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Konsuvo v. Netzke

Decided: May 27, 1966.


Lora, J.s.c.


These are consolidated actions by and between stockholders and officers of the defendant corporations in which plaintiff Peter Konsuvo seeks specific performance of an alleged agreement to sell stock, and Frank Cikutovich, Jr. and Thomas Cikutovich seek to restrain and enjoin such sale of stock and seek equitable relief from alleged attempted interference with existing corporate arrangements.

The parties to these actions are or have been all the stockholders of the two related defendant corporations, American Insulation Corporation and American Insulation Sales Co., Inc. The former corporation owns the real estate in Hackensack, New Jersey, at which the offices of the business are located; and the latter is the operating company, engaged as a competitive contractor in the business of insulating boilers, refrigeration and heating pipes, etc.

The individual defendants, other than the Cikutoviches and Konsuvo, filed no answers and did not formally appear in the case, although all were at the trial and testified. It was developed that George Brizich and Bel-Angela Mongelli are former stockholders and have no interest in the litigation. Vincent Dragich and Charles Karach hold the proxies of Robert Netzke and Mary Dickman, respectively, and are treated as the record and beneficial owners of their stock for purposes of these suits.

It has been stipulated that there are seven equal voting stock interests in the two corporations, which were formed in March 1959. These are held by plaintiff Peter Konsuvo, and Frank Cikutovich and Thomas Cikutovich, who are both

plaintiffs and defendants in the consolidated actions (the latter being a brother-in-law of Konsuvo's), and by defendants Nicholas T. Matich, Kruno Maricic, Charles Karach and Vincent Dragich.

Five of the seven equal stockholders, Peter Konsuvo, Frank Cikutovich, Thomas Cikutovich, Kruno Maricic, and Nicholas T. Matich, are salaried employees of the corporation, each receiving a weekly salary of approximately $267. Konsuvo is the president of the corporation, and the court finds he is the one among all of the stockholders who is fully familiar with the financial affairs and status of the corporations, the other stockholders, with the possible exception of Nicholas T. Matich, who assists Konsuvo in management, being concerned with the other aspects of the corporate business.

Under date of March 30, 1959 the parties entered into a "Stock Redemption Agreement" which prescribed the conditions under which any of the stockholders could offer his stock for sale. The agreement contains a provision that any stockholder desiring to dispose of any of his stock shall first give written notice to the corporation and to the other stockholders; that thereafter the corporation shall have 90 days within which to purchase such stock at its then net book value; that if the corporation does not purchase such shares within 90 days, said shares shall then be offered to the other stockholders at the same price, and each such stockholder shall have the right within 30 days to purchase his proportionate share of the stock offered for sale; that if any stockholder does not purchase his full proportionate allotment of the stock offered, the unaccepted stock may be purchased by the other stockholders; and that if all of the offered stock is not purchased before the expiration of the 90-day and 30-day periods, the offering stockholder may then dispose of his shares in any lawful manner, provided that he first give the corporation and the other stockholders the opportunity to purchase them on the same terms offered by any outsider.

The stock redemption agreement further provides that it "may be altered or amended in whole or in part at any time

by filing with this Agreement a written instrument setting forth such changes signed by the corporation and the stockholders."

On or about November 2, 1964 Brizich and his wife, who together owned one-eighth interest in the said corporations, decided to sell their holdings, and their interest was purchased by the corporations and their resignations accepted as directors.

The by-laws of the corporations were then amended to provide for seven members of the board of directors instead of the previous eight. The board of directors then consisted of the remaining stockholders.

Thereafter some dissension arose between the stockholders, principally Konsuvo and the Cikutoviches, Konsuvo stating that Frank Cikutovich and some of the others were not doing their jobs. On Sunday, September 19, 1965, Konsuvo called Maricic on the telephone and stated that he was sick and tired of everything and the way things were going, and that they could not go on the way they were -- he was either going to buy or sell his stock. Calls were made by either Konsuvo or Matich to several of the other stockholders, and on September 20 all of the stockholders received a notice of a proposed stockholders' meeting to be held on September 25.

The notice stated that the purpose of the meeting was

"A. To discuss and vote on any and all proposals of any stockholder or proxy of stockholder for the purchase or sale of stocks held by any or all of the stockholders.

B. To discuss possible change and to vote on any suggested changes in the 'buy and sell' agreement.

The attached sheet is one proposal which will be discussed at subject meeting but which is not the only proposal which may be discussed and voted on."

Attached to the notice of the meeting was a proposal by Peter Konsuvo

"(A) to buy any or all outstanding stock in American Insulation Corp. and American Insulation Sales Co., Inc. and to assume liabilities and assets in proportion to stocks then held or,

(B) to sell all shares of stock held in American Insulation Corp. and American Insulation Sales Co., Inc. and thereby release myself and heirs from all liabilities and assets in accordance with the terms outlined below. Sale or Purchase Price: $15,000.00. Terms: 20% down and balance paid in three (3) years at 6% interest on unpaid balance except that if five (5) or six (6) total holdings are sold then the payment would extend to five (5) years."

The by-laws of the corporation provided that a special meeting of the stockholders could be called on not less than ten days' notice; nevertheless, all the stockholders met at the offices of the corporation on September 25. John Tomasin, Esq., attorney for the corporations, who knew of "the principals' difficulties and unhappiness" for some weeks before, also attended at the request of the corporations' secretary and several of the stockholders, and more particularly at Frank Cikutovich's request, and undertook to keep minutes of the meeting. He was asked to preside at the meeting in an effort to preserve order, and testified at the trial as to what occurred at the meeting and of the tenseness of the situation.

