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Packard-Bamberger & Co., Inc. v. Collier

May 30, 2001

PACKARD-BAMBERGER & CO., INC., A NEW JERSEY CORPORATION; AMERICAN BEAUTY PARLOR, INC., A NEW JERSEY CORPORATION; JOHN PACKARD AND LYNN PACKARD, PLAINTIFFS-APPELLANTS,
v.
ANDREW COLLIER; PACKARD'S TRAVEL AGENCY, INC. AND HUDSON VALLEY REALTY CORP., DEFENDANTS & THIRD PARTY-PLAINTIFFS,
AND DANIEL AMSTER AND AMSTER & ROSENSWEIG, ESQS., DEFENDANTS-RESPONDENTS,
AND ALFIERO PALESTRONI, THIRD-PARTY DEFENDANT & DEFENDANT ON THE COUNTERCLAIM.



The opinion of the court was delivered by: Verniero, J.

Argued January 16, 2001

On certification to the Superior Court, Appellate Division.

The principal issue in this appeal is whether the trial court erred in awarding counsel fees to plaintiffs in connection with their suit brought against a corporate director who also served as legal counsel to the corporation. Finding intentional misconduct on the part of the attorney-director, the trial court awarded counsel fees on the basis of Saffer v. Willoughby, 143 N.J. 256 (1996). In Saffer, we held that a client may recover reasonable expenses and attorneys' fees as consequential damages for attorney malpractice.

The Appellate Division reversed the trial court's award of counsel fees, concluding that the principles espoused in Saffer were inapplicable. The panel affirmed the trial court on numerous other issues. We agree with the trial court that the holding in Saffer should extend to attorney misconduct cases. We thus reinstate plaintiffs' counsel fee award. In all other respects, we affirm the judgment of the Appellate Division.

I.

This long-running litigation involves the struggle for control of Packard-Bamberger & Company (PB). To place our disposition in its proper context, we must set forth portions of the record in some detail, as well as the relevant history of several related lawsuits.

Frank Packard (Frank) founded PB with a partner in 1933 and ran it until his death in 1981. The centerpiece of PB's business was a supermarket and department store located on a ten-acre parcel in Hackensack. In the 1950s, Frank created American Beauty Parlor (ABP), a subsidiary of PB, which operated a beauty parlor and barbershop at PB's Hackensack facility, as well as a beauty parlor in New York City. Frank, through ABP, also incorporated Hudson Valley Realty Corporation (HVRC). ABP held half of the HVRC stock and Frank's friend, Emil Buehler (Buehler), held the other half. Shortly after its incorporation, HVRC purchased approximately 8400 square feet of property next to PB's parcel in Hackensack.

From 1969 until Frank's death in 1981, PB and ABP were managed by the same board of directors: Frank, Andrew Collier (Collier), and Daniel Amster (Amster). Collier was a long-time employee, director, and officer of PB, beginning work there in 1941. Amster served as legal counsel for PB and ABP, in addition to serving as Frank's personal attorney.

Frank's 1981 death sparked a battle for control of the companies. Before he died, Frank arranged for his son John to purchase certain PB stock from John's brother and to place that stock under Frank's control. Frank and John thereafter entered into a voting trust agreement in which they agreed that control of the stock would pass to John at Frank's death. Following his father's death, John commenced litigation to enforce that agreement. The Chancery Division held that the agreement was unenforceable and instead ordered the following breakdown of ownership of PB shares: John (250 shares); Frank's son, Peter Packard (Peter), (250 shares); Frank's estate (242 shares); and Collier (1 share). The corporation retained 250 shares of stock.

Also following Frank's death, Collier assumed the position of chief operating officer of PB, and continued in his other roles as officer and director. Meanwhile, John had moved into Frank's office within a week of his father's death, and announced that he was taking over his father's role in running the company. Notwithstanding John's announcement, Collier and Amster voted to make Frank's widow, Margaret, a director of PB, and to raise Collier's salary by twenty-five percent.

Amster and Margaret also served as co-executors of Frank's estate and began to have problems working together. As a result, United Jersey Bank (UJB) was appointed as a third co-executor. Thereafter, UJB initiated a probate proceeding concerning the administration of Frank's estate. During that litigation, the trial court convened a PB shareholder's meeting for the purpose of allowing shareholders to vote on the dissolution of PB. Frank's estate and Peter, collectively owning a majority of shares, voted to dissolve PB; John and Collier dissented, each desiring to maintain PB's corporate existence.

