action and compelling the parties to arbitrate.” Thompson v. Nienaber, 239 F. Supp. 2d 478, 484-85 (D.N.J. 2002) (citing John Hancock Mut. Life Ins. Co. v. Olick, 151 F.3d 132, 136-37 (3d Cir. 1998)). The Third Circuit, however, has recognized a narrow exception to this rule, and has held that courts have jurisdiction to consider the merits of the dispute for the “sole purpose of determining whether temporary injunctive relief is necessary” to preserve the status quo pending the arbitration of the dispute. Thompson, 239 F. Supp. 2d at 484-85; see also Ortho Pharm. Corp. v. Amgen, Inc., 882 F.2d 806, 812 (3d Cir. 1989). To succeed on a motion for a preliminary injunction in an arbitrable case, a party must demonstrate:
(1) that it is likely to succeed on the merits in the arbitration proceeding; (2) that it will be irreparably harmed in the meantime in a manner that threatens to render the arbitration proceeding meaningless if the court does not grant preliminary injunctive relief pending the outcome of the arbitration proceeding; (3) that the possibility of harm to . . . other interested persons if injunctive relief is granted would not outweigh the harm it will suffer if injunctive relief is denied; and (4) that the injunction it seeks will serve the public interest.
Thompson, 239 F. Supp. 2d at 485 n.9 (quoting Wright Med. Tech., Inc. v. Somers, 37 F. Supp. 2d 673, 679 (D.N.J. 1999)). The Third Circuit has emphasized that the first two factors—likelihood of success and irreparable harm—are essential, and that a court may not grant injunctive relief, “regardless of what the equities seem to require,” unless plaintiffs carry their burden of establishing these two factors. Adams v. Freedom Forge Corp., 204 F.3d 475, 484-86 (3d Cir. 2000); see also Hoxworth v. Blinder, Robinson & Co., 903 F.2d 186, 197 (3d Cir. 1990) (citation omitted) (placing particular weight on the probability of irreparable harm and the likelihood of success on the merits, stating: “[W]e cannot sustain a preliminary injunction ordered by the district court where either or both of these prerequisites are absent.”) Accordingly, if the movant fails to carry its burden on these two elements, the motion for injunctive relief should be denied. See Hohe v. Casey, 868 F.2d 69, 72 (3d Cir. 1989).
Here, in both motions for injunctive relief, Plaintiffs fail to demonstrate that they will be irreparably harmed in a manner that threatens to render the arbitration proceeding meaningless.
1. First TRO and PI Motion
In Plaintiffs’ First TRO and PI Motion, Plaintiffs argue that they will be irreparably harmed absent injunctive relief because Plaintiffs will not be able to assess and evaluate the direction of
To demonstrate irreparable harm, a movant must show “that remedies available at law, such as monetary damages, are inadequate to compensate for that injury.” eBay Inc. v. MercExchange, L.L.C., 547 U.S. 388, 391 (2006). The Third Circuit has recognized two circumstances in which irreparable harm may arise from a breach of contract: “(1) where the subject matter of the contract is of such a special nature or peculiar value that damages would be inadequate; or (2) where because of some special and practical features of the contract, it is impossible to ascertain the legal measure of loss so that money damages are impracticable.” ECRI v. McGraw Hill, Inc., 809 F.2d 223, 226 (3d Cir. 1987) (citation omitted). If, however, the loss on a breach of contract claim “is capable of ascertainment and award at final judgment,” the plaintiff cannot demonstrate an immediate risk of actual irreparable harm. Levine v. BlockFi Inc., No. 21-11934, 2021 WL 3508831, at *2 (D.N.J. Aug. 9, 2021) (citation omitted).
Here, Plaintiffs’ claims do not fall within either exception as articulated in ECRI. As a preliminary point, the record contains no evidence to support Plaintiffs’ bald and unsupported assertions that Plaintiffs would be unable to assess and evaluate the direction of the Project without access to the requested financial information and records. Even assuming arguendo that such
Defendants’ alleged breach of their duties in the JV Agreement does not change this outcome. As the Third Circuit explained, it is not sufficient to allege that a defendant’s breach will deny a plaintiff the resources needed to meet its contractual obligations. Bennington Foods LLC v. St. Croix Renaissance Grp., LLC, 528 F.3d 176, 178-79 (3d Cir. 2008). Rather, the party seeking an injunction must establish that its business is “different from other types of commerce in such a way that normal breach of contract remedies could not provide a remedy.” Id. at 179. Here, Plaintiffs have not shown that the subject matter of the JV Agreement is of such a unique value that monetary damages would be an inadequate remedy, or that the JV Agreement contains unique features such that monetary damages would be impractical or impossible to measure. Accordingly,
2. Second TRO and PI Motion
Plaintiffs’ Second TRO and PI Motion fares no better. Plaintiffs request that the Court freeze Defendants’ assets until this case is resolved, because Richard’s recent death “injects a new, uncontrollable variable . . . that can rapidly deplete estate assets or force their transfer to out-of-state jurisdictions” and that Defendants’ recent asset transfers may render any money judgment awarded in this case meaningless. (See Second TRO and PI Mot. 11-12.) But the Supreme Court has made it clear that district courts have “no authority to issue a preliminary injunction preventing [defendants] from disposing of their assets pending adjudication of [a plaintiff’s] contract claim for money damages.” Grupo Mexicano De Desarrollo v. Alliance Bond Fund, 527 U.S. 308, 333 (1999). As such, to the extent that Plaintiffs seek injunctive relief to freeze assets that Defendants may eventually need to satisfy any monetary award issued against them, such a motion “is speculative and premature,” and Plaintiffs have not shown that they are entitled to the extraordinary form of injunctive relief they seek. Victor v. SCI Smithfield, No. 08-1374, 2011 WL 6003923, at *6 (M.D. Pa. Nov. 30, 2011) (denying preliminary injunction to freeze defendants’ assets where the only remedy plaintiff sought in the underlying dispute was monetary damages).
Moreover, arbitrators can issue injunctive relief where warranted. See also Pyo v. Wicked Fashions, Inc., No. 09-2422, 2010 WL 1380982, at *7 (D.N.J. Mar. 31, 2010). Even assuming Defendants continue to deny Plaintiffs access to financial information and documents of the JV Entity, or dissipate their assets, Plaintiffs provide no evidence, argument, or basis to support a
As such, the Court finds that Plaintiffs have not demonstrated irreparable harm in a manner that threatens to render the arbitration proceeding meaningless, and accordingly denies Plaintiffs’ First and Second TRO and PI Motions on this basis.
“When a district court finds that a lawsuit involves an arbitrable dispute, and a party requests a stay pending arbitration, § 3 of the FAA compels the court to stay the proceeding.” Smith v. Spizzirri, 601 U.S. 472, 478 (2024). Here, Plaintiffs request a stay. (Pls.’ Reply Br. 23-25.) The Court, accordingly, stays the proceeding pending arbitration.
IV. CONCLUSION
For the reasons set forth above, Defendants’ Cross-Motion to Compel Arbitration is granted, and Plaintiffs’ First and Second TRO and PI Motions are denied. The Court will issue an Order consistent with this Memorandum Opinion.
MICHAEL A. SHIPP
UNITED STATES DISTRICT JUDGE