June 29, 2007
BARRY SIMON AND CLIFFORD SIMON, PLAINTIFFS,
ORADELL WORKS PARTNERSHIP, LTD., MAYBELLE SCHNEIDER, AND ORADELL ASSOCIATES, DEFENDANTS.
ORADELL WORKS PARTNERSHIP, LTD., MAYBELLE SCHNEIDER AND ORADELL ASSOCIATES, DEFENDANTS/THIRD-PARTY PLAINTIFFS-APPELLANTS,
FAY STERN ZABROWSKY, MARA VASSLIDES, ROBERT TEITELBAUM, MACE TEITELBAUM, BRUCE Y. TAPPER, ESTELLE SCHNEIDER AND ESTATE OF ALFRED SIMON, THIRD-PARTY DEFENDANTS-RESPONDENTS.
On appeal from the Superior Court of New Jersey, Chancery Division, Bergen County, Docket No. C-203-05.
NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION
Submitted June 6, 2007
Before Judges Parker, C. S. Fisher and Yannotti.
Appellants Oradell Works Partnership, Ltd. (Oradell Works), Maybelle Schneider (Maybelle), and Oradell Associates appeal from an order filed on August 15, 2006, which dismissed their third-party complaint. For the reasons that follow, we reverse.
This matter arises from the following facts. Alfred Simon (Alfred), Jacob Schneider (Jacob), and C. Conrad Schneider (Conrad) entered into an agreement dated October 1, 1968, which provided for the formation of a partnership called Oradell Associates. The partnership was established for the purpose of owning, operating and managing certain garden apartments in Oradell, New Jersey. According to the agreement, the partners' respective capital interests in the partnership were: Jacob, 50%; Conrad, 25%; and Alfred, 25%. The agreement states that the partnership's net profits would be divided "in the proportions and percentages" of the partners' respective capital interests.
The agreement further states that the partners would have "equal rights in the management of the partnership," and Alfred would be the partnership's accountant.
The agreement includes several provisions that govern the sale or transfer of the partners' interests. Section 8 of the agreement states:
Except as otherwise provided, no partner shall, except with the consent of all the other partners, assign, mortgage, or otherwise encumber or sell his share in the partnership or in its assets or property nor enter into any agreement as a result of which any person shall become interested with him in the partnership nor do any act detrimental to the best interests of the partnership or which would made it impossible or unusually difficult to carry on the business or affairs of the partnership.
Section 9 of the agreement provides in pertinent part:
(A) In the event one partner desires to withdraw from the partnership, he shall offer to sell his share to all the remaining partners. Thereupon, the remaining partners shall have the right to share equally in the purchase of said retiring partner's share by paying for same equally. Each partner shall signify his intention within thirty days of the offer to sell, and those desiring to purchase shall share equally in same. In the event no partner desires to buy the share of the said partner, then he may offer same to a person other than a partner upon the same price and terms, provided, however, that said purchaser agrees to become a partner and execute the within agreement, subject, however, to the provisions of paragraphs (B) and (C) hereinafter set forth.
(B) In the event one partner desires to withdraw from the partnership and receives an offer of purchase from one of the remaining partners, the remaining other partner shall be informed of the details of the said offer and shall be afforded the opportunity of purchasing equally, in accordance with said offer. If none of the other partners expresses an intention to join in this purchase, the partner offering to purchase shall be entitled to purchase said retiring partner's share as offered. If some, but not all, of the partners desire to join in said purchase, they shall have an equal right to share in said purchase.
(C) In the event a partner desires to sell his entire share and receives a bona fide offer to purchase, the said partner shall immediately notify the other partners in writing of said offer, giving full details on price, and terms of the proposed purchase and the other partners shall be afforded the opportunity of purchasing equally, in accordance with said offer. In each instance where an offer is made or where a decision must be made by one of the partners, there shall be allowed thirty days for said partner or partners in which to act.
The agreement further provides that, upon the death of a partner, his share "may be assumed only by a spouse, child or grandchild."
Shortly after Alfred, Conrad and Jacob entered into the agreement, Alfred sold a percentage of his partnership interest to Howard Teitelbaum (Teitelbaum). In April 1969, Alfred sold a percentage of his interest in the partnership to Fay Zabrowsky.
Alfred sold another portion of his partnership interest to Joseph E. Salvatore and in March 1971, arranged for the sale of Salvatore's interest to Bruce Y. Tapper and Elsie Tapper.
