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State v. Croland

Decided: March 23, 1959.


Goldmann, Conford and Haneman. The opinion of the court was delivered by Conford, J.A.D.


The defendants Croland and Zalk were convicted of the fraudulent conversion of two sums of money, $7,043.57 and $4,575.88, of the C.J. Simons Corporation, in violation of N.J.S. 2 A:102-3. That statute reads as follows:

"Any director, member or officer of any corporation or association who fraudulently takes, misapplies or misuses any money or property of the corporation or association, is guilty of a misdemeanor."

The indictment charges that Croland was secretary and treasurer of the corporation. The prosecution of Zalk was on the theory that he aided and abetted Croland in the crime. Zalk appeals; Croland does not. The main ground of the appeal is that the disbursement of the moneys mentioned was not in fraud of the C.J. Simons Corporation, nor intended to defraud it, and that the court should have directed an acquittal.

Croland had for years been associated as an insurance broker with the well-established Newark insurance agency of C.J. Simons & Company, a corporation entirely owned and controlled by Charles J. Simons. Croland having brought a considerable amount of group insurance business to the concern, he and Simons decided in 1947 to organize a new and separate corporation, to handle group insurance exclusively. Thus they established C.J. Simons Corporation ("Simons Corp." hereinafter). Each was to own 50% of the stock; both were to sign all checks; but complete operational direction of the corporation was rested in the hands of Croland, the group insurance specialist, Simons' time being fully occupied by the business of the other firm.

This policy was carried out, Simons doing nothing more than to sign checks. The Simons Corp. prospered, achieving an annual gross premium business of well over $2,000,000 by 1953.

Croland succeeded in writing a considerable amount of group insurance for union welfare funds -- a fairly recent development of collective bargaining by which employers pay for the purchase of insurance benefits for employees, the welfare funds being generally managed by boards of trustees divided equally between representatives of the unions and of management. The indictment in the present case arose out of an investigation by the United States Senate in 1955 of certain improper practices in the management of these funds, prominent among which was a so-called "kickback racket" by which the placement of the large and lucrative insurance business arising from these funds was made the means of cash payments to designated beneficiaries in the guise of "commissions" or "administration fees" actually unearned by the payees.

In a voluntary statement under oath given the Essex County Prosecutor's Office by Croland, and introduced by the State with his consent at the trial herein, he explained that in 1950 he became interested in getting trucking welfare fund insurance business and solicited Jacob L. Levey, a Jersey City lawyer (who died in August 1955), therefor. Levey was counsel to trucking management interests. Eventually this led to the Simons Corp. becoming general agent on group insurance for several trucking welfare funds, including the Passaic and Bergen Counties Trucking Employees Welfare Fund ("Passaic and Bergen Fund" hereinafter), the carrier being the Continental Insurance Company, with executive offices in Chicago. The defendant Zalk was the administrator of this and other such funds, paid for his services as such by the fund trustees. The coverage on the Passaic and Bergen Fund continued until the end of the year 1954. Some three to five months after the first premiums were paid, according to Croland's statement, Levey sent for him and told him he would have to pay "administration

expenses" and "commissions" to "various individuals." Croland protested that he had done all the work, but was told, "Well, you didn't think for a moment this was all going to be yours," and "Unless you do that, why, you are going to lose the business." Levey said he could get equal amounts from other companies if Croland balked. Croland, feeling "[his] hands were tied," capitulated under the Levey demands.

Levey, so the Croland statement went, designated the amounts and persons to be paid. (It would appear that additional welfare funds beyond the Passaic and Bergen Fund were implicated in these negotiations.) Croland mailed checks to the indicated designees from time to time, usually quarterly. Levey told Croland they were all licensed brokers.

"A year or two" after these practices began Levey for the first time designated Zalk as a payee of commissions and administration expenses on the Passaic and Bergen Fund insurance. Two payments by the Simons Corp. to Zalk, made as a result of these arrangements, a check for $7,043.57 on May 6, 1953, and another for $4,575.88 on August 31, 1953, are the subject matter of the indictment in this case. Zalk was not in fact a licensed broker. According to other proofs in the case, Croland prepared vouchers for these checks, breaking the first payment down to $1,751.12 for "administration" and $5,292.45 for "commission"; and the second one into $1,627.42 for "administration" and $2,948.46 for "commission." The "administration" components were exactly 5% of the premiums, the first for the period December 1952 to March 1953, and the second from April to June 1953, both inclusive. The "commission" items were calculated at the regular rates which would be payable to any broker responsible for forwarding the business to the Simons agency or specified by the purchaser of the insurance. ...

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