Opinion
DOCKET NO. A-1054-14T3
03-15-2016
SOUTHRIDGE PARTNERS, L.P., a Delaware Limited Partnership, Plaintiff-Respondent, v. RAYMOND F. AKERS, Defendant-Appellant.
Roger C. Mattson and Richard A. Roth (The Roth Law Firm) of the New York bar, admitted pro hac vice, attorneys for appellant (Mr. Mattson and Mr. Roth, on the brief). DeCotiis, FitzPatrick & Cole, LLP, attorneys for respondent (John Profita, on the brief).
NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION Before Judges Haas and Manahan. On appeal from the Superior Court of New Jersey, Law Division, Gloucester County, Docket No. L-922-11. Roger C. Mattson and Richard A. Roth (The Roth Law Firm) of the New York bar, admitted pro hac vice, attorneys for appellant (Mr. Mattson and Mr. Roth, on the brief). DeCotiis, FitzPatrick & Cole, LLP, attorneys for respondent (John Profita, on the brief). PER CURIAM
Defendant Raymond Akers appeals from an order entering judgment in favor of plaintiff Southridge Partners, L.P., in the amount of $348,178.95. The judgment was predicated upon a deficiency in satisfaction of a monetary settlement. Based upon our review of the record and the applicable law, we affirm the entry of judgment but assume jurisdiction and modify the amount of the judgment. R. 2:10-5.
On May 20, 2011, plaintiff filed a complaint against defendant based on defendant's failure to repay a loan advanced on a promissory note. On March 22, 2013, the parties entered a settlement agreement and mutual general release. A stipulation of dismissal with prejudice was entered on April 8, 2013.
Pursuant to the terms of the settlement agreement, plaintiff agreed to accept $625,000 in satisfaction of defendant's debt. Plaintiff further agreed to accept in lieu of a cash payment, seven million shares of stock in Akers Biosciences, Inc. (ABI), which was then trading on the AIM stock exchange in London, England. The parties anticipated that a demerger of ABI would take place on or before May 31, 2013, and a new company (Newco) would form in the United States and trade on the New York stock exchange at a substantially higher value. As a result, it was anticipated that plaintiff would be able to sell the shares at a value equal to or greater than the settlement amount.
The settlement agreement states, in pertinent part:
[Plaintiff] shall not sell, assign or transfer for value any of the AIM Shares on or before the earlier of (a) the record date of the demerger of [ABI] from the AIM or (b)
May 31, 2013. Subsequent to the record date of demerger, the timing of the sale of the AIM Shares shall be at the discretion of [plaintiff], but in no event until after the record date of demerger or May 31, 2013, whichever comes first. Subsequent to the demerger, the timing of the sale of the Newco Shares shall be at the discretion of [plaintiff], but in no event earlier than the date the gross sale proceeds of all shares equals or exceeds [$625,000] less the proceeds from the sale of the AIM Shares or December 31, 2013 whichever may first occur. . . . In the event the [gross proceeds of the sale of the settlement shares] is less than the sum of $625,000, [defendant] agrees that at any time after December 31, 2013, [plaintiff] shall be entitled to a judgment for the deficiency against [defendant], and [plaintiff] shall have the right to make an ex parte application to the court . . . for the entry of a judgment in favor of [plaintiff] and against [defendant] in an amount equal to the sum of $625,000, less the [g]ross [p]roceeds of the [s]ettlement [s]hares. In the event [plaintiff] sells the Newco shares prior to December 31, 2013 and the [g]ross [p]roceeds are less than $625,000[,] [plaintiff] shall not be entitled to a judgment against [defendant] for any deficiency.
Due to the anticipated demerger, the resultant formation of Newco, and the potential increase in the value of the stock, the parties agreed that plaintiff could not sell any shares prior to May 31, 2013, or the date of the demerger, whichever came first. The parties further agreed that plaintiff could sell the stock in its discretion after May 31, 2013, or the date of the demerger. However, the Newco shares could be sold after demerger or May 31, 2013, only if the shares reached at least $625,000 in value. If the Newco shares did not reach $625,000 in value by December 31, 2013, plaintiff was permitted to sell the shares after that date.
