Opinion
DOCKET NO. A-2527-12T3
03-17-2014
CHRISTOPHER ROYCE, ROYCE CONTRACTORS, INC. and ROYCE SERVICES, LLC, Plaintiffs-Appellants, v. JOSEPH DONALD ROYCE, JR., CAROL ROYCE, Defendants-Respondents, and ANTONUCCI-FARREN, LLC, JOHN ANTONUCCI and PHIL ANTONUCCI, Defendants.
Kevin J. O'Connor argued the cause for appellants (Peckar & Abramson, P.C., attorneys; Mr. O'Connor, on the briefs). Cindy Nan Vogelman argued the cause for respondents (Chasan Leyner & Lamparello, P.C., attorneys; Ms. Vogelman, of counsel and on the brief; Robert E. Finn, on the brief).
NOT FOR PUBLICATION WITHOUT THE
APPROVAL OF THE APPELLATE DIVISION
Before Judges Sapp-Peterson, Lihotz and Maven.
On appeal from the Superior Court of New Jersey, Chancery Division, Morris County, Docket No. C-62-07.
Kevin J. O'Connor argued the cause for appellants (Peckar & Abramson, P.C., attorneys; Mr. O'Connor, on the briefs).
Cindy Nan Vogelman argued the cause for respondents (Chasan Leyner & Lamparello, P.C., attorneys; Ms. Vogelman, of counsel and on the brief; Robert E. Finn, on the brief). PER CURIAM
This dispute between brothers, plaintiff Christopher Royce and defendant Joseph Royce, returns following a remand hearing as directed in our prior unpublished opinion. Royce v. Royce, A-6295-08 (App. Div. Aug. 4, 2010) (slip op. at 8). We affirm.
Because the parties share a common surname, to assure clarity in our discussion, we refer to them by their first names.
The brothers had equally owned two corporations, plaintiff Royce Contractors, Inc. and plaintiff Royce Services, LLC (collectively plaintiffs), which performed demolition, site work and snow plowing in Northern New Jersey. Plaintiffs ceased business operations by early 2007.
Joseph joined with John and Phil Antonucci (the Antonuccis) to form a joint venture, defendant Antonucci-Farren (AF). The underlying legal action centered on Joseph's obligations to Christopher and plaintiffs after he formed AF to perform work at Entergy Nuclear's Indian Point Nuclear Power Facility (Indian Point) in Buchanan, New York. Joseph owned one-third of AF, which he assigned to his wife, defendant Carol Royce.
Christopher's complaint alleged Joseph breached the non-compete provision contained in plaintiffs' September 27, 2001 shareholders' agreement, diverted plaintiffs' assets and usurped plaintiffs' corporate opportunities. Id. at 2-3. As a result of Joseph's contractual shareholder obligations with plaintiffs, the complaint included a claimed entitlement to Joseph's one-third ownership interest in AF and profits generated from the Indian Point contract. Ibid. It is noted plaintiffs received some payments from AF, purportedly representing Joseph's time and the use of plaintiffs' equipment.
AF compensated plaintiffs for use of their assets. AF remitted $2 00,000 for equipment; $173,000 for the purchase price of a "roll-off"; approximately $14,000 for four containers allegedly valued at $3,500 per container; and $15,000 for replacement of the bottom portion of a piece of excavation equipment, which was borrowed.
In a bifurcated bench trial, the General Equity judge first determined whether Christopher or plaintiffs held an ownership interest in AF. Id. at 4. She found Christopher's suit was "essentially a retaliation for Jo[seph's] wanting out of the business" operated by plaintiffs. She concluded neither Christopher nor plaintiffs had an interest in AF. Consequently, Joseph had no obligation to share AF's profits with Christopher. Id. at 5. The judge dismissed Carol, AF and the Antonuccis as defendants, and the remaining parties returned to mediation to attempt resolution of outstanding disputes. An order, filed on March 13, 2009 memorialized the General Equity judge's conclusions and scheduled the next phase of trial.
