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Milo Fields Trust v. Britz

June 9, 2005

MILO FIELDS TRUST U/W/O MILO FIELDS, PLAINTIFFS-RESPONDENTS/ CROSS-APPELLANTS,
v.
JEFFREY E. BRITZ, SHEILA BRITZ, PROFESSIONAL MANAGEMENT BUREAU, INC., PMB OF HACKENSACK, L.L.C., PMB OF UNION CITY, L.L.C. AND SELECT MANAGEMENT SERVICES, L.L.C., DEFENDANTS-APPELLANTS/CROSS-RESPONDENTS.



On appeal from Superior Court of New Jersey, Chancery Division, Bergen County, Docket No. C-329-00.

The opinion of the court was delivered by: Holston, Jr., J.A.D.

NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION

APPROVED FOR PUBLICATION

Argued April 20, 2005

Before Judges Newman, R.B. Coleman and Holston, Jr.

Defendants, Jeffrey E. Britz (Britz), Sheila Britz (S. Britz), Professional Management Bureau, Inc. (PMB), PMB of Hackensack, L.L.C., (PMB of Hackensack), PMB of Union City, L.L.C. (PMB of Union City) and Select Management Services, L.L.C. (SMS), appeal and plaintiff, Milo Fields Trust u/w/o Milo Fields (the trust), cross-appeals from the March 18, 2003 final judgment of the Chancery Division entering judgment in favor of plaintiff in the amount of $170,000 plus prejudgment interest calculated from March 1, 1998 and requiring an accounting of accounts receivables attributable to the operations of PMB of Hackensack and PMB of Union City existing as of March 1, 1998. Defendants also appeal and plaintiff cross-appeals from the April 25, 2003 order denying amendment to judgment of March 18, 2003, but which modified judgment to stipulate that prejudgment interest is due to plaintiff on all accounts receivables. We affirm.

The essential facts are as follows. Britz developed and operated a series of physical therapy clinics throughout northern New Jersey. Britz and S. Britz, respectively, owned 5% and 95% of PMB, which according to Britz, managed all the business affairs of various Hudson Physical Therapy clinics (HPT), the providers of physical therapy services in North Jersey. The HPTs were operated by a New Jersey-licensed physical therapist. Defendants, PMB of Hackensack and PMB of Union City, were limited liability companies (LLCs) that were formed by PMB's comptroller on June 6, 1995, and June 15, 1995, respectively, their purpose being to bring in investors.

Gary Fields (Fields), a New York attorney, performed legal services for Britz at Britz's request on essentially a barter basis, such that in exchange for those services, Fields was given an opportunity to invest as a 20% and 19% owner, respectively, in two LLCs formed by Britz. Fields invested $31,280 in the two LLCs. He invested $10,000 in PMB of Hackensack and $21,280 in PMB of Union City. When Fields' wife, Milo Fields, became terminally ill, Fields assigned his interest to her, and those interests passed to plaintiff under her will. In anticipation of the sale in 1998 of Britz's interest in the LLCs and the sale of the assets of PMB to Select Medical of New Jersey (Select), Britz offered the trust through Fields $191,000 for the trust's interest in both LLCs. Britz had previously returned his initial combined investment of $31,280 in both LLCs and an additional $19,000 in profits to Fields. Fields, acting for the trust, refused the offer.

In December 1997, Britz met with representatives of Select with respect to the sale of PMB to Select. A February 3, 1998 letter of intent between Select and PMB provided for Select's acquisition of an 80% undivided interest in the assets of the "Mature [physical therapy] Companies" (Jersey City, Fair Lawn, Hackensack and Union City) and a 51% undivided interest in the assets of the "New Companies" (Englewood, Hasbrouck Heights, Ramsey, Ridgefield). Additionally, the companies were to retain a 20% undivided interest in the assets of the "Mature Companies" and a 49% undivided interest in the assets of the "New Companies." Thereafter, Select and the owner (S. Britz) were to form a "joint venture entity" known as "Newco" to operate the business.