After the dissolution vote, the trial court entertained offers for PB. The court afforded the two dissenters the opportunity to purchase the shares belonging to Frank's estate and Peter. In response, Collier offered to purchase the estate's, Peter's, and John's shares; John offered to buy the estate's shares. The court rejected those offers, approving instead a $4 million proposal from a real estate development company, Poskanzer and Tulp, for PB's Hackensack property. The court also ordered the liquidation of PB.

The Appellate Division reversed those rulings, remanding the matter for further proceedings. On remand, a different trial court evaluated the competing offers of John and Collier for the estate's interest in PB and decided that John's offer would be accepted. Prior to December 1986, John had purchased the interest that his brother Peter held in PB. Consequently, John gained control of PB's outstanding stock, with the exception of Collier's one share.

During the period when the trial court was accepting offers for PB, Frank Bovino (Bovino), a co-owner of Sherbrooke Realty and Construction Company (Sherbrooke), wrote several letters to Collier expressing Sherbrooke's interest in purchasing PB's property. Bovino wanted to build a twenty- to twenty-four floor mixed-use high rise that was to include stores, offices, and hotel space. Bovino sent his first letter to Collier in July 1985, to which Collier did not respond. Bovino sent a second letter in September 1985, and Collier responded a month later requesting a copy of Bovino's proposal. Bovino responded promptly with a proposal to purchase all of PB's property and a request for a survey of the property. Collier did not answer.

In November 1985, Bovino sent another letter to Collier asking for his assistance so that Bovino could submit a purchase price offer. Collier again did not answer. Bovino wrote to Collier in February 1986 to reiterate his interest in the property and to seek a meeting with Collier to discuss a possible purchase. In May 1986, Bovino wrote his final letter to Collier in which he indicated that Sherbrooke would offer a purchase price of $12 million for the PB property. The $12 million offer was approximately three times greater than any other offer that had been received for the PB property. The record indicates that Collier showed the exchange of letters to Amster who, in turn, helped Collier prepare the October 1985 response to Bovino. As discussed below, the alleged failure by defendants to inform plaintiffs of Bovino's proposal forms the basis of plaintiffs' breach of duty claim.

Buehler, the co-owner of HVRC, died in 1984. A few months after Buehler's death, John contacted a representative of Buehler's estate and informed the representative that PB would be interested in purchasing the estate's interest in HVRC. In response, the representative informed John that the estate was not planning to sell its interest in HVRC. Unbeknownst to John, Collier also contacted representatives of Buehler's estate about the sale of the HVRC stock. Collier and the estate's attorney, Charles Buhrman (Buhrman), exchanged a series of letters concerning a potential sale. Collier's letters suggested that he was acting in his capacity as an officer of PB. Those letters did not lead to a transaction.

After John gained control of PB, Collier again contacted Buhrman and negotiated the terms of a purchase by Collier, in his individual capacity, of the estate's HVRC stock. John was unaware of Collier's renewed contact. Collier and Buehler's estate agreed to a purchase price of $220,000. Buhrman prepared the terms of the contract, which Collier signed on December 30, 1986.

Amster played a role in respect of the HVRC stock issue. In 1987, Amster and Collier executed a written agreement that made Amster the beneficial owner of half of Collier's HVRC stock, in return for Amster paying Collier half of the $220,000 purchase price. John alleges that Amster was involved in the purchase from the outset, but Amster and Collier denied that allegation, claiming instead that Amster learned of the purchase only after Collier completed the transaction with the estate. As explained below, Amster's role forms the basis of plaintiffs' claim that Amster usurped a corporate opportunity for his own benefit.

As noted, John eventually gained control of PB. He thereafter acted to consolidate his authority by electing himself, his wife, and his daughter as directors, and by naming himself president of the company. John discharged Amster as legal counsel for PB, although Amster continued to provide some legal services for the company through June 1987. John also removed Collier as vice-president and secretary-treasurer. Collier remained with the company as comptroller until June 1987, when John removed him from that position as well.

II.

Against that backdrop, John, PB, and ABP filed this present action against Collier in June 1987. Plaintiffs twice amended their complaint, adding Amster and his law firm as defendants. After extensive discovery, the parties agreed to limit the trial to two main issues: whether defendants breached their fiduciary duties by failing to reveal Bovino's offer for PB's Hackensack property and ...


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