After one day of the second phase of the trial, the parties reached a stipulation of settlement and dismissal of the action. An order terminating the litigation incorporated the stipulation. Under the terms of the stipulation, Christopher and Joseph divided all corporate assets, provided for satisfaction of plaintiffs' debts and the orderly dissolution of the businesses. The parties further agreed:
10. Plaintiffs hereby reserve the right to seek appellate review of an Order entered on March 13, 2009 . . . with respect to the first phase of this bifurcated trial. With the exception of this reserved right, Chris[topher and plaintiffs] hereby fully, unconditionally and without limitation waive, release and forever give up any and all known and unknown claims, rights and causes of action of every kind, whether in law or equity, against Jo[seph and his wife] . . . . This release includes, but is not limited to, every claim, right and cause of action, including those of which plaintiffs may not be aware and those not expressly mentioned in this Stipulation, with the exception of the right to appeal the March 13, 2009 Order. This release applies to every claim that plaintiffs may have, resulting from anything, which has happened up to now and may happen up until the date that they execute this Stipulation, with the exception of the right to appeal the March 13, 2009 Order.Joseph and Carol provided a similar release as to all claims raised in their counterclaim. The order filed on July 9, 2009, reserved Christopher's right to appeal as detailed in the stipulation, and dismissed the action.
On appeal, a different panel considered Christopher's challenges and affirmed the General Equity judge's conclusions, which were supported by substantial credible evidence in the record. Id. at 6. However, the panel also determined other issues raised by Christopher's complaint had not been addressed by the trial judge. Id. at 7-8. The panel remanded the matter for consideration of whether Joseph's conduct breached the terms of the shareholder's agreement, and to resolve the claims of "diversion of corporate assets, the adequacy of compensation for use of corporate assets, and other related issues." Id. at 8.
We note the stipulation and its effect on the claims related to breach of the shareholder's agreement were not mentioned in the prior panel's opinion. Although we believe the stipulation's broad terms of unconditional waiver and release, coupled with the limited issues reserved for appeal, appear to impact review of the present matter, the parties have neither raised this question of the effect of the stipulation before the trial judges nor in the merits briefs on appeal. Consequently, we will not review the question.
Prior to the remand hearing, a different judge considered the scope of issues to be tried, as the original judge had retired. Following review, she stated:
[W]hat the Appellate Division really meant was that it was Christopher's contention that the trial [j]udge erred by failing to find whether or not Joseph's actionsThe judge ordered trial to commence on the liability claims under the shareholder's agreement. If successful, a damage trial would follow. The matter was then assigned to another judge for trial.
violated the shareholder agreement. That's what the issue is.
Joseph, on the other hand, argues that the trial judge found that the conduct of the brothers demonstrated that they had ignored and abandoned the non-compete and exclusive efforts provisions of the contract. We agree with Christopher and remand for a new trial on that issue.
Now there are a lot of things in this opinion I don't understand . . . , but one thing that I am sure about is that they ordered a new trial, not a trial on the issue of damages, which [were not] tried before[,] . . . but a new trial on the issue of liability under the shareholder's agreement.
Following a case management conference, the assigned judge issued an order on November 17, 2011, defining the scope of the hearing, as follows:
a. Are plaintiffs[] entitled to enforcement of the shareholder agreement;The judge denied plaintiffs' demand for a jury trial and request for additional discovery, and set a trial date.
b. Was the shareholder agreement abandoned by the parties;
c. If a breach of the shareholder agreement occurred, are plaintiffs entitled to any damages;
d. What is the measure of damages, for example, share of profits from defendant
[AF] or retroactive loss of salary by [Joseph] . . . or has compensation already been provided to plaintiffs by way of the $200,000 in checks and approximately $200,000 in equipment and repairs paid to plaintiff[s?]
Plaintiffs later issued subpoenas seeking various contracts, books, records, proof of payment, and other logs regarding AF and the Indian Point project, and depositions of various parties regarding the documents sought. The discovery demands were met by Joseph's motion to quash. The trial judge quashed the subpoenas after concluding discovery was closed, the form of the documents was improper, and the November 17, 2011 order barred financial discovery.