Conrad died on July 6, 1984, and his interest in the partnership was assumed by his spouse, Estelle Schneider (Estelle). Jacob, Alfred and Estelle executed a document dated March 31, 1985, which amended the partnership agreement to state that the partners had the following interests in the partnership: Jacob, 50%; Alfred, 25%; and Estelle, 25%.
In April 1993, the partnership agreement was again amended, this time to substitute Maybelle Schneider (Maybelle) for her husband Jacob, who had become disabled and was no longer able to carry out his duties as partner. Estelle, Maybelle, and Alfred executed an amendment to the partnership agreement dated April 9, 1993, which identified Alfred as a partner with a 25% interest.
After Teitelbaum and his wife died, Tietelbaum's interest in the partnership was assumed by his three children, Mace Teitelbaum, Robert Teitelbaum, and Mara Vasslides. In addition, sometime prior to 1999, Alfred transferred shares of his interest in the partnership to his sons Clifford and Barry. As of 1999, Alfred had transferred interests in the partnership to:
Clifford Simon, Barry Simon, Bruce Y. Tapper, Fay Zabrowsky, Mace Teitelbaum, Robert Teitelbaum, and Mara Vasslides.
In or about 1999, Maybelle decided to transfer her partnership interest to Oradell Works, a partnership to be created under the laws of the State of Georgia. In October 1999, Alfred and Estelle executed a written consent to the transfer. In November 1999, Alfred verbally advised Martin J. Dever, Jr. (Dever), an attorney who was representing Maybelle in the transfer of her interest in Oradell Associates, that previously he had transferred his interest in the Partnership. Dever thereafter obtained written consent for the transfer from the individuals who had acquired Alfred's partnership interest.
In June 2005, Barry Simon and Clifford Simon filed a verified complaint in the Chancery Division against appellants Oradell Works, Maybelle and Oradell Associates. The Simons alleged that they were owners of interests in the Oradell Associates partnership and had wrongfully been denied access to the partnership's books and records. Appellants thereupon filed an answer and third-party complaint against Fay Zabrowsky, Mara Vasslides, Robert Teitelbaum, Mace Teitelbaum, Bruce Y. Tapper, Estelle Schneider, and the Estate of Alfred Simon (the Estate), alleging that Alfred violated the agreement when he transferred his interest in the partnership to persons other than his spouse, child or grandchild. Appellants demanded a judgment declaring the alleged improper transfers null and void, and ordering the "purported purchasers" of Alfred's partnership interest to convey their interests to the remaining partners as of October 22, 1968, or to those who had lawfully succeeded to their interests, at the prices paid by the purchasers.
In September 2005, a consent judgment was filed which recognized and acknowledged that Barry and Clifford Simon were partners of Oradell Associates. Thereafter, the Estate filed a motion seeking dismissal of the third-party complaint on the ground that it was barred by the statute of limitations. The judge handling the matter at the time entered an order on November 16, 2005, denying the motion. The judge determined that application of the statute of limitations might be affected by the discovery rule, and therefore a ruling on whether the action was time-barred should await the completion of discovery.
In June and July 2006, the parties filed cross-motions seeking summary judgment. The judge determined that the matter was not appropriate for summary judgment; however, the parties agreed to submit the matter for decision by the court, based on the record submitted on the respective motions, without trial testimony.
On August 15, 2006, the judge filed a written opinion in which he found that appellants' claims were barred by the statute of limitations. The judge further determined that appellants' claims failed as a matter of law. The judge found appellants had not presented clear and convincing evidence to establish that Alfred violated the agreement when he made the alleged wrongful transfers of his interest in the partnership. The judge entered an order on August 15, 2006, dismissing the third-party complaint. This appeal followed.
We first consider appellants' contention that the judge erred by finding their claims were barred by the statute of limitations. Appellants argue that the discovery rule should be applied here and maintain that the third-party complaint was filed in a timely manner.
The trial judge concluded that claims at issue in this matter are subject to N.J.S.A. 2A:14-1, which provides in pertinent part that an action for recovery on a contract claim must be asserted within six years after the cause of action accrued.*fn1 Generally, a cause of action is deemed to accrue when "the right to institute and maintain a suit first arises." Holmin v. TRW, Inc., 330 N.J. Super. 30, 35 (App. Div. 2000) (quoting Hartford Acc. & Indem. Co. v. Baker, 208 N.J. Super. 131, 135-36 (Law Div. 1985)), aff'd. o.b., 167 N.J. 205 (2001). However, the discovery rule provides an equitable basis to "avoid the harsh effects" that may result from "a mechanical application of [the] statute of limitations." Szczuvelek v. Harborside Healthcare, 182 N.J. 275, 281 (2005).
