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Walensky v. Jonathan Royce International Inc.

Decided: May 4, 1993.

LAWRENCE WALENSKY AND FLORENCE WALENSKY, PLAINTIFFS-RESPONDENTS,
v.
JONATHAN ROYCE INTERNATIONAL, INC., A NEW JERSEY CORPORATION, JOSEPH F. PURCELL, AN INDIVIDUAL, PURCELL GROUP, INC., A DELAWARE CORPORATION, PURCELL, INC., A NEW JERSEY CORPORATION, HARRY MORALES, INC., A PENNSYLVANIA CORPORATION AND PERSONNEL CONNECTIONS, INC., A TEXAS CORPORATION, DEFENDANTS-APPELLANTS



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

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

Michels

Defendants Jonathan Royce International, Inc. (Jonathan Royce), Joseph F. Purcell (Purcell), Purcell Group, Inc., Purcell, Inc., Harry Morales, Inc., and Personnel Connections, Inc. appeal from a final judgment and a post-judgment order of the Chancery Division. Initially, they appeal from a final judgment, dated November 12, 1991, that (a) awarded plaintiff Lawrence Walensky damages in the amount of $14,250 against Purcell, Purcell, Inc. and Purcell Group, Inc., jointly and severally; (b) awarded plaintiffs Lawrence Walensky and Florence Walensky damages in the amount of $76,210 against Purcell, Purcell, Inc., and Purcell Group, Inc., jointly and severally; (c) compelled Purcell and/or Purcell, Inc., Purcell Group, Inc. and Personnel Connections, Inc. to issue to plaintiff Lawrence Walensky and plaintiff Florence Walensky stock in the amount necessary to give them, respectively, a 10.75% and a 1.25% interest in Personnel Connections, Inc.; (d) canceled 1575 shares of stock in Purcell Group, Inc. which had been issued in the names of plaintiffs, and declared that said plaintiffs were to have no further interest in that particular entity; (e) dismissed the fourth count of plaintiffs' amended complaint with prejudice and (f) dismissed with prejudice the counterclaims which had been filed by Purcell and Purcell Group, Inc. Secondly, defendants appeal from a post-judgment order, dated December 9, 1991, that denied their motion for reconsideration or, alternatively, for a new trial.

Defendants seek a reversal of the November 12, 1991 judgment and the December 9, 1991 order, contending generally that (1) the trial court erred in permitting plaintiffs to proceed under the Oppressed Minority Shareholder Statute and, furthermore, even thereunder plaintiffs failed to demonstrate that they had been "oppressed" by defendants; (2) neither facts nor law justifies the damages awarded against them and, in fact, equity prohibits such an award; (3) the trial court lacked personal jurisdiction over defendants Personnel Connections, Inc. and Harry Morales, Inc.; (4) plaintiffs misappropriated trade secrets and engaged in unfair competition in connection with their alleged stealing of Jonathan

Royce; (5) Purcell Group, Inc. is entitled to $25,000, together with interest, on two promissory notes, and finally (6) they are entitled to an award of counsel fees under the terms of the Oppressed Minority Shareholder Statute.

We are satisfied from our careful study of this matter that there is substantial credible evidence in the record as a whole which reasonably warrants the findings and Conclusions of the trial court. Therefore, we discern no sound reason or legal justification for disturbing these findings and Conclusions. Leimgruber v. Claridge Associates, Ltd., 73 N.J. 450, 455-56, 375 A.2d 652 (1977); Rova Farms Resort v. Investors Ins. Co., 65 N.J. 474, 484, 323 A.2d 495 (1974); State v. Johnson, 42 N.J. 146, 161-62, 199 A.2d 809 (1964). See also R. 2:11-3(e)(1)(A). Additionally, the trial court's denial of defendant's motion for reconsideration or, alternatively, for a new trial certainly did not constitute a manifest denial of Justice. R. 2:11-3(e)(1)(C). Beyond this, all of the issues of law raised by defendants are clearly without merit. R. 2:11-3(e)(1)(E). Nevertheless, brief comment with respect to certain of these issues is warranted.

Initially, we note that when a cause of action has been established under the Oppressed Minority Shareholder Statute, and when the remedies provided for in that statute fail to afford the injured party with adequate relief, a court of equity undoubtedly has the authority and flexibility to fashion a remedy, which may include monetary damages, in order to ameliorate the wrong. This result obtains not from the express terms of the statute, but from the long established principle that equity will not suffer a wrong without a remedy. Here, we are thoroughly convinced that, contrary to defendants' claims, plaintiffs demonstrated beyond question that they were entitled to the remedy fashioned by the trial court due to the "oppression" that they had suffered at the hands of defendants while they were minority shareholders of Jonathan Royce. While the Oppressed Minority Shareholder Statute may not provide expressly for the remedy granted, the concerns that that statute seeks to address clearly indicate that

plaintiffs, as "oppressed" minority shareholders, were, and are, entitled to protection of their interests. Therefore, the trial court properly employed its broad equity powers in fashioning the remedy that it ultimately arrived at in this case.

The interest owned by a minority shareholder in a closely held corporation is often a precarious one. In fact, it has been characterized by this court as being one of "acute vulnerability." Bostock v. High Tech Elevator Ind., 260 N.J. Super. 432, 443, 616 A.2d 1314 (App.Div.1992). See also Orchard v. Covelli, 590 F. Supp. 1548, 1557 (W.D.Pa.1984), appeal dismissed, 791 F. 2d 920 (3d Cir.1986). In Bostock, supra, we attributed this vulnerability to principally three factors:

First, based upon its voting power, "the majority is able to dictate to the minority the manner in which the corporation is run." Second, a minority interest in a closed corporation is difficult to value because the shares are not publicly traded and a fair market is often not available. Dissention within a closed corporation makes the minority interest even more undesirable and unattractive. As a consequence, a shareholder challenging the majority in a closed corporation finds himself on the horns of a dilemma; he can neither profitably leave nor safely stay with the corporation. "In reality, the only prospective buyer turns out to be the majority shareholder." Thus, the limited market for the sale of a minority interest makes the minority particularly vulnerable to manipulation and oppression. A third factor is that a closed corporation frequently originates in the context of personal relationships. Often such business entities are formed by family members or friends. Once the personal relationship between shareholders is destroyed, the viability of the business entity generally deteriorates. [260 N.J. Super. at 443-44, 616 A.2d 1314 (citations omitted)].

In light of the vulnerability brought about by these factors, the law "'imposes a fiduciary duty upon the majority requiring it to act with [the] utmost good faith and loyalty in transacting corporate affairs.'" Bostock, supra, 260 N.J. Super. at 444, 616 A.2d 1314 (quoting Orchard v. Covelli, supra, 590 F. Supp. at 1557). In New Jersey, this duty is embodied in the language of N.J.S.A. 14A:12-7, the Oppressed Minority Shareholder Statute. It has been noted that the central focus of this statutory provision is on remedying abuse and oppression against minority shareholders by those in control of closely held ...


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