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Heller v. Hartz Mountain Industries Inc.

Decided: August 27, 1993.

EUGENE HELLER, INDIVIDUALLY AND AS TRUSTEE FOR THE BENEFIT OF BONNI S. HELLER AND TODD A. HELLER, PLAINTIFF,
v.
HARTZ MOUNTAIN INDUSTRIES, INC., AND LEONARD N. STERN, DEFENDANTS. HARTZ MOUNTAIN INDUSTRIES, INC., PLAINTIFF, V. EUGENE HELLER, INDIVIDUALLY AND AS TRUSTEE FOR THE BENEFIT OF BONNI S. HELLER AND TODD A. HELLER, DEFENDANT



D'Italia, J.s.c.

D'italia

This matter is before the court on cross-motions for summary judgment. The motions present significant questions regarding the applicability of fiduciary standards to a partner managing the buyout of a co-partner and the standards of impartiality to which party-designated appraisers should be held.

These consolidated actions arise out of plaintiff Eugene Heller's ("Heller") withdrawal from various partnerships in which he was associated with defendant Hartz Mountain Industries, Inc. ("Hartz"). Much of the factual background of these matters is undisputed.

Hartz is a New York corporation maintaining its principal place of business in Secaucus, New Jersey. It is engaged in the business of owning, developing and managing commercial real estate located primarily in northern New Jersey. Defendant Stern serves as the Chairman of the Board of Hartz.

Heller joined Hartz in the mid 1960's. Early on, Stern and Heller agreed that Heller would be a ten-percent participant in all of Hartz's real estate investments, which were being developed in partnership form, with Hartz as the managing partner and key Hartz executives as participants. From approximately 1977 until his resignation in 1991, Heller served as President of Hartz and was responsible for the development and management of Hartz's portfolio of real estate development projects. Heller estimates the market value of Hartz's portfolio at nearly two billion dollars.

By 1981, Heller had acquired a partnership interest in approximately sixteen Hartz partnerships, which collectively owned and managed a minimum of eighty-five properties.*fn1 Each partnership was subject to a written partnership agreement. Each agreement

provides for the withdrawal of partners and a method for determining the purchase price of a withdrawing partner's interest.

On June 25, 1991, Heller advised Hartz that he was resigning all of his partnership interests. Under the terms of the partnership and related agreements, this notice imposed a duty on Hartz to procure appraisals to determine the value of Heller's interests. Each of the partnership agreements provides that either the partnership or Hartz, as managing general partner, must purchase a withdrawing partner's interest.

The sixteen partnerships at issue can be grouped into two categories according to the procedures by which the withdrawing partner's interest is to be determined. Nine partnerships have been characterized as "single appraiser" partnerships. These single appraiser partnerships require the parties initially to negotiate the value of partnership properties.*fn2 If the parties cannot reach an accord, the partnership agreements provide that value shall be determined by one appraiser, who is to be selected by the general partner. The remaining seven partnerships require the general and withdrawing partner to jointly select a single appraiser. If they are unable to agree on a single appraiser, however, then each is to select one appraiser, and those appraisers must select a third. All sixteen partnership agreements provide that the value determined by appraisal "shall be binding and conclusive" on the parties.

On November 5, 1991, Hartz informed Heller that it had selected Robert J. DiFalco of Cushman & Wakefield of New Jersey ("C & W") to determine the appraised value of the real estate in the single appraiser partnerships. DiFalco is a director and manager of C & W, a wholly owned subsidiary of Cushman & Wakefield, Inc., which is a national firm of real estate brokers and appraisers. By letter dated December 4, 1991, Heller advised

Hartz that he objected to the appointment of DiFalco. On December 6, 1991, Hartz inquired as to the basis of Heller's objection. Heller elected not to respond.

On February 4, 1992, Hartz filed a declaratory judgment action seeking a determination that its engagement of DiFalco was consistent with the partnership agreements. Four days later, on February 8, 1992, Heller filed a separate action seeking to compel delivery of the DiFalco appraisals. These cases were consolidated on March 9, 1992.

The DiFalco appraisals were delivered to Heller on April 2, 1992. On April 27, 1992, Heller amended his complaint to challenge the substance of the DiFalco appraisals as "shockingly low." The amended complaint alleges that Hartz's internal valuations of the single appraiser properties as of March 1991 totalled $214,562,182, while DiFalco appraised these same properties as having a value of $133,230,000 as of October 31, 1991.

By this motion, Heller seeks partial summary judgment setting aside the DiFalco appraisals of his interest in the single appraiser partnership properties.*fn3 Heller contends that Hartz, as managing partner under the single appraiser partnership agreements, owed him a fiduciary obligation to manage the valuation and purchase of his partnership interests in the utmost good faith. Heller further contends that Hartz breached this duty by acting in a manner designed to compromise the independence of the appraiser and to influence the appraisal report. Heller also argues that the DiFalco appraisals are, in fact, tainted as a result of Hartz's actions and should not, therefore, be considered either binding or conclusive. Heller seeks to bar the use of these appraisals for any purpose in the valuation of his partnership interests.

Hartz has cross-moved for an order declaring its appointment of DiFalco to be consistent with any ...


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