Shane Flyte v. Jonathan P. Baker

New Jersey Superior Court Appellate Division·Decided January 9, 2025·No. A-0441-22·Unpublished

Opinion

NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION This opinion shall not "constitute precedent or be binding upon any court ." Although it is posted on the internet, this opinion is binding only on the parties in the case and its use in other cases is limited. R. 1:36-3.

SUPERIOR COURT OF NEW JERSEY APPELLATE DIVISION

DOCKET NO. A-0441-22

SHANE FLYTE, JOHN MEENA, FRANK BILOTTA, JORDAN KLEGA-FISCHER, STEVE LAMBIASE, and DAVIDE MOREIRA, Individually, and as Members on behalf of HBI CAPITAL PARTNERS LLC and HUDSON BLACK INC.,

Plaintiffs-Respondents,

v. JONATHAN P. BAKER, Defendant-Appellant,

and

AMANDA RAE NORCIA- BAKER,

Defendant.

Argued October 9, 2024 – Decided January 9, 2025 Before Judges Gooden Brown and Smith.

On appeal from the Superior Court of New Jersey, Chancery Division, Sussex County, Docket No. C-

000002-18.

Jonathan P. Baker, appellant, argued the cause pro se.

John D. Coyle argued the cause for respondents (Coyle Law Group, P.C., attorneys; John D. Coyle, on the brief).

PER CURIAM In this corporate misconduct action, defendant Jonathan P. Baker appeals from a judgment entered on August 26, 2022, in favor of Shane Flyte, John Meena, Frank Bilotta, Jordan Klega-Fischer, Steve Lambiase and Davide Moreira, collectively, plaintiffs. When defendant failed to appear for trial on plaintiffs' fraud complaint, the judge converted the trial to a proof hearing,1 after which plaintiffs were awarded over $4.7 million in compensatory damages based on fraudulent transfers of funds from Hudson Black Inc. (HBI) to various entities owned by defendant or in which defendant had a major interest.

1 See EnviroFinance Grp. v. Env't Barrier Co., 440 N.J. Super. 325, 343 (App. Div. 2015) (explaining that Rule 4:43-2(b) "grants a trial court the discretion" to conduct a proof hearing to determine "the quantum of damages as well as entitlement to relief, prior to entry of default judgment").

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The parties all worked at HBI and had ownership interests in the company. HBI was owned by HBI Capital Partners LLC (HCP), in which the parties each also had an ownership interest. At the conclusion of the proof hearing, the judge found overwhelming evidence that over a two- year period, defendant engaged in a pattern of willful fraud and deceit by borrowing funds from HBI for his five companies with no intention of repaying the loans, falsifying HBI documents to obtain financing for his companies, and drafting a repurchase agreement without authorization transferring all of plaintiffs' interests in HBI to his then wife, Amanda Rae Norcia-Baker (Norcia).

On appeal, defendant primarily challenges plaintiffs' entitlement to damages as well as the quantum of damages awarded, arguing plaintiffs lacked standing because they should have brought a derivative action on behalf of HBI/HCP, instead of a direct action against him. Defendant also raises procedural arguments, challenging the addition of HBI as a named party at the conclusion of the hearing, the judge's failure to conduct oral argument on two motions for summary judgment, and the entry of a stipulation of dismissal as to Norcia without defendant's consent. Based

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on our thorough review of the record and applicable legal principles, we affirm.

I.

We glean these facts from the hearing record. HCP was incorporated on January 28, 2015, as a subchapter S corporation. HCP's operating agreement, which was executed on January 31, 2015, listed defendant as its member/manager. Plaintiffs and two non-parties, Afif Mohammed and Stephen Vroman, were listed as members. Under the operating agreement, the manager could "bind the [c]ompany" but only if the other members agreed.

Defendant, plaintiffs, Mohammed, and Vroman each invested about $3,000 and held about a ten percent interest in HCP. Defendant was president of the executive committee, and Klega-Fischer was the corporate secretary. The operating agreement specified that no members could "assign their membership interest in the company without a [two- thirds] majority vote of the remaining [m]embers."

HCP's operating agreement further stated that its primary purpose was

to hold 100% of the voting and equitable interest in [HBI] . . . . The [m]embers of the [c]ompany

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shall, concurrently with their membership, serve as members of the Board of Directors of [HBI], to the extent that each [m]ember is willing and able to do so. All actions taken by [m]embers of the [c]ompany shall be deemed actions taken by the Board of Directors of [HBI], to the extent that they apply to the affairs of [HBI].

HBI, which was incorporated prior to HCP on January 18, 2015,2 was a general contractor that hired subcontractors to perform commercial renovations of existing spaces. HBI's bylaws, which were effective April 11, 2015, provided that "[n]o loans shall be made by the corporation to the directors, unless first approved by the holders of two-thirds of the voting shares." Defendant and two nonparties, Jillian Baker and William Saks, were named directors of HBI. Defendant was the chief executive officer and president of HBI, Flyte was the vice president, and Klega- Fischer was the corporate secretary. The other plaintiffs were all employees of HBI.

In April 2015, unbeknownst to plaintiffs, defendant and Norcia entered into an agreement whereby Norcia was given the right to repurchase HBI from its parent company, HCP (the repurchase

2 On HBI's certificate of incorporation, Norcia was listed as the incorporator and the sole member of the board of directors.

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agreement). Norcia represented in the agreement that she was HBI's sole shareholder. In a May 31, 2018 certification by defendant that was introduced at the hearing, defendant claimed that he and Norcia had invested $125,000 "to start [HBI]." Plaintiffs did not learn of the repurchase agreement until January 2018.

After Vroman withdrew from participation in HCP, an amended operating agreement dated July 1, 2015, was executed for HCP. In the amended agreement, the remaining eight shareholders were designated as members. The amended agreement also specified that as of July 1, 2015, HCP "own[ed] 100% of the outstanding capital stock of [HBI]." The companies operated out of the same office.

During this time period, defendant held ownership interests in five other companies as follows: (1) 100% of BSG New Jersey LLC (BSG); (2) 100% of Konoba LLC (Konoba); (3) 100% of J Paul Allen Inc. (JPA); (4) 50% of 8 Quaker Road LLC; and (5) 31.25% of Arley Farms LLC (Arley Farms). Between 2015 and 2016, defendant entered into loan agreements with each of these companies on behalf of HBI without informing or discussing the loans with HBI's board or HCP's executive committee. Defendant prepared financial statements on behalf of HBI and

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HCP without listing the loans. None of defendant's five companies paid interest to HBI on the loans or made any payments toward the loans and none of the companies did business with either HCP or HBI. While defendant transferred funds from HBI to his companies, he failed to pay federal payroll taxes on behalf of HBI.

In his deposition that was admitted into evidence, defendant acknowledged the loans but stated that as the president and chief financial officer of HBI, he believed he had the authority to enter into such loan agreements with his companies without consulting the other members of HCP or HBI shareholders. Relying on the repurchase agreement, defendant believed it was in the scope of his authority as chief financial officer and director of HBI to enter these loan agreements.

The two witnesses who testified for plaintiffs, Bilotta and Klega-

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