Under the discovery rule, a cause of action does not accrue "until the injured party discovers, or by an exercise of reasonable diligence and intelligence should have discovered that he [or she] may have a basis for an actionable claim." Ibid. (quoting Lopez v. Swyer, 62 N.J. 267, 273 (1973)). Nevertheless,
[i]t is not every belated discovery that will justify an application of the rule lifting the bar of the limitations statute. The interplay of the conflicting interests of the competing parties must be considered. The decision requires more than a simple factual determination; it should be made by a judge and by a judge conscious of the equitable nature of the issue before him [or her]. [Ibid. (quoting Lopez, supra, 62 N.J. at 275).]
In this case, the judge found that appellants' cause of action accrued when Alfred made the alleged unauthorized transfers of shares of his partnership interest. The judge further found that appellants had not established equitable grounds for application of the discovery rule. The judge stated that the "long passage of time," the death of "all of the key witnesses," and the "deep prejudice" resulting from appellants' delay in asserting the claim weighed against "lifting the statute of limitations." We disagree with that conclusion.
We are convinced that the appellants' cause of action did not accrue until November 1999, when Alfred informed Maybelle's attorney that he had previously transferred his interest in the partnership to others and he had been acting as "nominee" for those individuals. In our view, this was the point in time when appellants had sufficient information to place them on notice that they might have an actionable claim arising from the alleged unauthorized transfers of Alfred's partnership interest.
It is undisputed that between 1968 and 1971, Alfred transferred shares of his partnership interest to persons other than his spouse, child or grandchild. There is no evidence that Alfred ever obtained the consent of Jacob and Conrad for these transfers as required by Section 8 of the agreement. Moreover, there is no evidence that Alfred ever informed Jacob and Conrad in writing of the offers he had received to purchase shares of his partnership interest as required by Section 9(C) of the agreement.
The record shows that until November 1999, appellants, or their predecessors in interest, had not been informed that Alfred had transferred his interest in the partnership. Rather, Alfred took actions which his partners could reasonably believe were consistent with his continued ownership of a 25% interest in the partnership. From 1968 to 1999, Alfred held himself out as a partner in Oradell Associates. He executed amendments to the partnership agreement in 1984 and 1985 that confirmed he was a partner with a 25% interest in the partnership. In 1999, Alfred executed a consent to the transfer by Maybelle of her partnership interest to Oradell Works.
In addition, Alfred was the partnership's designated accountant, and his accounting firm prepared federal tax returns for the partnership. Alfred was identified as a partner on the tax returns for the tax years from 1970 through to at least 1994. Moreover, in 1976, 1977, and 1978, Alfred's accounting firm prepared financial statements for Oradell Associates which stated that Alfred had a 25% interest in the partnership. In June 1990, Alfred made an additional contribution of capital to the partnership in the amount of $10,000.
We recognize that in 1997 Alfred prepared a tax return for the partnership and therein stated that the partners of Oradell Associates were: Maybelle Schneider, Estelle Schneider, and "Alfred Simon Nominee." At her deposition, Maybelle testified that she did not recall seeing this particular tax return, but she believed that it "probably came in." However, we are not convinced that the passing reference to Alfred Simon in the 1997 tax return was sufficient to place Maybelle on notice that Alfred may have transferred his interest in the partnership in contravention of Sections 8 and 9(C) of the agreement.
Indeed, despite the single reference to Albert as "nominee," the 1997 tax return identified Alfred as a partner of Oradell Associates. Maybelle testified that she did not recall discussing with Alfred what the phrase "Alfred Simon Nominee" meant. There was never a written agreement designating Alfred as "nominee" and Maybelle was never informed of the names of the the persons for whom Alfred was acting as "nominee."
Furthermore, before and after the filing of that return, distributions of partnership income were made to Alfred, not to the persons who had acquired his partnership interest. Those distributions continued until 2002, when Alfred died. Alfred also signed amendments to the partnership agreement and a document consenting to the transfer of Maybelle's partnership interest. Those documents made no reference to the fact that Alfred was acting as "nominee" for others.
Respondents argue that it would be inequitable to allow appellants to pursue their claims at this time because of the unavailability of witnesses and documents. Again, we disagree. There is no evidence that prior to 1999 Alfred ever informed his partners that he transferred his partnership interest to others. To the extent documents or witnesses are no longer available it is because Alfred kept his partners in the dark, not because appellants delayed in pursuing this matter.
Respondents also argue that appellants unreasonably delayed in commencing this action after Alfred informed Maybelle's attorney in 1999 that he had transferred his partnership interest. Respondents assert that they are prejudiced by this delay because Alfred died in 2002 and cannot respond to their allegations.
