On appeal from the Superior Court of New Jersey, Chancery and Law Division, Atlantic County, ATL-C-138-94/ATL-L-2647-97.
Before Judges King, Coburn and Lefelt.
The opinion of the court was delivered by: King, P.J.A.D.
NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION
Plaintiff Paul St. James filed a complaint against his ex- wife, Florence Walker (defendant), her new husband, David Walker (Walker), and two companies the Walkers operated, Creative Development Enterprises (CDE) and Future Finance, Inc. Plaintiff sought the dissolution of a corporation he and defendant jointly owned, Sage Investment Corporation (Sage), and damages for defendant's and Walker's usurpation of Sage's corporate opportunities through Future Finance and CDE. Defendant filed a counterclaim seeking the dissolution of Sage, compensatory and punitive damages for plaintiff's breach of fiduciary duty, and separate damages under the New Jersey Racketeering Act, N.J.S.A. 2C:41-1 to -6.2 (N.J. RICO), and its federal analogue, 18 U.S.C.A. §§ 1961-1968, because of her ex-husband's actions with respect to Sage and his misuse of a license held by another corporation jointly owned by plaintiff and defendant, Paul Thomas Home Sales (PTHS).
The matter was bifurcated for trial; plaintiff appeals from judgments entered against him in both the Chancery Division and the Law Division. He appeals from the Chancery Division judgment which awarded the stock of Sage to defendant and divided Sage's assets, claiming that the judgment was against the weight of the evidence and the judge should have recused himself sua sponte before trial.
Plaintiff appeals from the Law Division judgment, in which a jury rejected his claims against defendant and awarded defendant compensatory damages, trebled under N.J. RICO, and punitive damages. He raises several arguments in this respect, asserting that: (1) the jury instructions were deficient because the jury was not told any compensatory damages awarded to defendant would be trebled; (2) the award of both trebled and punitive damages against him was improper; (3) the Law Division judge erred in collaterally estopping him from challenging certain findings of fact made by the Chancery Division judge in the first trial; (4) the N.J. RICO verdict was improper; (5) the verdict denying his claim, and awarding defendant damages, was against the weight of the evidence; and (6) the trial judge improperly allowed the admission of prejudicial bad acts evidence against him. Defendant cross-appeals from both judgments, arguing that both courts erred in refusing to award her attorney and expert fees.
We conclude that defendant cannot recover both treble damages and punitive damages and mold the verdict accordingly, allowing a set-off. We agree with plaintiff that defendant made an error in certain calculations, which error reduces defendant's actual damages by $24,265 or $72,795 when trebled under N.J. RICO. We also conclude defendant is entitled to additional expert fees of $15,728.45. With those modifications to the Law Division judgment, the judgments are otherwise affirmed.
This is the procedural background. Plaintiff filed an eight count complaint against defendant and Walker in which he claimed that his ex-wife and Walker mismanaged two mobile home parks owned by Sage, Tilton Terrace (Tilton) and Delilah Terrace (Delilah), and engaged in fraudulent conduct when they received payments for expenses not actually incurred.
Plaintiff sought an accounting of all money, equipment and employee services sold or transferred from Sage by either defendant, Walker, or the two companies which defendant and Walker operated, CDE and Future Finance. He also sought the appointment of his and defendant's son, Paul Thomas St. James (Paul Thomas) as Sage's "Provisional Director," an order restraining defendant or Walker from appearing at the Sage office, compensatory damages, and relief pursuant to N.J.S.A. 14A:12-7, the corporate deadlock statute. Plaintiff also claimed that defendant and Walker breached their fiduciary duties to him via their mismanagement of Sage, and sought the above relief. He further claimed that defendant and Walker usurped Sage's corporate opportunity, diverted assets belonging to Sage, and were unjustly enriched by obtaining economic benefits through business entities which rightfully belonged to Sage, and sought suitable relief.
Plaintiff's ex-wife filed an answer and counterclaim; in which she claimed that plaintiff breached the fiduciary duty he owed to her and Sage by disrupting Sage's operations through direct contact with tenants of the two trailer parks. She also claimed that plaintiff and Paul Thomas used a motor vehicle dealership license held by PTHS, which sold used and new mobile homes, without sharing the proceeds with her as a shareholder of PTHS. She sought the dissolution of PTHS or the forced sale of plaintiff's and Paul Thomas's shares in the corporation. She also sought disgorgement of all profits illegally retained by plaintiff and PTHS.