During the remand proceeding, which commenced on December 20, 2011, the court reviewed the prior trial transcripts and considered additional testimony from Christopher, Joseph, plaintiffs' accountant Steven Carmosino, Jorge Hoyos, a longtime employee of the plaintiffs, and Robert Grecco, a heavy equipment operator and longtime friend of Christopher and Joseph and former employee of plaintiffs. At the close of evidence, the judge found:
[Joseph] was never up-front with his brother about the [arrangement] with the Antonuccis. What the transcript reveals is he allowedAlthough acknowledging the probability that neither brother read nor considered the terms of the shareholder's agreement in the regular course of business, the contract "clearly" existed and had been executed by Christopher and Joseph. "[W]hether I look at the transcript alone, the testimony today alone, [or] both of them together, [there] is no evidence in this case of an abandonment of the contract." In reaching this conclusion, the judge observed,
[Christopher] to think that he had a part in the agreement. That is not proper conduct with a partner.
The reason, and I find it as a fact, that Christopher did not have any serious objections to Joseph's involvement in this very beneficial contract with the Antonuccis was that he thought he was going to benefit from it. He thought he was a partner in it. And that just [did not] happen to be true. It [did not] happen to be true because behind his back, and without telling him, his brother entered into an expressed contract with the Antonuccis, in which it was third, a third, a third. And Christopher was left out of that contract.
And [that is] why the prior judge found that, in fact, there was no tripartite agreement, no expressed agreement, and that Christopher was not entitled to share 50-50, by reason of an expressed agreement in the Antonucci contract.
Joseph [did not] act inconsistently with the existence of a contract with the knowledge of Christopher. So the fact that Christopher acquiesced [does not] mean anything, because he was acquiescing in a
situation in which, for good reason, he misperceived that [plaintiffs] w[ere] going to benefit fully, as fully as Jo[seph].
Given these facts, the judge determined Joseph "completely failed to meet the[] burden of proving by a preponderance of the evidence that an abandonment occurred." Having articulated these findings, the judge asked, "[s]o this resolves everything but damages? Yes?" To which plaintiffs' attorney responded, "Yes[.]"
On January 5, 2012, a judgment was entered in favor of plaintiffs and against Joseph individually, "with respect to breach of the Shareholders' Agreement[.]" The judgment also permitted discovery with respect to damages, and scheduled the damages trial.
Plaintiffs again issued subpoenas, which Joseph moved to quash. Joseph argued damages were circumscribed by plaintiffs' losses not AF's profits, to which plaintiffs had no entitlement. Plaintiffs countered, asserting damages could only be determined after "the scope of profits" earned on the Indian Point project was known. Relying on the prior determination that Christopher and plaintiffs had no interest in AF or its profits, the judge denied "any discovery relating to any income earned or work performed by [AF]." He stated:
The evidence is clear and . . . the prior [j]udge's findings of fact on this arePlaintiffs were granted records showing the time Joseph spent at AF's project sites and away from plaintiffs' business, as the shareholder agreement required Joseph and Christopher to devote forty hours per week to plaintiffs. Also, Joseph's earnings and certain tax forms were provided.
. . . settled and affirmed that this was not a case of taking a corporate opportunity. The Antonucci[s] were interested only in dealing with [Joseph], not with dealing with [Christopher] for a variety of reasons which were laid out in the testimony.
So I am satisfied that in this case the measure of damages ought to be the harm, if any, done to the plaintiff[s]. Thus, any discovery relating to income earned from the [AF] projects would be irrelevant.
Plaintiffs' request for leave to appeal that determination was denied. Plaintiffs made it clear to the trial judge that were leave to appeal denied, there was no need for a damages trial based on the prior orders which precluded the requested discovery. Plaintiffs maintained the judge erred as a matter of law, hampered their ability to prove their case, and ignored the holding set forth in Cameco, Inc. v. Gedicke, 157 N.J. 504 (1999).
After brief arguments, the judge again was advised no damages trial was necessary. He therefore entered a final judgment requiring Joseph to pay "zero" compensatory or other damages. Plaintiffs appealed seeking a new trial.
As a general rule in non-jury actions, we reverse a trial court's conclusions only when the findings are so wholly unsupportable as to result in a denial of justice. Rova Farms Resort, Inc. v. Investors Ins. Co., 65 N.J. 474, 483-84 (1974). See also R. 1:7-4; Pressler & Verniero, Current N.J. Court Rules, comment 2 on R. 1:7-4 (2014). No special deference is accorded to the trial judge's "interpretation of the law and the legal consequences that flow from established facts," Manalapan Realty, L.P. v. Twp. Comm. of Manalapan, 140 N.J. 366, 378 (1995), which are subject to plenary review. Dep't of Envtl. Prot. v. Kafil, 395 N.J. Super. 597, 601 (App. Div. 2007).
