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Freidus v. Kaufman

Decided: May 17, 1955.


Haneman, J.s.c.


Plaintiffs herein seek the dissolution of the Chelsea Hotel Corporation under the Deadlocked Corporation Act, N.J.S.A. 14:13-15, and for the appointment of a receiver of said corporation.

The complaint herein was filed on February 25, 1955 and contained voluminous affidavits and exhibits, to which more particular reference is hereinafter made.

On February 11, 1955 this court granted an order to show cause under the terms of which the defendants were directed to show cause why the defendant corporation should not be dissolved pursuant to N.J.S.A. 14:13-15, and a statutory receiver appointed for said corporation. The order further directed "that defendants show cause why such further and other relief should not be granted as may be just and proper." Plaintiffs as well sought the consolidation of the present action with an action in lieu of prerogative writ commenced in the Superior Court, Law Division, Atlantic County, entitled Joseph E. Kaufman and Chelsea Hotel Corporation v. Martin Shamberg.

Upon the return day of the order to show cause the defendants did not make any motion nor file an answer, but filed controverting affidavits denying that the plaintiffs were entitled to the relief demanded on the grounds that (1) under the provisions of N.J.S.A. 14:13-15 the action must be plenary and not summary; (2) plaintiffs having participated in the above referred to action commenced in the Law Division, are precluded from maintaining the present action; (3) the complaint and affidavits do not contain any proof of a deadlock.

As far as here material, it is admitted by the affidavits of both defendants and plaintiffs that the defendant corporation, as originally organized, authorized the issuance of 2,000 shares of capital stock in the following amounts, i.e. , 500 shares to Jacob Freidus, 500 shares to Claire Freidus, wife of Jacob Freidus, 500 shares to Joseph E. Kaufman and 500 shares to Zelda Kaufman, wife of Joseph E. Kaufman. The stock as so authorized was actually issued to said persons in the amounts as above set forth.

Plaintiffs allege that 601 West 26 Corp. is the present owner of the stock initially issued to them and having been by them assigned to it. They further allege that they are qualified directors of the defendant corporation, under N.J.S.A. 14:7-2, since they are bona fide shareholders holding 25% of the capital stock in said 601 West 26 Corp.

The defendants, on the other hand, although admitting the assignment of the stock to said 601 West 26 Corp., allege that by virtue of article 4, section 1 of the by-laws of the defendant corporation, which reads, in part, as follows: "Every director must be the registered bona fide owner of at least one share of stock in the corporation," the individual plaintiffs became disqualified to hold office as directors upon their failure to retain, individually, at least one share of stock each. The defendants further allege that as a result of a meeting of the two defendants Kaufman as surviving directors, held on August 10, 1954, due notice of which was given to the plaintiffs Freidus, one Sidney Kaufman, the owner of one share of stock, apparently assigned to him by one or the other of the Kaufmans, was elected a director of said corporation.

It is to be noted in this connection that in the action commenced by the individual defendants in the Law Division of the Superior Court the defendant Joseph E. Kaufman filed an affidavit dated August 10, 1954 in which he then alleged that neither of the individual plaintiffs were qualified directors of the defendant corporation, since "Jacob Freidus, for more than four years, has not been a stockholder" and "Claire Freidus has also assigned or transferred some or all

of her stock in the Chelsea Hotel Corporation." In that action, he alleged that he was unable to obtain custody of the books and records of the corporation and could therefore not ascertain when or to whom their respective shares of stock had been assigned.

Insofar as the defendants' first defense is concerned, I agree that the proceedings under N.J.S.A. 14:13-15 should not be here heard in a summary manner upon affidavits which, as here, raise issues of fact, but should be processed as in a plenary action, wherein a summons has been issued, by the filing of an answer, and the normal plenary proceedings thereafter. R.R. 4:85-4. A proceeding of this type is so harsh and of such importance and moment that there must be afforded and accorded to the respective parties litigant the full benefit not only of the pretrial discovery provisions of our rules, but also of a final hearing and the attendant opportunity to confront and cross-examine witnesses. In re Evening Journal Association , 1 N.J. 437 (1949); RKO Theatres v. Trenton-New Brunswick Theatres Co. , 9 N.J. Super. 401 (Ch. Div. 1950).

I find no merit in defendants' contention that an action under N.J.S.A. 14:13-15 may not be commenced in a summary manner. This statute, in part, reads as follows:

"The provisions of chapter thirteen of Title 14 of The Revised Statutes shall be applicable hereto, except so far as they be ...

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