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Kelley v. Axelsson

January 7, 1997

ELLEN KELLEY, KURT AXELSSON, MICHAEL AXELSSON, RICHARD AXELSSON AND MARGOT I. AXELSSON, PLAINTIFFS-APPELLANTS,
v.
BROR ERIC AXELSSON, JR., AXELSSON AND JOHNSON FISH COMPANY, INC., A NEW JERSEY CORPORATION, AND JOHN DOES 1-5, BEING OTHER OFFICERS, DIRECTORS OR PROFESSIONALS, DEFENDANTS-RESPONDENTS, AND JOANN LEIGH GRAMM, ADMINISTRATRIX C.T.A. OF THE ESTATE OF BROR ERIC AXELSSON, SR., DEFENDANT.



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

Approved for Publication January 9, 1997.

Before Judges Brochin, Kestin and Eichen. The opinion of the court was delivered by Brochin, J.A.D.

The opinion of the court was delivered by: Brochin

The opinion of the court was delivered by

BROCHIN, J.A.D.

Plaintiffs Ellen Kelley, Kurt Axelsson, Michael Axelsson, Richard Axelsson and Margot I. Axelsson are minority shareholders of defendant Axelsson and Johnson Fish Company, Inc. Together they own 166.65 of the 400 shares of its outstanding capital stock. The remaining 233.35 shares are owned by defendant Eric Axelsson, Jr., who is the president of the defendant corporation.

The facilities of Axelsson and Johnson are located in Cape May, New Jersey. Its principal business is purchasing fresh fish from fishing boats at dockside, packaging the fish and selling it to markets located along the eastern seaboard. The corporation also operates a retail fish market, a take-out restaurant, and a raw bar.

Plaintiffs and defendant Axelsson are brothers and sisters. Andrew Johnson and their father, Eric Axelsson, Sr., established the business in approximately 1960. Initially, Johnson was responsible for the general management of the corporation's business. He was also in charge of buying the fish from fishing boats and selling it to the markets. With Johnson's guidance, defendant Eric Axelsson, Jr. became active in the management of the business almost at its inception. In 1962, he began to purchase Johnson's stock pursuant to an agreement to buy all of it over a ten-year period for $100,000, and he completed the purchase in 1972. In 1966, when Johnson became ill, Eric Axelsson, Jr. assumed his responsibilities for the management of the corporation and he has been the chief operating officer at least since 1973. When Eric Axelsson, Sr. died in 1991, Eric Axelsson, Jr. had been the president of the corporation for several years.

Most of the plaintiffs have worked for the corporation from time to time, but none of them has been an officer or director or held a managerial position. None of the plaintiffs was working for the corporation when this lawsuit was filed.

Plaintiffs acquired their shares of stock of Axelsson and Johnson by inheritance from their parents. When the business was incorporated in 1960, 400 shares of stock were issued. The Johnson family owned 200 shares which Mr. Johnson sold to Eric Axelsson, Jr. Eric Axelsson, Sr., plaintiffs' father, owned 194 shares. Annie Axelsson, their mother, owned the remaining six shares. When Mrs. Axelsson died in 1984, she willed one of her six shares to each of her six children. That left Eric Axelsson, Jr. with 201 shares out of the 400 issued and outstanding stock of the corporation. When Eric Axelsson, Sr. died in 1991, he distributed his 194 shares among his children: 32.35 shares to Eric Axelsson, Jr. and 32.33 to each of the plaintiffs. That left Eric Axelsson, Jr. with 233.35 shares and his brothers and sisters, collectively, with 166.65.

Axelsson and Johnson paid dividends in every year from 1983 through 1991. A graph included in an accountant's report shows the amount of the dividends. Insofar as we can determine from that graph, aggregate dividends were approximately $165,000 in 1983; $230,000 in 1984; $225,000 in 1985; $240,000 in 1986; $270,000 in 1987; $260,000 in 1988; $225,000 in 1989; $280,000 in 1990; and $20,000 in 1991, when Eric Axelsson, Sr. died. No dividends have been paid since 1991. Between 1983 and 1989, officers' annual compensation rose from $50,000 to approximately $180,000. In 1991, it was approximately $220,000 and in 1992, following Eric Axelsson, Sr.'s death, the compensation paid to Eric Axelsson, Jr. and to his son, who is general manager of the corporation, totaled $340,000.

Plaintiffs allege that they have been subject to unfair and oppressive conduct directed toward them as minority stockholders. Their complaint was undoubtedly precipitated by the cessation of dividends and the concurrent increase in the compensation paid to Eric Axelsson, Jr. and his son. They assert that Eric Axelsson, Jr. has paid excessive salaries to himself and to his children; taken opportunities that should have benefitted the corporation; paid personal expenses with corporate funds; caused the corporation to engage in cash transactions that were not recorded on its books; understated the earnings of the corporation and failed to pay dividends; and otherwise mismanaged and diverted corporate assets.

Defendants answered, denying any wrongdoing. In due course, they moved for summary judgment dismissing the complaint, and their motion was granted. Citing Brenner v. Berkowitz, 134 N.J. 488, 634 A.2d 1019 (1993), the motion Judge ruled that in order to demonstrate that defendants have acted oppressively or unfairly, plaintiffs must show that their "reasonable expectations" as stockholders have been frustrated. The Judge implicitly ruled, and we agree, that since plaintiffs were never active in the management of the business, but are the owners of stock on which dividends were paid regularly, their only reasonable expectations are that dividends would continue to be paid on their stock if funds are reasonably available for the payment of dividends. The motion court therefore considered whether there was factual support for the plaintiffs' contentions that Eric Axelsson, Jr. had unfairly rendered the corporation unable to pay dividends. It concluded on the basis of the accountants' reports submitted by both parties that defendants were entitled to summary judgment because plaintiffs' contentions were entirely unsupported by their proofs.

Plaintiffs have appealed. The issue for us to decide is whether plaintiffs' proofs, if presented at trial and viewed most favorably to their claims, would be sufficient to enable a fact-finder to rationally infer that defendants have acted "oppressively or unfairly" toward them within the meaning of N.J.S.A. 14A:12-7. ...


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