On appeal, plaintiffs argue the judge failed to abide the terms of this court's determination on remand and erred in denying permissible financial discovery. Plaintiffs also argue they were entitled to a judgment that required Joseph to forfeit his salary as paid by plaintiffs, prejudgment interest, punitive damages and attorney's fees and costs. We reject each of these arguments.
This court's opinion following the initial appeal expressly affirmed "the findings of fact made by the trial judge as to Christopher's claim to an equal share in the profits derived by Joseph from his work with the [AF] joint venture[.]" Royce, supra, slip op at 6. Similarly, we affirmed the trial court's credibility findings supporting this conclusion, foreclosing further review of the claim that plaintiffs and Christopher held an "interest in [AF's] joint venture . . . or in his brother's share of the profits." Id. at 8. We also limited the scope of remand and "reverse[d] . . . for further proceedings" to address "the claims of diversion of corporate assets, the adequacy of compensation for the use of corporate assets," and issues related to the "distinct issue" of harm suffered by plaintiffs by virtue of Joseph's divided interests. Ibid. The trial court was expressly directed to focus on whether the compensation paid to plaintiffs by AF was adequate; and what, if any, damage plaintiffs suffered as a result of Joseph's absence while working on AF's projects.
We reject plaintiffs' assertion that the remand judge "eviscerated the [s]cope of [r]etrial and prevented discovery on the claims in question." Our opinion did not permit plaintiffs to again open all issues alleged in their complaint; rather it limited consideration to whether Joseph's conduct breached the shareholder agreement, causing plaintiffs' damages. Remand did not restart the matter allowing plaintiffs to reassert all claims in their complaint. Rather, discrete issues were identified for trial. In that light, the discovery limitations imposed were proper and not prejudicial.
We also find unfounded plaintiffs' contention the law of the case doctrine binds the remand judge to adhere to the views of his colleague who conferenced the matter and discussed the scope of retrial before he assumed responsibility for trial. Not only is the law of the case doctrine "discretionary" "calling upon the deciding judge to balance the value of judicial deference for the rulings of a coordinate judge against those factors that bear on the pursuit of justice and, particularly, the search for truth[,]" Lombardi v. Masso, 207 N.J. 517, 538-39 (2011) (internal quotation marks and citation omitted), but also the prior discussions did not constitute "a ruling on the merits." Id. at 539.
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Finally, we disagree with the proposition the remand judge inappropriately applied Rule 4:38-2(b), by bifurcating liability and damages. From the outset, all reviewing judges determined the matter lent itself to bifurcation.
Bifurcation of liability and damages is appropriate
[w]henever multiple parties, issues or claims are presented . . . and the nature of the action . . . is such that a trial of all issues as to liability and damages may be complex and confusing, or whenever the court finds that a substantial saving of time would result from trial of the issue of liability in the first instance, the court may on a party's or its own motion, direct that the issues of liability and damages be separately tried.A severance order may be reversed only upon finding an abuse of discretion. Brown v. City of Bordentown, 348 N.J. Super. 143, 147 (App. Div. 2002). See also Pressler & Verniero, supra, comment 1 on R. 4:38-2 ("Ordinarily the severance determination rests in the trial judge's discretion."). This might occur where the issues of liability and damages are inexorably intertwined. Tobia v. Cooper Hosp. Univ. Med. Ctr., 136 N.J. 335, 339 (1994).
[R. 4:38-2(b).]
Plaintiffs never challenged the initial determination to bifurcate the trial on their appeal. On remand, the issues of liability were discrete and did not include review of bifurcation.
In light of the affirmance of the trial court's finding on AF's ownership and profits, any challenge to bifurcation was foreclosed. The remand judge continued to bifurcate liability and damages without objection. Considering the manner in which this matter proceeded, we cannot find the remand judge abused his discretion.