By order of Judge Gibson, defendant was permitted to file an amended counterclaim. She claimed that plaintiff's and Paul Thomas's retention of profits relating to their misuse of the PTHS license was accomplished through certain violations of both federal law, including wire fraud and mail fraud, and state law, including the falsification of documents generated by the sales of new mobile homes using the PTHS license. She claimed that plaintiff and Paul Thomas engaged in a pattern of racketeering under the Federal Racketeering Influenced and Corrupt Organizations Act, 18 U.S.C.A. §§ 1961-1968 (federal RICO), and N.J. RICO, N.J.S.A. 2C:41-1 to - 6.2, and sought treble damages.
A bench trial before Judge Gibson began on April 2, 1996, but on April 16, 1996 the parties reached a settlement on the record. Plaintiff failed to close on the settlement, however, and defendant moved to enforce it. That motion was granted by Judge Gibson, who required plaintiff to proceed to closing on all transactions required by the settlement by January 2, 1997.
Meanwhile, defendant moved to require plaintiff to sell Sage to her. The hearing on that motion was conducted before Judge Gibson on January 31, 1997. At the conclusion of the hearing, Judge Gibson set aside the settlement. Defendant stipulated to a corporate deadlock, and agreed with plaintiff as to the value of Sage and its property. A trial date was set to determine how to split the assets of Sage between plaintiff and defendant. Judge Gibson ruled that after the trial regarding the division of Sage's assets was completed, the monetary claims between the parties would be transferred to the Law Division. Plaintiff was permitted to proceed pro se if his attorney chose to withdraw.
The trial recommenced before Judge Gibson, with plaintiff still represented by counsel. On June 11, 1997 the judge issued his opinion. Plaintiff received Delilah and defendant received Sage and Tilton, the more valuable of the parks. Plaintiff was to be paid $1.2 million, and an additional $200,000 representing the balance due on a debt of defendant's. In addition, the judge authorized the transfer of defendant's interest in PTHS to plaintiff, assuming the PTHS license could be transferred from the Sage office location to a location acceptable to plaintiff. If such a transfer could not be accomplished, PTHS was to be dissolved. The judge denied both parties' request pursuant to N.J.S.A. 14A:12-7(10) for counsel fees. On July 17, 1997 Judge Gibson issued an order transferring the remaining monetary claims related to PTHS and Future Finance/CDE to the Law Division.
On August 29, 1997 argument was conducted regarding defendant's motion to compel plaintiff to execute the documents necessary to effectuate the July 17, 1997 judgment. The judge granted the motion and ordered plaintiff to close within ten days. Plaintiff's motion for a stay pending appeal was denied. An order memorializing that opinion was issued the same day.
Plaintiff's motion for leave to appeal Judge Gibson's judgment, and for a stay pending the outcome of that appeal, was denied by this court on September 5, 1997. Plaintiff's motion for emergency relief to the Supreme Court was denied.
Before the Law Division trial began, plaintiff's counsel was permitted to withdraw, and plaintiff proceeded to trial pro se. Judge Seltzer entered an order sought by defendant, based on collateral estoppel, which set forth certain facts established during the Chancery Division proceeding before Judge Gibson and during certain other proceedings in which plaintiff was involved, which plaintiff would not be permitted to challenge during the Law Division proceedings.
Trial proceeded in the Law Division before Judge
Winkelstein and a jury in February and March 1998. The jury rendered a verdict in which it rejected plaintiff's claims against defendant, Walker, Future Finance and CDE, and found that plaintiff had used the PTHS license for his personal benefit. The jury awarded defendant $728,152.50 in damages against plaintiff, and $5000 against Paul Thomas. Punitive damages of $2,000,000 were imposed by the jury against plaintiff following a brief hearing. A final judgment memorializing the verdict was entered on March 27, 1998. The compensatory damages were trebled to $2,184,457.50 based on the jury's conclusion that plaintiff violated N.J. RICO through his use of the PTHS license. Defendant was also awarded $119,606.48 in prejudgment interest, and $110,980.90 in counsel fees. The total award to defendant, including treble damages, punitive damages, prejudgment interest and counsel fees, was $4,453,044.88.
Plaintiff moved for a new trial; while that motion was pending, he filed for Chapter 11 bankruptcy relief and his assets were secured.
The bankruptcy court permitted plaintiff to pursue the new trial motion, which was denied.
Plaintiff filed his notice of appeal, and defendant ex-wife thereafter filed her notice of cross-appeal, limited to her request for fees for both the Chancery and Law Division proceedings. Paul Thomas did not appeal.
