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Vergopia v. Shaker

February 22, 2006

SALVATORE A. VERGOPIA, JANET VERGOPIA, AND EDWARD A. VERGOPIA, PLAINTIFFS,
v.
COREY E. SHAKER, WILLIAM C. MULLER, JR., JOSEPH SHAKER, JAMES CHRIST, DOMENIC COLASACCO, C. MICHAEL JACOBI, LOUIS I. MARGOLIS, ALL INDIVIDUALLY AND/OR AS DIRECTORS OF HOMETOWN AUTO RETAILERS, INC., HOMETOWN AUTO RETAILERS, INC., WESTWOOD LINCOLN MERCURY SALES, INC., STEVEN SHAKER, EDWARD D. SHAKER, JOSEPH SHAKER AS TRUSTEE OF RICHARD SHAKER VOTING TRUST, SADIE NEJAIME, JANET SHAKER, EDWARD SHAKER, PAUL SHAKER, ROSE SHAKER, WILLIAM C. MULLER, SR., DEFENDANTS-RESPONDENTS/CROSS-RESPONDENTS, AND STEPHEN A. ZELNICK, DEFENDANT-APPELLANT/CROSS-CLAIMANT.
UNIVERSAL UNDERWRITERS GROUP, PLAINTIFF,
v.
THE CHUBB GROUP OF INSURANCE COMPANIES; FEDERAL INSURANCE COMPANY; SALVATORE A VERGOPIA; JANET VERGOPIA; EDWARD A, VERGOPIA; COREY E. SHAKER; WILLIAM C. MULLER, JR.; JOSEPH SHAKER; JAMES CHRIST; DOMENIC COLASACCO; C. MICHAEL JACOBI; LOUIS I. MARGOLIS, INDIVIDUALLY AND/OR AS DIRECTORS OF HOMETOWN AUTO RETAILERS, INC.; WESTWOOD LINCOLN MERCURY SALES, INC.; STEVEN SHAKER; EDWARD D. SHAKER; JOSEPH SHAKER, AS TRUSTEE OF RICHARD SHAKER VOTING TRUST; SADIE NEJAIME; JANET SHAKER; PAUL SHAKER; ROSE SHAKER; AND WILLIAM C. MULLER, SR., DEFENDANTS.



On appeal from Superior Court of New Jersey, Law Division, Bergen County,No. L-3847-02.

The opinion of the court was delivered by: Wefing, P.J.A.D.

NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION

APPROVED FOR PUBLICATION

Argued December 7, 2005

Before Judges Wefing, Wecker and Graves.

Defendant Stephen A. Zelnick appeals from a trial court order dismissing his cross-claim in which he sought indemnification for certain counsel fees and expenses he had incurred. After reviewing the record in light of the contentions advanced on appeal, we reverse.

Zelnick is an attorney admitted to the practice of law in New York and a member of the firm Morse, Zelnick, Rose & Lander. Plaintiffs Salvatore A. Vergopia and his son Edward A. Vergopia had been the chairman and vice-president, respectively, of an automobile dealership known as Westwood Lincoln-Mercury Sales, Inc., located in Emerson, New Jersey. Plaintiff Janet Vergopia is the wife of Salvatore. In 1998, Westwood consolidated its business with that of several other automobile dealerships to form a new entity, Hometown Auto Retailers, Inc. Hometown is a Delaware corporation that operates automobile dealerships in five states. Its stock is publicly traded on the NASDAQ Exchange. Because its stock is publicly traded, Hometown must comply with the various rules and regulations of the Securities and Exchange Commission ("SEC"). Zelnick and his firm served as outside counsel and SEC counsel in connection with the formation of Hometown and thereafter.

Several years after the formation of Hometown, dissatisfaction arose between the Vergopias and other members of Hometown. Zelnick was assigned the task of informing the Vergopias that the decision had been made to terminate them from their positions with Hometown. According to the Vergopias, Zelnick informed them that the decision was motivated by a desire to save money. On February 7, 2001, the Vergopias filed suit alleging, inter alia, breach of employment agreements.

A press release dated February 9, 2001, was prepared to inform the investing public of the termination and litigation. Zelnick, as counsel to Hometown, reviewed the press release prior to its dissemination and publication and made suggestions as to revisions and changes. In addition, an associate in Zelnick's firm was directed to prepare the Form 8-K required to be filed with the SEC.

Initially, the Vergopias did not join Zelnick as a defendant to their litigation. The Vergopias, however, amended their complaint several times. In the third amended complaint, filed in March 2003, they joined Zelnick as a defendant, asserting against him claims of libel and intentional infliction of emotional distress. These claims rested upon Zelnick's involvement with the contents of the February 9, 2001, press release announcing the termination of the Vergopias and their lawsuit against Hometown. This press release stated in pertinent part:

Hometown Auto Retailers (Nasdaq NM: HCAR) today announced that it has dismissed Salvatore Vergopia as chairman and Edward Vergopia as vice-president-fleet operations. Hometown has terminated their employment contracts, for cause, and replaced Salvatore Vergopia as general manager of Hometown's Westwood Lincoln-Mercury dealership. According to the company, Hometown suffered significant losses at its Westwood operations during calendar year 2000 as a result of the sale and transfer of title of limousines (worth approximately $850,000) to a defaulting customer and as a result of Westwood's management having set unrealistic residual values on the recourse sales of automobiles. Hometown believes these actions arose from mismanagement and dereliction of duty by the dismissed officers and, together with other improper actions by these officers, provided a legal basis for their dismissals.

In response to their dismissal and the termination of their employment contracts, the dismissed officers and Janet Vergopia filed a civil complaint with the Superior Court of New Jersey, Bergen County, against Hometown, its directors, officers and certain major stockholders alleging breach of their employment agreements and the original combination agreement among the Hometown constituent dealerships and other wrongful conduct, including age discrimination and breach of fiduciary duty and seeking reinstatement, compensatory, consequential and punitive damages, in an unspecified amount, back pay and front pay, injunctive and other legal and equitable relief. Hometown intends to vigorously defend the action brought by the Vergopia's and will seek recovery from the Vergopia's for their misconduct.

"Westwood Lincoln-Mercury is one of the highest volume dealerships in the New York region and proper management of its sale and credit procedures, inventory levels and dayto-day operations is critical to Hometown," said Corey Shaker, president and chief executive officer of Hometown. "We felt dismissal of the Vergopia's was necessary and appropriate to meet these goals."

When neither Hometown nor its insurers would provide a defense or indemnification for Zelnick, he retained his own counsel to represent him against the claims of the Vergopias. He also asserted a cross-claim against Hometown for indemnification. Ultimately, Zelnick successfully moved for summary judgment against the Vergopias, and the claims against him were dismissed.

Thereafter, Zelnick's cross-claim for indemnification was submitted to the trial court on stipulated facts, together with an agreement that the matter was controlled by Delaware law, the state of Hometown's incorporation. Zelnick has appealed from the trial court's determination that his claim against Hometown for indemnification should be dismissed. Zelnick is not pursuing on appeal a claim against Hometown's insurers.

Zelnick's appeal calls for an examination of Hometown's corporate documents and the relevant provisions of the Delaware statutes. Section 145(a) of Title 8 of the ...


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