Plaintiffs rely heavily on Cameco, which addressed whether, in the context of defeating a motion to dismiss a plaintiff's complaint at the close of its case, "[an] employer may prove a prima facie case for an employee's breach of [his or her] [duty of loyalty to the employer] by proving, not that the employee directly competed with the employer, but that the employee merely assisted the employer's competitor." Cameco, supra, 157 N.J. at 509. The defendant was the plaintiff's salaried transportation coordinator. Id. at 511. The defendant and his wife started a business coordinating transportation services for others, including two of the plaintiff's competitors. Id. at 515. The plaintiff failed to prove specific compensatory damages. Id. at 515. Although the court agreed the plaintiff's allegations of conversion, unjust enrichment, and tortious interference with contractual advantage were properly dismissed, id. at 514-15, it found the dismissal of the breach of loyalty claim improper. Id. at 514-15, 522-23.
In Cameco, noting each case turns on its individual facts, id. at 517-18, the Court provided a non-exhaustive list of considerations "relevant" to determining both liability and damages. Id. at 521. The Court also stated:
In an appropriate case, damages may include profits the employee earned in another enterprise while still employed, see Chernow v. Reyes, 239 N.J. Super. 201, 205 (App. Div.), certif. denied, 122 N.J. 184 (1990), and compensation for a direct injury suffered by the employer as a result of the employee's breach, see United [Bd.] & Carton[ Corp. v. Britting, 63 N.J. Super. 517, 532-33 (Ch. Div. 1959), aff'd, 61 N.J. Super. 340 (App. Div.), certif. denied, 33 N.J. 326 (1960)]. . . . If the employee usurped a corporate opportunity or secretly profited from a competitive activity, the employer may recover the value of the lost opportunity or the secret profit.
Generally, to recover money damages, the employer must establish that the
employee's breach proximately caused the requested damages. . . .
Finally, in addition to more traditional damages, an employer may seek forfeiture of its employee's compensation. As with other aspects of breach-of-duty cases, the facts color an employer's right to recoup compensation.
[Id. at 518-19.]
Plaintiffs suggest Cameco allows a percentage of AF's profits to be considered as plaintiffs' damages. We disagree, noting that issue already had been decided. Royce, supra, slip op. at 8. Plaintiffs' entitlement was to recover compensation for direct injury suffered as a result of Joseph's use of corporate assets and his time away from plaintiffs' business. Quantifiable measures of damages resulting from Joseph's breach could include: compensation paid to Joseph, who failed to perform his duties to plaintiffs; proof of the value of perquisites Joseph kept despite his failure to provide the required level of services; possible business opportunities lost because of Joseph's absence; expenditures for personnel to perform Joseph's duties; or the cost of depreciation, repair, replacement and rental of equipment used by AF. Instead, plaintiffs opted to proffer no damage evidence, suggesting the only measure was AF's profits, a dangerous strategy in light of prior determinations. Plaintiffs expressly declined to proceed with proofs during the damage portion of the remand hearing. Indeed, it was plaintiffs' disagreement on the manner damages should be measured, which prevented their ability to proceed, not the judge's determinations.
Addressing plaintiffs' remaining claims, we note, recoupment of Joseph's salary, which incidentally is a quantifiable measure of damages, was not sought, and prejudgment interest applied only to a quantifiable damage award, which was not entered.
Additionally, "[p]unitive damages may be awarded only if compensatory damages have been awarded in the first stage of the trial. An award of nominal damages cannot support an award of punitive damages." N.J.S.A. 2A:15-5.13(c). Finally, plaintiffs fail to frame the basis of a counsel fee award. We identify the oppressive minority shareholder statute, which includes this discretionary fee provision:
If the court determines that any party to an action brought under this section has acted arbitrarily, vexatiously, or otherwise not in good faith, it may in its discretion award reasonable expenses, including counsel fees incurred in connection with the action, to the injured party or parties.See Torres v. Schripps, Inc., 342 N.J. Super. 419, 438 (App. Div. 2001). However, plaintiffs did not marshal their proofs to satisfy these provisions before the trial court and it is impermissible for them to do so on appeal. Any remaining arguments not specifically addressed are found to lack sufficient merit to warrant discussion. R. 2:11-3(e)(1)(E).
[N.J.S.A. 14A:12-7(10).]
Affirmed.
I hereby certify that the foregoing is a true copy of the original on file in my office.
CLERK OF THE APPELLATE DIVISION