III-A. The Chancery Division Proceeding
Plaintiff held a Bachelor's degree in engineering; defendant was a high school graduate. In 1961, plaintiff and three other investors formed Sage, which was established to operate mobile home parks. They bought a park at that time which became known as Tilton. At the time, Tilton was a small park of ten acres, with twelve "pads," or mobile home sites. The park was enlarged from forty-five to fifty acres, and at the time of trial had 228 home sites. Defendant became involved with Sage in 1963; she and plaintiff married in July 1964. In 1986, Sage bought Delilah, comprised of forty acres and more than 300 home sites as of the time of trial.
Plaintiff ran Tilton for twenty-five years, developing the design of the park, physically improving it by using his engineering experience, filing applications to increase rents, and making the purchases to increase its size. He claimed that defendant assisted in sales and was in charge of the park records.
Plaintiff and defendant each also held a 49% interest in PTHS. The remaining 2% was held by Paul Thomas. PTHS was engaged in the leasing of equipment and sale of mobile homes. Its licensed location was at Tilton.
In June 1988, the parties divorced; the provisions of a Property Settlement Agreement (PSA) were incorporated into the divorce judgment. By this time, plaintiff and defendant were each 50% owners of Sage. The PSA provided, as to Sage, that each party would maintain their 50% interest in Sage, and would cooperate in its continued operation and management. Moreover, each party would share equally in Sage's debts, income and profits. Further, each party would receive $15,173 per month from Sage through salary, income, dividends or profits. However, the PSA provided that Sage's assets would be "put up for sale and the resulting net proceeds distributed equally" between them. This latter provision was placed in the PSA at defendant's insistence. They agreed to a divorce only if Sage was sold and her business interests untangled from plaintiff's. The parties agreed to set the price to sell Sage at $14.7 million. Also, as part of the divorce and PSA, plaintiff received two other properties, Egg Harbor River Resort (EHRR), a campground, and Stoney Fields, a mobile home park in poor condition. The provisions of the PSA dealing with PTHS will be described in detail below.
According to plaintiff, no adequate offers were received for the purchase of Sage; the best offers were for $7 million, far less than the $14.7 million dollar agreed-upon price. Defendant claimed that she was willing to sell Sage to one individual who offered $7 million in cash. She also would have accepted an offer, two weeks after that of $6.3 million. Plaintiff responded to neither offer. In fact, plaintiff admitted at trial that he changed his opinion regarding the sale of Sage because he believed the parks had not yet matured and a sale would not realize their full true value. Neither Sage nor the other parks were sold before this litigation began, even though defendant filed a motion at one point to compel a sale of Sage.
After the divorce, plaintiff decided to let defendant run Sage to gain experience. Plaintiff went to Arizona for four weeks, and began to put together a business, Bargaintown, essentially a vendor mall. Plaintiff spent his remaining time improving EHRR and Stoney Fields, the two parks he acquired pursuant to the PSA. Immediately after the divorce was finalized, old homes in Stoney Fields were acquired by plaintiff, destroyed, and replaced with new homes. Plaintiff upgraded the park and it became one of the most desirable in South Jersey. Similarly, EHRR, a campground at the time of divorce, was improved; new mobile homes were placed on site and over $1 million was invested in the park by plaintiff. At the time of trial, it had 124 sites and forty to fifty new mobile homes. Plaintiff admitted that both parks encountered regulatory problems, including repeated violations of environmental standards issued by the Department of Environmental Protection (DEP) and the state and local departments of health (DOH).
Meanwhile, from 1988 to 1994, defendant was solely responsible for the operation of Sage and its two parks, Tilton and Delilah. Plaintiff claimed that running the parks was not a monumental task; rather, only a manager-bookkeeper and maintenance person were necessary. In fact, plaintiff claimed he could have operated Bargaintown in Arizona at the same time he operated Sage and its two parks.
Defendant, on the other hand, testified that plaintiff vanished after the divorce without telling her his destination, leaving her to run the parks by herself. She was initially overwhelmed at operating the parks on her own, but eventually adapted, learning as she went and finding solutions to the problems she encountered. Defendant testified, moreover, that operating the two parks was a difficult task; she not only collected rents and directed the maintenance person's activities, but also dealt with mobile home owners who rented to third parties (she screened potential renters), ran advertisements to sell available lots, handled delinquent accounts, and resolved environmental and other issues. She described the two parks as being like "mini-cities."