Thus, the agreement specified that the Newco shares, not the ABI shares, could be sold only subject to certain qualifications within the window of time between May 31, 2013 (or the date of the demerger), and December 31, 2013. However, after May 31, 2013, plaintiff could sell the AIM shares at its discretion — assuming the demerger did not occur by that date. The settlement agreement also stipulated that following the sale of all of the shares, plaintiff could file an "ex parte application" for a judgment in the amount of the deficiency between $625,000 and the value received for the shares, if such a deficiency existed.
Plaintiff received the ABI shares, endorsed by defendant, on or about March 22, 2013. The anticipated demerger never occurred and Newco was never formed. On July 8, 2013, for reasons unexplained in the record, plaintiff elected to assign (without receiving any value) 840,624 of its ABI shares to four "limited partners" over which plaintiff had no control. In November 2013, ABI "reverse-split" at a rate of 156 shares to 1, leaving plaintiff in control of 39,483 shares, and leaving the "limited partners" with 5,388 shares. Plaintiff sold its remaining shares on January 6 and 8, 2014, for a price totaling $238,324.33.
On March 20, 2014, plaintiff noticed defendant of its sale of the shares, and for the purposes of the settlement agreement, valued the assigned shares at $38,683.15 using the trading value of the stock as of January 2, 2014. Utilizing the assigned shares as well as those sold, plaintiff valuated the gross proceeds from the shares at $277,007.50, leaving a deficiency of $347,992.50.
While there is no explanation in the record why plaintiff proposed this date, plaintiff reasoned in subsequent filings and in this appeal that the date of January 1, 2014 should be used because it was the first possible date plaintiff was permitted to seek a deficiency judgment pursuant to the terms of the settlement agreement.
On May 22, 2014, plaintiff filed an ex parte application for judgment, on notice to defendant, requesting a judgment in the amount of $347,992.50. Defendant opposed the motion, arguing that: (1) plaintiff failed to apply a $50,000 credit to his obligation under the settlement; and (2) plaintiff improperly and prematurely sold a portion of the shares on July 8, 2013 and, as a result, violated the agreement and was not entitled to a judgment. Defendant also noted that plaintiff violated the agreement by failing to notify defendant within ten days of the sale that the shares had been sold. Plaintiff denied the allegations, repeatedly asserting in its supplemental briefs and in a certification by a managing partner for plaintiff that the settlement agreement was not violated because the shares were assigned, not sold, and that "[n]othing was recovered as value by [plaintiff] as a result of a reissuance of the shares. No purchase price was paid by the limited partners to [plaintiff] for the shares." Plaintiff also repeated its concession that the assigned shares could be valued at the price used in January 2014.
Following oral argument on July 25, 2014, the judge denied the motion without prejudice, and permitted plaintiff to refile the motion subject to additional research by the parties regarding the July 8, 2013 transfer. Defendant also withdrew his argument that he was entitled to a $50,000 credit against the settlement amount.
Plaintiff refiled a motion for judgment on August 19, 2014. In its application, plaintiff offered three possible valuations for the assigned shares: $13,150 for the trading value on July 8, 2013; $59,509 for the highest historic trading value between June 3, 2013 and February 28, 2014, which occurred on November 11, 2013; and $38,496.72 for the trading value on January 1, 2014. Defendant opposed the motion, arguing that plaintiff was not entitled to relief because it either prematurely sold shares in violation of the agreement or, alternatively, plaintiff had not yet sold all of the settlement shares and therefore could not initiate an application for judgment. Plaintiff did not offer any argument whether the July 8, 2013 transfer was a sale in its second motion. Instead, plaintiff characterized the transaction as a "transfer" and asserted that it had no control over the limited partners.
Though not relevant to the outcome of this appeal, we note a slight variation between the proposed valuation of the assigned shares in plaintiff's March 20, 2014 notice to defendant, and the proposed valuation offered in plaintiff's second motion for judgment.
On September 23, 2014, the judge held in an oral opinion that the July 8, 2013 transfer was a sale. The judge also held that the July 8, 2013 "sale" was not a violation of the settlement agreement because the demerger never took place and therefore, pursuant to the terms of the agreement, plaintiff had the right to dispose of the shares after May 31, 2013. However, relying on plaintiff's concession to the January 1, 2014 value for the shares that were "sold" on July 8, 2013, the judge valuated all of the gross proceeds at $276,821.05 ($238,324.33 for the January 2014 sale, plus $38,496.72 for the value of the assigned shares), and entered a judgment in the amount of the $348,178.95 deficiency. This appeal follows.
