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Ayr Composition Inc. v. Rosenberg

Decided: January 8, 1993.


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

Dreier and Skillman. The opinion of the court was delivered by Dreier, J.A.D.


Plaintiff, AYR Composition, Inc. (AYR), appeals from a judgment in its favor in the Superior Court of New Jersey, Law Division, Union County, which limited damages to commissions earned by defendants Rosenberg and Marguccio on accounts transferred to Cherenson, Carroll & Holzer, a corporation (Cherenson). Plaintiff seeks modification of the trial Judge's award of damages to state a fixed sum to be recoverable personally against defendants Rosenberg and Marguccio. Defendants Rosenberg and Marguccio cross-appeal from the trial Judge's entire order granting the summary judgment against them.

On November 22, 1989, plaintiff filed a separate complaint against Rosenberg/Marguccio, Inc. (R/M) for collection of sums due and owing to AYR. Plaintiff recovered final judgment by default on January 24, 1990 in the amount of $60,160.70 plus costs of $129.90. Post-judgment execution left a

balance due of over $70,000.00 on the judgment, including post-judgment interest.

On July 23, 1990, plaintiff instituted the current action against Rosenberg, Marguccio and Cherenson, alleging violation of the Uniform Fraudulent Transfer Act, N.J.S.A. 25:2-20 et seq. Plaintiff also claimed the right to pierce the corporate veil and obtain judgments against defendants Rosenberg and Marguccio for the amount of the judgment obtained against R/M.

Cherenson was dismissed with prejudice from the action on June 26, 1991, whereupon plaintiff filed its second motion for summary judgment against the remaining defendants, Rosenberg and Marguccio. The Judge granted AYR's motion, but limited plaintiff's damages to the amount of commissions earned by Rosenberg and Marguccio on the accounts which they brought to Cherenson. Plaintiff appeals from this limitation.

Plaintiff, AYR, is a New Jersey corporation engaged in the business of typesetting. Defendants Rosenberg and Marguccio are the former and sole directors, officers and principals of R/M. Plaintiff filed suit and obtained the final judgment noted earlier against R/M for $60,160.70, plus costs, for outstanding invoices due plaintiff. Post-judgment execution proceedings recovered only $947.02 for plaintiffs.*fn1

On Friday, February 2, 1990, a newspaper article in The Star Ledger announced that R/M had "merged" with The Cherenson Group advertising agency. On Sunday, February 4, 1990, a paid advertisement appeared in The Star Ledger announcing that R/M had "joined" with The Cherenson Group. Depositions of Rosenberg and Marguccio, conducted by plaintiff on March

13, 1990, revealed the following information about the corporate demise of R/M.

Rosenberg and Marguccio were the sole directors, and officers of R/M, and Mr. and Mrs. Rosenberg were R/M's sole shareholders. Defendants decided in January 1990 to cease doing business as R/M. Accordingly, R/M ceased doing business as of February 1, 1990, although defendants did not file a certificate of dissolution with the State of New Jersey. Rosenberg and Marguccio subsequently acquired employment with Cherenson, as did two of the three other R/M employees. In addition to R/M's office furniture and equipment, which had been levied upon by the Essex County Sheriff, defendants also brought to Cherenson ten to twenty of R/M's accounts, some of which owed money to R/M, R/M's client list, and R/M's telephone number (which was programmed to transfer all calls made to R/M's South Orange place of business to Cherenson). Only defendants' bookkeeper, who was away in Europe and who had not yet closed the corporation's books when R/M ceased doing business, was left out of the move to Cherenson. R/M maintains no inventory.

Defendant Rosenberg's written employment agreement with Cherenson, signed on January 24, 1990, contained the following paragraph which transferred all R/M accounts to Cherenson:

1. Employment. Employer hereby employs Employee to service and supervise advertising and public relations accounts which shall include: (a) accounts with which Employee has dealt in the past in his individual capacity or in his capacity as a principal, agent or employee of other firms (the "Rosenberg Accounts"), a complete list of which is annexed hereto as Schedule "A". . . . Employee represents and warrants to Employer that he is not subject to a restrictive covenant with any prior employer or firm with which he has ever been affiliated and that he is free to deal with any account with which he has dealt in the past. In addition to servicing and supervising the stated accounts, Employee will assist Employer's management team to increase and build new business.

After hearing arguments from both parties, the trial Judge concluded that defendants had breached their fiduciary duty to R/M and had transferred R/M's sole lucrative asset, R/M's accounts, to Cherenson.

The facts in this case show that Defendants, the sole shareholders, directors and officers, who owed a duty to the Corporation, took all of the assets of the Corporation. They made no attempts to wind up corporate affairs. While the Corporation was being sued they began negotiations to secure employment elsewhere, and used the customers they intended to bring with them from R/M Inc. as a bargaining tool to obtain employment. And not only did they take the customers, they took the Corporation's employees and its office furniture and computers to their new employer.

In their capacities as directors, officers and shareholders of R/M Inc., Defendants owed a fiduciary duty to the Corporation. This duty includes an obligation not to take action which would be adverse to the Corporation's interests. In other words, an officer or director has a duty of loyalty to the Corporation; this duty means that a director or officer may not use information ...

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