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Grober v. Kahn

Decided: May 2, 1966.


For reversal -- Chief Justice Weintraub and Justices Francis, Proctor and Hall. For affirmance -- Justices Jacobs and Schettino. The opinion of the court was delivered by Weintraub, C.J. Jacobs, J. (dissenting). Justice Schettino joins this dissent.


The question is whether plaintiff is entitled to counsel fees and expenses incurred in proving his case. The trial court held our rule of court did not authorize an allowance. Grober v. Kahn, 83 N.J. Super. 382 (Ch. Div. 1964). The Appellate Division, holding there was power to make an award, remanded the matter to the trial court for reconsideration in that light. 88 N.J. Super. 343 (App. Div. 1965). We granted cross-petitions for certification. 45 N.J. 596 (1965).


Plaintiff Grober was an officer of a corporation, Condenser Service & Engineering Co., Inc. (herein Condenser), controlled by defendant Kahn. A New York attorney who had represented Condenser before Kahn acquired it and had become friendly with Grober, brought to Grober's attention

a business opportunity involving Camden Forge Company (herein Camden Forge), also represented by that attorney. Grober laid the proposal before Kahn. The transaction which emerged involved (1) the purchase by Condenser of the merchandise inventory and raw material of Camden Forge at 60% of its book value of $1,000,000; (2) completion by Condenser of work in progress, as to which Camden Forge would receive 50% of the profits; and (3) purchase by defendant Kahn of remaining tangibles, real and personal, of Camden Forge for $500,000.

This controversy arises out of the third aspect of the transaction, the acquisition by Kahn of the remaining assets of Camden Forge. As to that matter, a written agreement was executed by Grober and Kahn, which, after reciting that Kahn had acquired those assets from Camden Forge for $500,000, $495,000 of which Kahn had borrowed from another corporation wholly owned by him, provided that in consideration of $1,250 paid by Grober, a like sum paid by Kahn's wife, and $675 paid by each of Kahn's two daughters, Kahn assigned and transferred to Grober and Mrs. Kahn 25% each and to Kahn's daughters 12 1/2% each of Kahn's right, title and interest in those assets. Kahn retained the sole power of disposition. The contract called for Kahn to liquidate all the real and personal property and to disburse the net proceeds in accordance with the percentage interests just stated.

Grober brought the present action against all of the Kahns, seeking dissolution of this "joint venture," as he labels it, and an accounting and the payment to him of his share of the net proceeds. Kahn denied the writing held by Grober was the true agreement. Much of the trial involved that controversy, and as to it Grober prevailed. Part of the trial concerned Grober's allegation that Mrs. Kahn and the daughters were mere fronts for Kahn. The significance of that allegation is not apparent to us but in any event Kahn and his family prevailed on that allegation. Finally the trial concerned the accounting phase, as to which the trial court

found that Kahn was chargeable with net receipts (after the payment of the $495,000 loan mentioned above and other expenses of liquidation) of $431,400.60, and with interest thereon for a total of $506,572.81. Each of the daughters was found liable jointly with Kahn for $3,000 received from him. The trial court found that $250,000 of the principal figure had been loaned to Condenser with Grober's actual consent. The balance of $181,400.60, which is less than Grober claimed, represents the additional sums the trial court found Kahn had received from the sale of assets but had not accounted for.

Grober's interest in the sum of $506,572.81 just mentioned is 25% thereof, against which quarter interest Kahn was adjudged entitled to a credit of $39,080.43, arising out of a payment made by Kahn to Internal Revenue on Grober's account. Nonetheless Grober sought out of the "fund" a counsel fee of $100,000, accountant's fee of $40,000, and allowance for the fees paid to appraisers whom he employed in the prosecution of the case. In denying an allowance the trial court said (83 N.J. Super., at pp. 386-387):