In a February 11, 1998 letter to Fields, Britz advised that PMB entered into a letter of intent with Select for the "sale of 80% of the operating assets of the . . . [Hackensack and Union City] facilities together with varying percentages of operating assets of the other six physical therapy facilities managed by PMB." Fields was offered $191,365 for his "present interest in the cash flow of the Hackensack and Union City facilities."

Exhibit 4 to the letter set forth how the $191,365 was calculated. The exhibit also contained an analysis of what Fields' interest would bring if not sold, that is, $239,206.40 together with "an ongoing interest in the cash flow of the remaining unsold portion (20% or 49%, as applicable), as well as an interest in the outstanding receivables existing at the close less a fee for collection and an interest in the future sale of these interests all of which are not determinable at this time."

Britz further explained his methodology in reaching his "allocation conclusions":

The transaction will involve the assets of PMB, which operates the Jersey City facility and provides management services to all eight facilities under its management contract with Hudson Physical Therapy Services, P.A. ("HPT"). I have allocated 50% of the entire purchase price to PMB (without reference to the Jersey City facility which it operates), since PMB in fact owns the facility lease (except for Ridgefield), equipment leases and owned equipment, and other operating assets of all eight locations; indeed, without the PMB management contract with HPT none of the eight locations would have any value. I have then discounted the results by 20% for the following three reasons:

1. I will pay you all cash for your interest at the closing, so that you will not be subject to the risk of only 60% downpayment and 40% payable over the following three years with interest at 6%--I will bear the full brunt of the deferral;

2. You will not be a party to the Sale Agreement and therefore will have no liability or obligation concerning any representations, warranties or other agreements made by the Seller to the Buyer, or for any ongoing indemnification responsibilities concerning litigation in which PMB is involved--PMB will bear the full brunt of that; and

3. You will see from the Letter of Intent that I am required to work for "Newco" for three years at $150,000 per year--a very, very considerable reduction in the amounts previously drawn by my wife as sole owner of PMB. In addition, it is anticipated that both my wife and I will be bound by restrictive covenants, and will not be permitted to work in this field for a period of years following the 3-year employment arrangement.

The sale by Britz to Select was consummated and SMS, a new management company, was formed to provide management services for the HPTs. No distributions were made to the trust after the sale, and this litigation ensued.

Plaintiff, in its complaint, alleged that: (1) Britz and PMB breached their fiduciary duties to plaintiff; (2) Britz engaged in breach of contract and breach of the implied covenant of good faith; (3) Britz and PMB committed fraud, unconscionable and unlawful commercial practices in violation of N.J.S.A. 56:8-2, misappropriation and conversion; racketeering in violation of N.J.S.A. 2C:41-2, and refusal to account. Plaintiff sought dissolution of PMB, PMB of Hackensack and PMB of Union City; appointment of a provisional director, custodian or special fiscal agent with respect to PMB and of a provisional manager or special fiscal agent with respect to PMB of Hackensack and PMB of Union City; imposition of a constructive trust; compensatory, treble and punitive damages, attorneys' fees, interest and an accounting. Defendants denied the material allegations of the complaint alleging seventeen separate defenses.

A bench trial was conducted between January 13, 2003, and March 5, 2003, before Judge Escala. In a written opinion issued March 18, 2003, the judge valued the trust's interest in PMB of Hackensack and PMB of Union City at $170,000 plus interest from March 1, 1998, at 7.5% for 1998, 1999, and 2001; 7% for 2000; 8% for 2002 and 5% for 2003. The judge also ordered an accounting with respect to a calculation of the value of certain accounts receivables.

A judgment was filed on March 18, 2003. An April 25, 2003 order denied the trust's motion to amend the judgment with the exception that "prejudgment interest . . . [was to be] due to Plaintiff on all accounts receivable collections calculated from Jan 1 of the year following the year of collections for that year."

The following issues are presented for our consideration:

DEFENDANTS' ISSUES

POINT I

DID THE COURT ERR BY FAILING TO RULE THAT THE TRUST'S CLAIMS WERE BARRED BY GARY FIELDS' FAILURE TO COMPLY WITH RPC 1.8(a)?

POINT II

DID THE COURT ERR IN AWARDING THE TRUST A PERCENTAGE OF THE ACCOUNTS RECEIVABLES COLLECTED ...


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