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Stewart v. Harris Structural Steel Co.

Decided: November 19, 1984.


On appeal from the Superior Court of New Jersey, Law Division, Somerset County.

Michels, Petrella and Baime. The opinion of the Court was delivered by Michels, P.J.A.D.


Defendant Harris Structural Steel Co., Inc. (Harris Steel) appeals from a judgment of the Law Division which (1) awarded plaintiff Robert C. Stewart, Sr. (Stewart) damages in the sum of $51,097.82 -- the amount of money earned by Harris Steel on moneys received from Stewart in a voided sale of its voting common stock -- plus costs and (2) dismissed its counterclaim against Stewart and crossclaim against defendant Walter I. Harris (Walter). Stewart cross appeals from that portion of the judgment which dismissed his complaint against Walter and Walter cross appeals from the denial of his motion for an involuntary dismissal of Stewart's complaint and Harris Steel's crossclaim. This latter cross appeal was abandoned by counsel at oral argument.

A brief chronology of the events that gave rise to this appeal is helpful to its resolution. Through a series of both corporate and legal maneuvers starting in 1978, two brothers, Thomas Harris (Thomas) and Walter engaged in an intra-family battle against each other to gain control of Harris Steel, a closely held family corporation. Thomas used his own money to ostensibly gain control of Harris Steel by purchasing shares owned by siblings other than Walter. Walter challenged these purchases in the New Jersey courts and although he won a partial victory at the trial level, where the Chancery Division voided one of Thomas' two purchases, we reversed this portion of the judgment, thereby validating all sales to Thomas and in effect confirming Thomas' 52% ownership of Harris Steel voting stock. The day after the New Jersey Supreme Court denied Walter's petition for certification (Harris v. Harris, 85 N.J. 492 (1980)), Walter brought suit in the New York courts, Harris Steel's state of incorporation, in a second attempt to invalidate Thomas' control.

During this same period, at least as early as 1979, Stewart testified that he had been having discussions with both Walter and George Harris (George), Walter's son, concerning the possibility

of his [Stewart's] purchasing stock of Harris Steel. Stewart testified that those discussions occurred while he was on business trips with George in both 1979 and 1980. In early 1981, after the New Jersey Supreme Court's denial of the petition for certification and while the New York action was pending, Stewart, Walter and George again discussed Stewart's purchasing stock in the company. These discussions occurred around March 4 or 5, 1981.

On March 3, 1981 Judge Greenfield of the New York Supreme Court, Special Term, rendered judgment validating Thomas' control of Harris Steel. Six days later on March 9, 1981, Walter attempted to hold a Harris Steel Board of Directors meeting. When the New York Supreme Court issued its March 3 judgment, Thomas and his attorney knew of the meeting called for March 9 but elected not to attend. The March 9 meeting was attended by Walter, his wife, George, Walter's daughter Barbara, Stewart and a court reporter. At this meeting Stewart exchanged a cashier's check in the amount of $275,000 for a certificate representing 900 shares of Harris Steel Class A Voting Common Stock, having a par value of $50 per share. Additionally, Stewart, on the one hand, and Walter and George, allegedly as authorized representatives of Harris Steel, on the other, executed a sales agreement to memorialize the terms of the stock sale. Stewart testified that after the sale the meeting was adjourned and he was instructed that it would continue two days later on March 11, 1981 at the offices of Whitman & Ransom, Harris Steel's New York attorneys.

Thomas called a meeting of the Board of Directors for March 11, 1981 at the offices of Whitman & Ransom, at which Stewart, Walter and the latter's wife, son and daughter attended. Stewart testified that although he knew of the friction between the two brothers prior to the March 9 meeting it was at the March 11 meeting that he first learned that Thomas was the controlling stockholder and that the validity of the sale of stock to him was contested.

George J. Noumair (Noumair), the Whitman & Ransom partner in charge of Harris Steel matters, testified that he first learned at the March 11 meeting of the attempted sale of stock to Stewart and that this sale caused Harris Steel to go back into the New York courts to nullify the sale and to affirm Thomas' control of the corporation. After apparently heated discussions between Thomas and Walter and their attorneys, the meeting broke up into two separate meetings, one of the Thomas group and one of the Walter group.

Benjamin M. Polk of Whitman & Ransom, by letter dated March 24, 1981 notified Stewart that it was counsel to Harris Steel, that they took the position that the purported stock sale to him was invalid, that any action taken at the March 9 meeting was ultra vires, and enclosed copies of papers that had been filed in the New York courts to that effect. Stewart handed the letter over to a William W. Lanigan, of Lanigan, O'Connell and Jacobs, who was purportedly acting as New Jersey counsel to Harris Steel and was acting as counsel for Walter regarding the fight for control and had acted as counsel to Stewart in the past. Lanigan replied by letter dated March 28, 1981, informing Whitman & Ransom that as counsel to Harris Steel he had advised Stewart that the March 9 meeting and sale of stock were proper and valid.

On April 30, 1981 Judge Greenfield issued an opinion and order concluding, inter alia, that (1) Thomas was the valid chairman of the Board of Directors of Harris Steel, (2) the rump shareholders meetings on March 9 and 11 called by Walter were invalid, (3) the Board of Directors meeting on March 9, 1981 was invalid, (4) the purported approval of the sale of stock to Stewart was of no force and effect and (5) Thomas was entitled to possession of the corporate books. Whitman & Ransom, by letter dated May 1, 1981 sent a copy of this opinion and order to Stewart who turned the letter and enclosures over to Lanigan.

Noumair received the corporate transfer books on May 4 or 5, 1981 and by letter dated May 6, 1981, Benjamin M. Polk of

Whitman & Ransom, demanded Stewart return the certificate representing the 900 Harris Steel common shares within 10 days. The letter of demand made no mention of the $275,000. Again Stewart did not respond to this letter personally, but rather turned it over to Lanigan.

The first offer to return the $275,000 was made by a letter dated June 10, 1981 from Noumair. The letter, in part, read:

As you are fully aware, the New York Supreme Court has held that the attempt to issue that stock to you was null and void and of no force and effect.

While the persons purporting to act on behalf of the company in giving you that certificate had no authority to do so and are personally liable for any consequences of these actions, the Company is nevertheless prepared to return to you the amount of $275,000, which was deposited in its bank account. George Harris and William Keyes have reviewed the matter and it has been confirmed to us today that the sum which you turned over to the company did not represent the company's own funds and, therefore, it appears appropriate to return that amount to you. This would be done without prejudice to any rights the company may have in the event that it turns out upon further review that such funds directly or indirectly represent company funds. Such payment is to be made to you upon a return of the certificates.

Mr. Keyes has indicated that you thought that a greater amount should be returned to you to reflect interest or some other factor. Please be advised that under the court's holding, the transaction was of no force and effect. You were fully familiar with the circumstances surrounding the purported issuance of these shares and the fact that the persons with whom you were dealing were acting at variances with the decisions of the courts of New York and New Jersey.

If you believe you are entitled to any greater amount, we suggest that you look to the persons with whom you dealt rather than the company.

Harris Steel did not tender the return of the moneys it had earned on Stewart's $275,000 up to June 10, 1981. Additionally, according to Noumair, they delayed offering to return the $275,000 until they had ...

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