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Vergopia v. Shaker

June 11, 2007

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., JOHN DOES, 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 AND WILLIAM C. MULLER, SR., DEFENDANTS,
AND HOMETOWN AUTO RETAILERS, INC., DEFENDANT-APPELLANT, AND STEPHEN A. ZELNICK, DEFENDANT-CROSS-CLAIMANT-RESPONDENT.
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 certification to the Superior Court, Appellate Division, whose opinion is reported at 383 N.J. Super. 256 (2006).

SYLLABUS BY THE COURT

(This syllabus is not part of the opinion of the Court. It has been prepared by the Office of the Clerk for the convenience of the reader. It has been neither reviewed nor approved by the Supreme Court. Please note that, in the interests of brevity, portions of any opinion may not have been summarized).

The issue in this case is whether Stephen A. Zelnick, Esquire, a corporate officer of Hometown Auto Retailers, Inc., a Delaware corporation, was entitled to indemnification for the costs of his defense against a wrongful discharge lawsuit brought by two former employees of Hometown, Salvatore and Edward Vergopia. In 2003, the Vergopias filed a third amended complaint, which added Zelnick as a defendant. The complaint alleged that Zelnick had engaged in trade libel and had intentionally inflicted emotional distress by preparing and distributing a press release in respect of the Vergopias' dismissal from Hometown.

Hometown's insurance carriers refused to defend or indemnify Zelnick. He retained counsel and actively litigated the matter, ultimately securing a grant of summary judgment dismissing the complaint against him. With that portion of the litigation resolved, the trial court addressed Zelnick's cross-claim for indemnification against Hometown. The parties agreed to stipulated facts and that Delaware law governed the matter.

Finding that Zelnick was not sued because he was an officer or agent of Hometown, the trial court held that Hometown and its insurers were not required to pay for Zelnick's defense. On appeal, the Appellate Division reversed. Although that court agreed in part with the trial court, it determined that Zelnick was in fact sued as an agent of Hometown and was therefore entitled to indemnification. The Appellate Division's holding did not specify whether Zelnick's right to indemnification arose out of the Delaware General Corporation Law, Hometown's certificate of incorporation, or Hometown's bylaws.

The Court granted Hometown's petition for certification.

HELD: Under the broad indemnification provision contained in appellant's Delaware certificate of incorporation, under the facts of this matter respondent is entitled to indemnification as a corporate officer.

1. The parties agreed that Delaware law governs this dispute. Relevant portions of the Delaware statute provide for both permissive and mandatory indemnification under specified circumstances. The Court notes that because of the remedial nature of the indemnification statute, Delaware's courts have interpreted it broadly. (pp. 10-13)

2. The Court concludes that it needs to look no further than Hometown's certificate of incorporation to resolve the issue before it. Clearly, the relevant language provides broad protection for Hometown's officers and directors who are sued for their actions, taken in any capacity, relating to the corporation. When Zelnick was added to the Vergopia litigation in 2003, he was serving as an assistant secretary of Hometown. Although the suit did not relate directly to Zelnick's official duties, he was sued for actions he took in furtherance of the corporation's business interests. (pp. 13-16)

3. By statute, Delaware provides that bylaws may contain "any provision, not inconsistent with.the certificate of incorporation, relating to the business of the corporation.." To the extent that Hometown's bylaws seemingly diminish the scope of protection provided by the certificate of incorporation, they must yield. (p. 16)

4. Because the Court's resolution of the matter results in an affirmance of the Appellate Division's judgment, it does not need to address that court's alternative basis for the same holding. (p. 17)

The judgment of the Appellate Division is AFFIRMED, as MODIFIED.

JUSTICE RIVERA-SOTO has filed a separate DISSENTING opinion. It his view that because the issues before the Court unequivocally and exclusively involve the construction of Delaware law, the better result would be to certify the case to the Supreme Court of Delaware, which has constitutional authority to hear and determine questions such as that presented in the within matter. Absent that referral, he concludes that the majority's failure to consider Hometown's bylaws in conjunction with its certificate of incorporation renders its analysis unsupportable.