Copies of the minutes as drafted by him were delivered to the stockholders within a few days after the meeting, but the minutes were never formally approved, no stockholders' meeting being held subsequently. Tomasin testified that at the meeting the stockholders accepted the notice of the meeting, notwithstanding the by-laws' requirement of ten days' notice, and that all agreed to waive the ten-day notice, and further notice and formalities were unanimously waived. Tomasin was, on motion of Konsuvo, seconded by Maricic, asked by all present to conduct the meeting. A discussion then ensued as to Konsuvo's proposal, Frank Cikutovich saying the offer was not clear. Arguments ensued and then a "negotiation type of situation." There is some confusion as to whether Konsuvo first offered to sell his stock or to buy the stock of the others. He explained his proposal to the effect that each stockholder would be relieved of all liabilities; he would pay $15,000 for each block of stock, 20% down and the balance payable over a period of five years. On motion of Matich, seconded by Maricic, all stockholders waived any further

notice or formalities as to the proposal by Konsuvo to buy all of the outstanding stock. Konsuvo additionally proposed that if said purchase could not be made, he would sell his shares pursuant to the stockholders' agreement and be relieved from all liabilities.

The meeting was a stormy one and there was much heated discussion back and forth, with fast talking, yelling and the raising of voices. It would appear, and Konsuvo admitted, he did state "heads will roll" if they did not go along with his proposition. There was a discussion of business conditions, during which discussions Konsuvo painted a gloomy picture of the financial condition of the corporation and its prospects. He said things could not go on in that fashion -- something had to be done. Almost everyone present testified at the trial that he relied upon Konsuvo, as the only one fully familiar with the true financial condition of the companies, for an accurate statement of their condition, which Konsuvo said was not good and that they would gradually go out of business if things continued as they were -- that the company could not run for more than a couple of months, and if not decided in a few days, the company would fold up and go down the drain. The stockholders took seriously these representations by Konsuvo. The corporations (all stockholders so voting) rejected the proposal to purchase said stock and waived their right to a 90-day waiting period to purchase the same.

The court finds there was no physical violence for physical threats, or fear, or any threatened political reprisals against Frank Cikutovich, despite his testimony to the contrary as to political reprisals. Konsuvo insisted upon putting forth his proposal and demanded that the Cikutoviches decide what they were going to do. Either he would buy or he would sell. It would appear that Konsuvo stated that if he purchased the stock, all the others would be retained but at reduced salaries. At the trial he testified that at the September 25 meeting he told the others they could have two or three weeks to think it over but that the others wanted it resolved the same day. The court finds such testimony to be untrue, as it does Konsuvo's

testimony that it was in fact Frank Cikutovich who wanted the meeting of September 25.

The court observed the demeanor of the witnesses, has appraised their credibility, gives full credence to the testimony of Tomasin, and finds as a fact that Frank Cikutovich first indicated he did not want to participate in the meeting as such, and Tomasin made it clear that unless all agreed the meeting could not be held. Thereupon all present, including Frank Cikutovich, agreed to proceed. Thomas Cikutovich, who was apprehensive about proceeding, also agreed to waive the ten-day notice and go ahead with the meeting, despite Tomasin's telling them they could leave, and if they did so, no quorum would be present. The Cikutoviches were apprehensive and undecided as to the right thing to do; they were very troubled, their whole future being at stake and Thomas Cikutovich not being in good physical condition and being unable to work as well as formerly.

The stockholders, on being individually canvassed by Tomasin, waived their rights under the stockholders' redemption agreement to a 30-day period within which to purchase the stock, and waived further notice of sale, with the understanding that the highest bidder as between Konsuvo and Frank Cikutovich would be permitted to purchase all outstanding stock. Konsuvo was very insistent and persisted in ascertaining where he stood, stating he had to know -- business was getting bad. Frank Cikutovich, who stated he didn't have sufficient time for such a grave and heavy decision, finally, although reluctantly, agreed to waive his 30-day right under the stock redemption agreement, and after saying a few times he needed more time and legal advice and that he had come to the meeting not to sell but to negotiate, finally agreed either to sell his stock to Konsuvo or to make a better offer at 10 A.M. on Saturday, October 2, 1965, at the offices of the corporation.

The draft of the proposed minutes prepared by Tomasin contains the language "time being of the essence," but Tomasin conceded in his testimony that there was never any such

statement by anyone at the meeting. Frank Cikutovich then again complained he would have only six days to go over the books of the corporation and think the matter over, and stated that he needed more time to consult professional people, such as accountants and others, and how to raise the money before making up his mind, but after "a knock down -- drag out discussion" he nevertheless ultimately agreed to settle the matter at the October 2 meeting -- either he would better Konsuvo's offer or sell; if he bettered the offer, then Konsuvo and he would bid against each other for everybody's stock. Cikutovich stated he would be at the meeting of October 2 -- that the company would be hurt if the matter dragged out. All left the meeting on an "agreed recessed basis -- an armed truce had been effected."

Frank Cikutovich, Thomas Cikutovich and Vincent Dragich testified their understanding was that at the meeting to be held on October 2 Frank Cikutovich had the right to accept Konsuvo's offer, make a better offer, or to do nothing. Thomas Cikutovich contended he said to Tomasin he would not be part of the September 25 meeting if anything were binding, but then he said he left the fairness of the offer up to Matich and went along because Matich said it was a fair offer. The testimony of Charles Karach was that Frank Cikutovich had some figures on paper and said the company was all right, and why couldn't other arrangements be made, but then Frank Cikutovich agreed to either accept Konsuvo's offer or better the offer on October 2. Karach further testified that he never agreed to sell and that he would waive only if at the October 2 meeting a bidding procedure were set up. He then stated he was under no obligation to sell his stock to anyone, but signed a contract on October 13 because he ...

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