Defendant raises the following arguments on appeal:
POINT I
THE [TRIAL COURT] ERRED WHEN IT GRANTED [PLAINTIFF'S] MOTION FOR FINAL JUDGMENT.
POINT A
[PLAINTIFF] HAS NOT SOLD ALL OF THE SETTLEMENT SHARES IT WAS PROVIDED, WHICH IT WAS OBLIGATED TO DO BEFORE SEEKING RELIEF.
POINT B
[PLAINTIFF] VIOLATED THE INTENT OF THE SETTLEMENT AGREEMENT.
POINT C
THE GRANTING OF THE MOTION WAS PREMATURE.
Since no formal order or judgment was entered memorializing a settlement, defendant's motion is not governed by Rule 1:10-3. Haynoski v. Haynoski, 264 N.J. Super. 408, 413-14 (App. Div. 1993). The agreement is governed by contract principles, as plaintiff was, in effect, seeking to enter judgment by enforcing the terms of the settlement agreement.
As the matter was resolved pursuant to the terms of a settlement agreement and the underlying litigation was dismissed with prejudice, we reject defendant's contention that plaintiff's motion was one for summary judgment.
"A settlement agreement between parties to a lawsuit is a contract." Nolan v. Lee Ho, 120 N.J. 465, 472 (1990). Since the "settlement of litigation ranks high in our public policy," Jannarone v. W.T. Co., 65 N.J. Super. 472, 476 (App. Div.), certif. denied sub nom., Jannarone v. Calamoneri, 35 N.J. 61 (1961), "settlement agreements will be honored 'absent a demonstration of fraud or other compelling circumstances.'" Nolan, supra, 120 N.J. at 472 (quoting Pascarella v. Bruck, 190 N.J. Super. 118, 125 (App. Div.), certif. denied, 94 N.J. 600 (1983)).
Interpretation and construction of a contract is a matter of law for the trial court, subject to de novo review on appeal. Kaur v. Assured Lending Corp., 405 N.J. Super. 468, 474 (App. Div. 2009); Fastenberg v. Prudential Ins. Co. of Am., 309 N.J. Super. 415, 420 (App. Div. 1998).
We commence by addressing whether the July 8, 2013 transaction constituted a "sale." The ABI shares, which qualify as securities pursuant to N.J.S.A. 49:3-49(m), are subject to the regulatory provisions of the Uniform Securities Law, N.J.S.A. 49:3-47 to -83. The Uniform Securities Law, specifically N.J.S.A. 49:3-49(j)(1), defines "[s]ale" or "sell" as "every contract of sale of, contract to sell, or disposition of, a security or interest in a security or investment advisory services for value[.]" (emphasis added). Although addressing the issue in a different context, we have previously provided guidance on the definition of a "sale" of securities:
Although New Jersey has legislated in this area by adoption of the Uniform Securities Law, [] federal law dominates. The federal statutory definitions of the purchase and sale of securities are no different than our definitions. The Securities and Exchange Act of 1934 defines "purchase" to mean "any contract to buy, purchase, or otherwise acquire." 15 U.S.C.A. § 78c(a)(13). And it defines "sale" as "any contract to sell or otherwise dispose of." 15 U.S.C.A. § 78c(a)(14).
[Federal Ins. Co. v. Campbell Soup Co., 381 N.J. Super. 190, 196 (App. Div. 2005), certif. denied, 186 N.J. 365 (2006).]
Chapter 8 of our Uniform Commercial Code (UCC), N.J.S.A. 12A:8-101 to -601, does not provide a definition for "sale" in the securities context. Although generally limited to transactions relating to the sale of goods "unless the context otherwise requires[,]" a "sale" in Chapter 2 of the UCC "consists in the passing of title from the seller to the buyer for a price . . . ." N.J.S.A. 12A:2-106(1) (emphasis added).
Chapter 8 does, however, define a "security" as "[a] share or similar equity interest issued by a corporation, business trust, joint stock company, or similar entity . . . ." N.J.S.A. 12A:8-103(a).