CHIEF JUSTICE ZAZZALI and JUSTICES LONG, LaVECCHIA, ALBIN, WALLACE, and HOENS join in the Court's opinion. JUSTICE RIVERA-SOTO has filed a separate dissenting opinion.

Per curiam.

Argued November 29, 2006

At issue in this appeal is indemnification. Stephen A. Zelnick was both a corporate officer of and outside counsel to Hometown Auto Retailers, Inc. (Hometown), a Delaware corporation with its principal place of business in Connecticut. In 2003, he was added as a defendant in a civil action that was brought against Hometown by two of its former senior employees, plaintiffs Salvatore and Edward Vergopia. Plaintiffs claimed that Hometown wrongfully ousted them from the corporation. Hometown asked its insurance carriers to defend and indemnify Zelnick, but its request was denied. Accordingly, Zelnick filed a cross-claim against the carriers and Hometown, demanding that they provide him with a defense and indemnification.

Eventually the Vergopias' claims against Zelnick were dismissed and, thereafter, so too was Zelnick's cross-claim.

The trial court held that Zelnick was not entitled to indemnification either as an officer or as an agent of Hometown.

The Appellate Division reversed. Vergopia v. Shaker, 383 N.J. Super. 256 (2006). The panel held, under case law interpreting Delaware's General Corporation Law, that Zelnick was entitled to indemnification because he was sued by reason of the fact that he was an agent of the corporation. Id. at 269-70. We granted certification, 187 N.J. 83 (2006), largely to review the panel's holding regarding indemnification for agents of a corporation under Delaware law, which could impact our law's requirements concerning indemnification of a corporation's agents.*fn1 We now affirm, but on a different and narrower basis.

Through its certificate of incorporation, Hometown has provided its directors and officers with broad protections against civil liability, thereby encouraging talented individuals to serve as its corporate leaders. We conclude that Zelnick was entitled to indemnification as a corporate officer of Hometown under the terms of that certificate of incorporation. Our holding renders it unnecessary for us to reach the issue of the scope of indemnification required to be provided to corporate agents under Delaware's General Corporation Law.

I.

Zelnick is an attorney with the New York law firm of Morse, Zelnick, Rose & Lander. In 1997, he became involved in forming Hometown, a corporation composed of several automobile dealerships in the tri-state area.*fn2 Zelnick drafted and negotiated documents relating to Hometown's formation and initial public offering and then became active in Hometown's business operations.

In addition to acting as outside counsel to the corporation, Zelnick held various leadership positions with the company. During Hometown's formation, Zelnick acted as vice president of the company. In 2001 and 2002, he served as a director. Consistent with his active role in Hometown's operations, Zelnick has joined in monthly telephonic meetings of Hometown's board of directors since the company's inception.

In March 2003, Zelnick was added as a defendant to the Vergopias' ongoing civil action filed against Hometown in New Jersey. At the time, Zelnick was an assistant secretary of Hometown.*fn3 Salvatore and Edward Vergopia alleged that they had been wrongfully discharged by Hometown. Salvatore's wife, Janet Vergopia, also was named as a plaintiff in the lawsuit. In their third amended complaint, the Vergopias asserted claims against Zelnick for trade libel and intentional infliction of emotional distress. Those claims arose from the contents of a press release issued by Hometown addressing the Vergopias' dismissal and their lawsuit against the company, and from a Form 8-K, filed with the Securities and Exchange Commission, that incorporated the press release. The Vergopias averred that Zelnick was directly involved in the preparation and publication of the allegedly defamatory press release and Form 8--K.

When Hometown's insurance carriers refused to defend or indemnify Zelnick against the lawsuit, Zelnick asserted his cross-claims against Hometown and its insurers and retained his own attorney for interim representation. Ultimately, Zelnick obtained ...


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