In Toyota Motor Credit Corp. v. Cte 1, Civil Action No. 19-19092 (CCC), 2021 U.S. Dist. LEXIS 54385, at *3-7 (D.N.J. Mar. 23, 2021), Judge Cecchi dismissed dealer principals’/guarantors claims against their floorplan lender.
WHEREAS TMCC argues that DeMaio’s and Zeccardi’s counterclaims must be dismissed on the basis that they lack standing to sue TMCC because they are bringing derivative claims that belong CTE 1, LLC (“CTE 1”), the entity which owned the Lexus car dealership in Englewood and received TMCC funding to purchase and operate that dealership. ECF No. 108-1 at 4, 12-14; ECF No. 109 at 4, 10-12. In essence, TMCC argues that DeMaio and Zeccardi are guarantors of CTE 1 and cannot bring claims on its behalf. ECF No. 108-1 at 12, ECF No. 109 at 10. Although DeMaio and Zeccardi agree that there is a general rule barring a guarantor from bringing derivative claims on behalf of a principal, they argue that their claims are not derivative and, that even if they were, their claims are not barred here because they fall into exceptions to the general rule enunciated below. ECF No. 123 at 7-8; ECF No. 125 at 5; and WHEREAS to determine whether a claim is derivative, the Court must look at whether the alleged harm suffered by the guarantors flows directly from the alleged harm suffered by the principal. See Days Inn Worldwide, Inc. v. Kentucky S. Properties LLC, No. 07-4992, 2008 WL 4307188, at *2 (D.N.J. Sept. 16, 2008); Cont’l Grp., Inc. v. Just., 536 F. Supp. 658, 661 (D. Del. 1982). Here, DeMaio and Zeccardi’s alleged harm suffered is derivative of CTE 1’s alleged harm because DeMaio and Zeccardi’s only relationship with TMCC was as guarantors of TMCC’s financing to CTE 1. See ECF No. 84 at 22 (“Lexus of Englewood, and its guarantors DeMaio and the other members of CTE 1, hopelessly in debt to TMCC, effectively captive borrowers, could do nothing but sign the new agreements or risk total ruin.”); ECF No. 85 at 47 (“Because TMCC continued to provide financing and capital, Zeccardi justifiably believed that the Dealership was, as DeMaio had proclaimed, financially stable and in compliance with the TMCC Agreements.”); and WHEREAS as currently pled, the counterclaims against TMCC are thus derivative claims because they flow directly from TMCC’s alleged impropriety towards CTE 1 that caused the dealership to fail. Days Inn, 2008 WL 4307188, at 2 (“[T]his Court can find no indicia of harm alleged that impacted the [defendants], other than as guarantors . . . . Absent harm separate and distinct from that suffered by the entity through which the [defendants] conducted their business with [plaintiff], the [defendants lack standing to bring a counterclaim here.”); and WHEREAS DeMaio and Zeccardi lack standing to bring their derivative counterclaims against TMCC unless they fit into the three exceptions to the general rule which allow derivative suits where (1) the guarantor has taken assignment of the suit with consent of the principal, (2) the principal is joined in the same lawsuit, or (3) the principal has become insolvent. See Coldwell Banker Real Est., LLC v. Plummer & Assocs., Inc., No. 09-1313, 2009 WL 3230840, at *2 (D.N.J. Oct. 2, 2009) (quoting Cont’l Grp., Inc., 536 F. Supp. at 661); and WHEREAS despite DeMaio’s and Zeccardi’s arguments that the second and third exceptions apply in this matter because CTE 1 was named in the initial complaint and CTE 1 has entered into bankruptcy proceedings, respectively, the Court finds that none of the exceptions are applicable to the factual allegations currently pled in this matter; and WHEREAS the first exception is inapplicable here as neither DeMaio nor Zeccardi have alleged that CTE 1 assigned its claims to them or that CTE 1 has consented to their use of its claims; and WHEREAS the second exception is inapplicable as CTE 1 has been dropped from this lawsuit and is not named as a defendant in the Amended Complaint. ECF No. 63 at 1 n.1 (“As a result of the automatic stay . . . TMCC has removed causes of action asserted against CTE 1 in the original Complaint from this Amended Complaint. TMCC discusses CTE 1 throughout this Amended Complaint solely in its capacity as a non-defendant third party, in order to provide facts underlying the bases for allegations and causes of action against remaining original non-debtor Defendants and new Defendant Landfrank.”); and WHEREAS the third exception is not applicable because there are no allegations in the Amended Complaint, DeMaio’s answer, or Zeccardi’s answer that CTE 1 is insolvent. See Cont’l Grp., Inc., 536 F. Supp. at 662 n.2 (relying on explicit allegations in answer that principal was insolvent to apply third exception and instructing defendant guarantors to reallege that principal was insolvent when amending their counterclaims); and WHEREAS while there are various allegations that CTE 1 has entered into Chapter 11 bankruptcy proceedings, bankruptcy and insolvency are distinct legal principles and the Court is hesitant to extend the third exception to the general rule barring derivative suits by guarantors without compelling authority to do so. See Loc. 478 Trucking & Allied Indus. Pension Fund v. Jayne, 778 F. Supp. 1289, 1322 n.40 (D.N.J. 1991) (“Although bankruptcy laws are related to the ability to pay, the primary focus is on allowing a bankrupt entity to start afresh.”); In re Gottlieb & Co., 245 F. 139, 147 (D.N.J. 1917), aff’d sub nom. Rosenberg v. Semple, 257 F. 72 (3d Cir. 1919) (“There having been no adjudication in the first bankruptcy proceedings, there is no legal presumption that Gottlieb & Co. was insolvent, within the meaning of the bankruptcy law, at the time such proceedings were brought to an end.”). Neither DeMaio nor Zeccardi have provided the Court with such authority; and WHEREAS the Court finds that DeMaio and Zeccardi lack standing to assert their counterclaims at this time as they appear to be derivative claims brought on behalf of CTE 1 and the factual allegations currently pled do not support a finding that an exception to the general rule barring derivative claims is present here; and