In DeVito v. Sheeran, 165 N.J. 167, 184-89 (2000), the Court addressed whether the transfer or exchange of interest in stock constituted a "sale" subject to the statute of frauds under the UCC. The Court looked to foreign jurisdictions for guidance on the definition of "sale" in the securities context. Id. at 185-87. The Court concluded that the "allocation of interest" in the concerned entities was only "one part of an overall agreed upon . . . venture. In that context, the allocation of interests . . . was not a sale of securities, but rather was an incident to an overall . . . enterprise in which the individuals intended to work together . . . ." Id. at 187-88. Implicit in the Court's analysis and decision is the requirement that a transferor receive value or consideration in exchange for the transfer or exchange of securities. See generally id. at 184-89.
Here, plaintiff did not receive any value, remuneration, or consideration in exchange for transferring ABI shares to the "limited partners." Although the judge correctly held that plaintiff did not breach the contract by effecting a transfer (regardless of whether that transaction was a sale) after May 31, 2014, in light of the foregoing analysis, we disagree with his determination that the July 8, 2013 transaction was a "sale."
Since no formal discovery was exchanged at the trial level or otherwise presented in the record on appeal, we accept for the purpose of our decision, plaintiff's assertion that the transaction was an "assignment." --------
The settlement agreement clearly provided for plaintiff to sell the shares it received from defendant, whether they be ABI shares or Newco shares, to satisfy in whole or in part the settlement amount of $625,000. Plaintiff's unilateral election to assign some of those shares without receiving value was in discord with the intent and spirit of the agreement. Even though it has not been argued by defendant (nor do we conclude) that the assignment violated the covenant of good faith and fair dealing, plaintiff should not benefit from their conduct by the selection of a favorable valuation date of the shares.
As well, defendant's argument — that a judgment may not be entered since all of the shares were not sold by plaintiff — would lead to a result unaligned with the intent and spirit of the agreement. The shares subject to the July 8, 2013 transaction have been irrevocably transferred to "limited partners" over which plaintiff has no control. Under these circumstances, to conclude that the judgment cannot be triggered until all of the shares are sold would eviscerate the agreement by denying plaintiff the benefit of a bargain for which it waived its claim to $1,020,572 on a promissory note, for a substantially lesser amount.
When construing a contract, its terms must be given their "plain and ordinary meaning" and the agreement must be interpreted as a whole. Nester v. O'Donnell, 301 N.J. Super. 198, 210 (App. Div. 1997). "[W]here the terms of a contract are clear and unambiguous there is no room for interpretation or construction and the courts must enforce those terms as written." Karl's Sales and Service, Inc. v. Gimbel Bros., Inc., 249 N.J. Super. 487, 493 (App. Div.), certif. denied, 127 N.J. 548 (1991). Nor may the court make a better contract for the parties than they have seen fit to make, or to alter it for the benefit of one party or the other. Ibid.
"As a general rule, courts should enforce contracts as the parties intended[,]" and "it is a basic rule of contractual interpretation that a court must discern and implement the common intention of the parties." Pacifico v. Pacifico, 190 N.J. 258, 266 (2007). The court must consider the language of the contract and "in the context of the circumstances at the time of drafting and . . . apply a rational meaning in keeping with the 'expressed general purpose.'" Ibid. (quoting Northern Airlines, Inc. v. Schwimmer, 12 N.J. 293, 302 (1953)).
Although plaintiff had the authority to dispose of the AIM shares, by assigning rather than selling the shares, it frustrated the purpose of the settlement agreement as to the appropriate offset against the $625,000. By the agreement's terms, defendant was to benefit from the sale of the shares at their optimum value within the agreed upon window of time.
While plaintiff conceded to a valuation of the transferred shares as of January 1, 2014 ($38,496.72), it also submitted to the judge an alternative valuation as of November 11, 2013 ($59,509). In order to "implement the common intention of the parties" and in keeping with their "expressed general purpose[,]" Pacifico, supra, 190 N.J. at 266, we conclude the judgment amount should be calculated by a valuation of the assigned shares as of November 11, 2013 — the highest historic trading value for ABI stock. In application of that calculus, the judgment amount is amended to $327,166.67.
The entry of judgment is affirmed. The judgment amount is amended consistent with our holding. I hereby certify that the foregoing is a true copy of the original on file in my office.
CLERK OF THE APPELLATE DIVISION