However, as we noted previously, N.J.S.A. 2A:14-1 allows a claim for recovery on a contract to be brought within six years after accrual of the cause of action. Appellants filed their third-party complaint within six years of the time when Maybelle's attorney was first alerted to the fact that Albert was not, in fact, the owner of a 25% interest in the partnership. We cannot conclude that appellants unreasonably delayed in bringing this action when they did so within the time required by N.J.S.A. 2A:14-1.
We turn to appellants' contention that the judge erred by concluding that they failed to establish by clear and convincing evidence that Alfred violated the partnership agreement by making the disputed transfers of his partnership interest.
In his decision, the judge relied upon N.J.S.A. 2A:81-2, which provides that:
When [one] party to a civil action is a lunatic suing or defending by guardian or when [one] party sues or is sued in a representative capacity, any other party who asserts a claim or affirmative defense against such lunatic or representative, supported by oral testimony of a promise, statement or act of the lunatic while of sound mind or of the decedent, shall be required to establish the same by clear and convincing proof.
The judge concluded that appellants had not proven by clear and convincing evidence that Alfred's transfers violated the agreement. The judge stated: the proofs supporting this attempt to undue thirty-seven year old transactions, simply because a document memorializing that proper procedure [was] followed [then] has not been found, and simply because of the fact that Al Simon [held] himself out as a nominee and shareholder would support an inference of a breach of the contract, are woefully inadequate to meet the standard of proof by clear and convincing evidence that Al Simon breached his fiduciary duty and violated his contract obligations and did so for decades, for reasons that remain unknown and unknowable.
Again, we disagree.
In our view, appellants presented clear and convincing evidence which established that Alfred breached the partnership agreement. As we pointed out previously, Section 8 of the agreement provides that no partner could transfer his interest in the partnership without the consent of the other partners. Section 9(C) additionally requires that a partner inform the other partners in writing of any offer to purchase his interest, thereby affording them an opportunity to purchase his share on the same terms. Thus, the agreement required that Alfred obtain the consent of his partners to any transfer of his interest in the partnership, and also provide written notice to them of any offer to purchase his partnership interest.
The record shows that Alfred did, in fact, transfer his partnership interest to others; however, there is no evidence that Alfred ever obtained his partners' consent to the transfers, nor is there any evidence that Alfred provided written notice to his partners of the offers to purchase his partnership interest. The absence of any writing directly or indirectly granting consent to the transfers of Alfred's partnership interest, and the lack of any written notice from Alfred to his partners of the offers to acquire shares of his partnership interest, is clear and convincing evidence that Alfred transferred his interest in the partnership without complying with Sections 8 and 9(C) of the agreement.
Other evidence in the record provides clear and convincing support for a finding that Alfred transferred his interest in Oradell Associates in violation of Sections 8 and 9(C) of the agreement. When Conrad died, the agreement was amended to state that Estelle was a partner. The agreement was again amended when Jacob became disabled and Maybelle became a partner. However, there is no evidence that the agreement was ever amended to name as partners the persons who had acquired Alfred's interest. If Jacob and Conrad had consented to the transfers of Alfred's partnership interest to others, the partnership agreement probably would have been amended and the persons who had acquired Alfred's interest formally designated as partners.
In addition, financial statements for the partnership in 1976, 1977, and 1978 stated that Alfred had a 25% interest even though by that time Alfred had transferred substantially all of his interest to others. The fact that these partnership documents indicated that Alfred had a 25% interest in the partnership when he no longer had such an interest is further evidence that Alfred had not informed his partners of the transfers, and had not obtained their consent to transfer his partnership interest.
Therefore, we conclude that appellants established by clear and convincing evidence that Alfred breached the agreement by transferring his partnership interest without complying with Sections 8 and 9(C) of the agreement.
Appellants seek a declaration that Alfred's unauthorized transfers of shares of his partnership interest are null and void. Appellants also seek an order requiring respondents to convey their interests in Oradell Associates to the remaining partners "at the price paid by them to Alfred Simon." We are convinced that the trial judge should first consider whether such relief is warranted.
We accordingly hold that the judge erred by concluding that appellants' claims are time-barred. We further hold that appellants established by clear and convincing evidence that Alfred did not comply with Sections 8 and 9(C) of the agreement when he transferred his partnership interest to individuals other than a spouse, child or grandchild. We remand to the trial court consider appellants' demands for relief.
Reversed and remanded for further proceedings consistent with this opinion. We do not retain jurisdiction.