Before Judges Muir, Jr., Wallace, Jr., and Lesemann.
The opinion of the court was delivered by: Lesemann, J.A.D.
NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION
On appeal from the Superior Court of New Jersey, Chancery Division, Hudson County.
When defendant Valentin Louriero, the president and one of the two shareholders of Cap City Products Co., Inc. (Cap City) decided to retire, he and the other shareholder, plaintiff Joseph Conte, agreed that Conte would purchase all of Louriero's Cap City stock. They also agreed on how they would determine the purchase price for that stock. If they could not otherwise reach an agreement, they would "mutually select a third party to value the stock and to arbitrate a binding settlement." They were unable to reach agreement, and thus they did appoint such a "third party," Gary Trugman, who then provided an evaluation of the stock which included a twenty-five per cent "marketability discount."
Louriero disagreed with Trugman's valuation and, in order to enforce the parties' agreement and Trugman's valuation, Conte instituted suit in the Chancery Division. There, on cross-motions for summary judgment, the court treated the matter as an application to enforce an arbitration award, concluded that Trugman had committed "an error as to law" by employing a marketability discount, and altered Trugman's award by deleting the discount and thus awarding Louriero a higher price for his stock. *fn1
We are satisfied that, whether Trugman's determination be termed an arbitration award or the product of a settlement, the trial court erred by setting aside the determination because of an alleged "error as to law." Accordingly, we reverse and remand the matter for entry of judgment in favor of Conte, based on Trugman's valuation of the stock.
The facts can be briefly stated. For several years, Conte and Louriero were the sole stockholders and officers of Cap City. Louriero owned approximately twenty percent of the corporation's stock and served as President. Conte owned the remaining eighty percent.
In the summer of 1994, Louriero advised Conte that he wanted to retire effective December 31, 1995. He and Conte then entered into negotiations which produced an oral agreement under which Conte would buy all of Louriero's Cap City stock. The parties agreed that Louriero's interest would be valued as of December 31, 1994, and they also agreed on a procedure for determining the value to be paid by Conte. Louriero memorialized the parties' agreement by a writing he prepared, dated October 10, 1994. As it concerns the issue before us, the provision read in its entirety as follows:
3) We (J. Conte and I) agree to have separate valuations done to determine Cap City's fair market value. If the valuations are within 10% of each other (my figure) then we will negotiate a compromise.
4) If the valuations are far apart, then we will mutually select a third party to value the stock and to arbitrate a binding settlement.
Conte and Louriero did each select someone to value the stock, but the values reached by those two were not "within ten percent of each other." Then, pursuant to their agreement, the parties selected Gary Trugman of Trugman Valuation Associates to perform the required valuation of Louriero's interest in Cap City as of December 31, 1994.
Trugman produced a report dated November 22, 1995, in which he assessed Louriero's interest at $257,000, a figure he obtained after applying a twenty-five percent "discount for lack of marketability." Upon receipt thereof, Conte offered to pay Louriero the $257,000 for his stock.
Louriero, however, objected to Trugman's report, and specifically, to application of a marketability discount. Based on those objections, Trugman made some changes in his report and concluded in a follow-up letter, that "a reasonable revision to our initial report," based on Louriero's additional comments, would increase the value of Louriero's stock to $300,000. That number, however, still included the twenty-five percent marketability discount which Trugman continued to maintain was appropriate in valuing Louriero's stock. Indeed, Trugman contended that the twenty-five percent discount was relatively small and a larger percentage might well have been appropriate. We note also that plaintiff claims ...