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Mitzner v. Lights 18

June 15, 1995


On appeal from the Superior Court, Appellate Division, whose opinion is reported at N.J. Super. (1994).

Justices Handler, Pollock, O'hern, Garibaldi and Coleman join in this per curiam opinion. Justice Stein has filed a separate Dissenting opinion. Chief Justice Wilentz did not participate.

(This syllabus is not part of the opinion of the Court. It has been prepared by the Office of the Clerk for the convenience of the reader. It has been neither reviewed nor approved by the Supreme Court. Please note that, in the interests of brevity, portions of any opinion may not have been summarized).


Argued January 18, 1995 - Decided June 15, 1995


Lights 18, Inc., a retail lighting business, had been owned since 1972 by two brothers, Milton and David Mitzner. Each brother owned fifty percent of the stock of the corporation. The company purchased a $100,000 insurance policy on the life of each of the brothers, naming the corporation as the beneficiary. The purpose of these policies, known as key-man policies, was to fund the purchase of a deceased brother's fifty percent share, leaving the surviving brother with sole ownership of the corporation. Lights 18 paid the premiums on the policies so long as payment was required.

In the late 1970's, David developed multiple sclerosis and since then has been unable to be physically active in the store. Over time, the brothers began to disagree as a result of David's wife's participation in the business. In October 1991, Milton filed a complaint for involuntary dissolution of the corporation alleging, among other things, that David and his wife, Joan, had mismanaged the corporation and had misappropriated corporate assets. On December 4, 1991, Joan and David answered and counterclaimed by way of a shareholder's derivative and receivership action against Milton, alleging that Milton appropriated and wasted corporate assets, failed to consult and failed to distribute profits.

The parties entered into negotiations to effectuate a buy-out by one brother of the other brother's interest. Both Milton and David were represented by attorneys during these negotiations. On April 20, 1992, the parties appeared in court to place a settlement on the record, in which the parties agreed that Milton would buy the business for $65,000. Joan and David assented to the settlement on the record.

On May 15, 1992, David moved before the trial court for an order authorizing David Mitzner and Milton Mitzner to own and control the respective insurance policies presently existing on their lives, and to have ownership of the policies and the beneficiaries changed so as to reflect each parties wishes. David claimed that the parties never intended the ownership of the life insurance policies to be embraced by the settlement, noting that during settlement negotiations, no one mentioned the existence of the policies. Milton agreed that the insurance policies had not been mentioned but argued that the policies were an asset of the corporation of which David and Joan were fully aware and that at the time of settlement it was clear that all corporate assets were purchased by Milton.

After hearing argument on the motion, the trial Judge ruled in favor of Milton, finding that both parties understood that the assets of the business were being transferred to Milton through the transfer of David's stock in exchange for $65,000. The court held that the policy was clearly an asset of the corporation; therefore, it was transferred as well. In addition, the trial Judge did not believe that the purpose behind the insurance purchase would be offended by letting Milton continue to own the policies.

David and Joan Mitzner appealed. A majority of the Appellate Division affirmed substantially for the reasons expressed by the trial court. The majority did note that the record fully supported the Conclusion that the parties were aware of the existence and purpose of the insurance policies. The court found that the key-man policy on David was owned by the corporation and, hence, was a corporate asset. One Judge Dissented, concluding that based on the sparseness of the record, the trial court should have held a hearing to determine the parties' intention in respect of the insurance policies at the time of settlement. The Dissent found credible David's argument that the insurance policies were not contemplated as part of the settlement in light of the fact that the policies were the largest asset of the corporation, yet they were not mentioned during the buy-out negotiations. In addition, the Dissent found that the purpose underlying the purchase of the insurance had terminated when Milton became the sole stockholder; therefore, the implementation of the settlement on the basis that Milton acquired all assets, including both insurance policies, for the negotiated price of $65,000 would be highly inequitable.

David and Joan Mitzner appealed to the Supreme Court as of right based on the Dissent in the Appellate Division.

HELD : Judgment of the Appellate Division is affirmed substantially for the reasons expressed in the majority opinion below. The key-man life insurance policies, including the policy on the life of David Mitzner, were corporate assets that transferred to Milton Mitzner when he purchased David's stock in Lights 18, Inc. for $65,000.

1. It is not clear whether the trial court's decision will result in a windfall to Milton, as asserted by David. It is clear, however, that there was never any misunderstanding that the corporation owned the insurance policies. Thus, it cannot be said ...

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