"Plaintiff urges that this proceeding is a class action. Disregarding form and looking to the substance of the instant litigation, it is apparent that plaintiff actively engaged in an action directed mainly against defendant Herman Kahn and incidentally against Kahn's wife and two daughters. Plaintiff basically sought a determination of his interest in the joint venture and an accounting from the managing fiduciary, Herman Kahn, for funds of the joint venture allegedly misappropriated. The complaint sought to defeat the rights of Kahn's wife and two daughters. Plaintiff unsuccessfully urged that they were 'fronts' for Herman Kahn, with no genuine interest in the joint venture. Obviously, plaintiff's litigation was not designed to benefit any of the defendants. As I noted in my opinion in this case, dated February 21, 1964:

'It is further observed, as one would naturally expect, that Mrs. Kahn and the two daughters have joined in the defense with Kahn and apparently acquiesced in his handling of their interest in the joint venture. Hence for all practical purposes the Kahn family presents a united 75% interest opposed to the claims of plaintiff.'

The services rendered by plaintiff's counsel were to advance the claims of his client and no one else. There can be no clearer case of an adversary proceeding."

The trial court deemed controlling our decision in Sunset Beach Amusement Corporation v. Belk, 33 N.J. 162 (1960). The Appellate Division thought the situation came within Sarner v. Sarner, 38 N.J. 463 (1962), and on that basis held there was a "fund in court" within the meaning of R.R. 4:55-7 which reads in part:

"No fee for legal services shall be allowed in the taxed costs or otherwise, except:

(b) Out of a fund in court. The court in its discretion may make an allowance out of such a fund, but no allowance shall be made as to issues triable of right by a jury. * * *"

Although on that premise the Appellate Division remanded the matter for reconsideration, it made it plain that the trial court might, in the exercise of its discretion, again deny an allowance, saying (88 N.J. Super., at p. 358):

"In holding that the trial court could have allowed a counsel fee to plaintiff's attorney, we wish to make it clear that we are not deciding that a counsel fee should have been awarded, or that plaintiff's attorney is entitled as of right, under the circumstances of this case, to a counsel fee. Where the case is one involving a 'fund in court,' the allowance of a counsel fee rests within the 'discretion' of the court. R.R. 4:55-7(b). For aught we know, the trial court, upon a reconsideration of the application for counsel fees in the light of our opinion, may in its discretion and for valid reasons decide that no counsel fee should be allowed plaintiff's attorney. The opinion of the trial court on the main issue portrayed plaintiff, as well as defendant Kahn, as unworthy individuals, each with unclean hands. If the trial court in its discretion does allow plaintiff's attorney a counsel fee, the quantum thereof is for the trial court to fix."

So also with respect to fees paid by Grober to his accountant and appraisers, the Appellate Division said that "Here, too, the trial court may * * * very well adhere to its previous exercise of discretion and, perhaps, for good reason deny again plaintiff's application for payment * * *." (88 N.J. Super., at p. 359.)

Plaintiff contends the Appellate Division should have held a proper exercise of discretion requires allowances to be made. He complains also of the statement by the Appellate Division

that plaintiff's "unclean hands" would be a proper consideration. Basic to plaintiff's position is the claim that this litigation conferred a "benefit" upon Kahn and his family; that this being so, they should share the cost of that "benefit"; and that their enjoyment of the benefit is no less because of his, Grober's, "unclean hands."

But the claim that Grober enriched the Kahns by this suit against them rests in fantasy. The claim is dispelled on the face of the complaint itself. Drawn with an eye toward allowances, the complaint asked that Grober have "his reasonable costs, expenses, including accountants' fees, and counsel fees to be paid by the defendant, Herman Kahn, or out of his share of the trust property, or out of the fund in court." To that end the first paragraph alleged that Grober "brings this action for and on behalf of himself and all others similarly situated, having an interest in the joint venture hereinafter described." Who are those "others"? Kahn could hardly be among the beneficiaries of the suit against him. The only "others" who could be similarly situated would be Mrs. Kahn and the daughters, but as to them the complaint proceeded to charge that they were merely fronts for Kahn and prayed a judgment to that effect as well as the recovery of moneys from the daughters. That left Grober as the sole party in interest in the prosecution of the action, as the trial court accurately held. And the trial court also having found that, notwithstanding he came out on top on the record of the trial, Grober does not, as a suitor, rank above the man he bested, ...

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