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Gerson v. Gerson

Decided: February 16, 1977.

JOAN GERSON, PLAINTIFF,
v.
SAUL GERSON, DEFENDANT



Sorkow, J.J.D.R.C., Temporarily Assigned.

Sorkow

This matter comes before the court on plaintiff's motion for an order to permit her accountant to inspect the financial books and records of the corporation in which defendant is a 50% stockholder and is actively engaged as director.

The corporation, Gerson-Ogden, Inc. is a corporation of the State of New York and is authorized to do business in

the State of New Jersey. The issued and outstanding stock is equally owned by defendant and his brother. The brother has, through defendant's counsel and by letter from his tax attorney, indicated his objection to plaintiff's examination, and defendant further maintains that as the corporation is a New York entity and not a party to the instant action this court cannot grant the relief plaintiff seeks.

Discovery is limited in matrimonial actions except for "good cause shown." R. 4:79-5. The reasons for the limits are well stated by defendant: to avoid harassment and confrontation of the parties and further aggravation of their hostilities toward each other. See comment to R. 4:79-5. The term "good cause shown" is flexible and each case for discovery must show its own good cause. Tholander v. Tholander , 34 N.J. Super. 150 (Ch. Div. 1955). However, the recent trend in general civil cases to broad and liberal discovery, Myers v. St. Francis Hospital , 91 N.J. Super. 377 (App. Div. 1966); Gureghian v. Hackensack Hospital , 109 N.J. Super. 143 (Law Div. 1970), should, where good cause is shown, be extended to the matrimonial area. For how else in a complex financial estate could the first two of the three requirements for equitable distribution found in Rothman v. Rothman , 65 N.J. 219, 232 (1974), be determined by a trial court without first establishing the value of the assets subject to equitable distribution? Indeed, it is apparently well settled now that a trial judge enters upon a three-step inquiry in a matrimonial proceeding where equitable distribution is in issue. The steps are (1) determination of the specific property subject to equitable distribution; (2) determination of value, and (3) determination of the allocation equitably among the parties. Rothman v. Rothman, supra. To determine valuation of the stock and its income-producing qualities requires sophisticated discovery by an accountant. This means more than a review by counsel of the furnished corporate tax returns and the naked answers to interrogatories or depositions. Of necessity it requires an examination and evaluation of corporate assets, good will,

capital accounts, cash flow, tax-sheltered income, travel and entertainment expenses, tax status of the corporation, etc. This court finds that where such a complex estate exists there is good cause shown for additional discovery to establish valuation and the income producing quality of a party's stock.

Another issue in this motion is the authority of this court to order discovery of the books and records of a corporation, 50% owned and operated by defendant husband, when the other 50% stockholder objects to the examination.

Defendant states in his memorandum that the corporation is a New York corporation and the books and records are in New York. It is made clear that the other 50% owner of the corporation's stock objects to the plaintiff accountant examining the books and records of this closely held corporation. Yet, in defendant's answers to interrogatories, which interrogatories were attached to plaintiff's moving papers, a New Jersey address is given for the corporation, and the books and records of the corporation are located with a corporate accountant in Fair Lawn, New Jersey.

Shall discovery here be blocked by the fact that the corporation is an out-of-state entity and not a party to the suit? As counsel has pointed out, there is little case law in New Jersey bearing directly on this point. In a suit by a broker to recover commissions, Gross v. Kennedy , 15 N.J. Super. 118 (Law Div. 1951), the court held:

Where, as in this case, the books in question are not those of a party but of corporations not a party to the suit, it would seem that three elements should be considered by the court in determining as a matter of discretion whether the defendant should be subjected to the order here sought: (a) whether good cause has been shown for the examination, (b) whether one not a party to the suit may be unduly affected by revelation of its private affairs; and (c) whether the books and records are within the possession, custody or control of the other party. The general rule with regard to inspection of documents is that inspection orders should issue upon a showing that the desired inspection of the document or other property is relevant to the subject matter of ...


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