Moreover, because of the parks' poor financial situation, and the requirement that she pay plaintiff $15,173 per month pursuant to the PSA, she could not hire any additional assistance, relying only on herself, an office employee (Pam Mooney) and a maintenance man. However, in 1991, she married Walker, who had lived in Europe. In September of that year, he moved to New Jersey and began to assist in Sage's operation, such as environmental- regulatory problems, rent increases and obtaining a loan.
Defendant believed that she was a good manager of the parks. Debt service and costs were reduced, environmental issues addressed. Defendant's and plaintiff's monthly draw from Sage increased, from the $15,173 provided for in the PSA to between $30,000 and $35,000 per month by 1997. In addition, roads were paved, wells were upgraded, and other capital improvements were made. However, after the April 16, 1996 settlement fell apart, and during the bench trial before Judge Gibson, the parks deteriorated, because occupants left the park and defendant could not replace them, since plaintiff refused to approve any new tenants. Mooney corroborated defendant's allegedly active role in operating and improving the parks, while plaintiff had minimal involvement with the parks after the divorce. Plaintiff claimed, however, that under defendant's tenure Tilton had gone from one of the best parks in Atlantic County to one of the worst. In fact, he claimed the condition of both parks had deteriorated.
Paul Thomas lived with defendant after his parents divorced and had no contact with plaintiff. In September 1991, he began working at Sage for defendant, initially assisting with an oil spill that occurred at Tilton. After Walker became more involved with the parks, Paul Thomas's duties decreased. Over time, Paul Thomas became closer to his father, and began to disapprove of certain business practices at Sage. Specifically, he claimed that bills went unpaid, that defendant and Walker falsified mortgage documents so new unit owners could be approved, and failed to perform appropriate credit checks. Also, the roads in the two parks were in disrepair, and Sage falsified chlorine test forms sent to the State regarding the park's well water. Defendant and Mooney specifically denied Paul Thomas's claims regarding falsification of chlorine reports.
Paul Thomas also testified that plaintiff received little information from defendant regarding Sage's operations. Moreover, court orders issued in June and August 1994 and in November 1995 restricted the times during which plaintiff could visit the Sage offices and ultimately enjoined him from going to Sage's offices at all. Paul Thomas then started telling plaintiff about the problems he perceived at Sage. Plaintiff became more interested and his son responded by providing even more detailed information. Ultimately, plaintiff allowed Paul Thomas to become a partner of his in the Bargaintown venture in Arizona, providing Paul Thomas with his own business opportunity. Paul Thomas was finally fired from his position at Sage by defendant for reasons irrelevant to this appeal, and admitted he had not seen defendant in the last few years before trial.
Substantial testimony was offered at trial regarding PTHS, its operation, and plaintiff's use of its license to buy and sell many homes in his two parks, EHRR and Stoney Fields. That testimony was largely repeated at the Law Division trial and will not be recounted here because irrelevant. Testimony regarding PTHS offered during the Chancery Division trial is relevant regarding collateral estoppel.
Judge Gibson issued a comprehensive opinion in which he required plaintiff to sell his interest in Sage to defendant but awarded Delilah to plaintiff, and required defendant to pay the cash difference between one-half of Sage's value and Delilah to plaintiff.
III-B. The Law Division Proceeding
The Law Division trial addressed plaintiff's claim that defendant, through Future Finance and CDE, had usurped a corporate opportunity available to Sage, and defendant's counterclaim that plaintiff used the PTHS license to buy and sell new mobile homes without splitting the profits with her as required by the PSA. Her amended counterclaim also alleged that plaintiff's scheme to retain all PTHS profits was accomplished via a pattern of racketeering in violation of federal and N.J. RICO, and sought treble damages. The facts regarding each claim are separately addressed.
Future Finance was established in 1992 as a way of involving Walker in defendant's mobile home business. Future Finance was designed to act as a broker between individuals buying and selling used mobile homes. According to Walker, Future Finance never sold new homes. Future Finance was owned solely by defendant. Defendant claimed that before her divorce, Sage did buy and sell used homes. This activity ceased in 1983.
Defendant claimed that plaintiff was not interested in brokering used mobile homes; rather, his interest was in clearing space at his parks for new homes, which he felt enhanced the value of the parks. Therefore, until 1994, plaintiff never complained about the activities in which Future Finance engaged, nor did he seek a share of any profits earned by Future Finance, even though he was aware of its existence and activities. In fact, in 1992, when Future Finance prepared to enter into its first transaction, the rehabilitation and resale of a used mobile home, defendant ...