On appeal from the Superior Court of New Jersey, Chancery Division, General Equity Part, Ocean County, Docket No. C-195-05.
NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION
Before Judges Parrillo, Gilroy and Baxter.
Plaintiff Arlene Markind, a minority shareholder in Holiday Medical Center, Inc. (HMC), a New Jersey for-profit corporation, which until March 2005, owned and operated a nursing home facility*fn1 in Lakewood, dissented from the sale of the nursing home to a third-party private, non-private, religious school for girls. Because HMC did not respond affirmatively to Markind's demand that it commence an action to determine the fair value of her shares pursuant to N.J.S.A. 14A:11-7(1), Markind filed an action in the Chancery Division on August 4, 2005, seeking, among other matters: an accounting to determine the fair value of her shares in HMC; and, an order compelling HMC to pay her the fair value as determined by the court.*fn2
Markind appeals from the July 16, 2007 order, which, among other matters, granted HMC's motion for summary judgment in part, determining that Markind was not entitled to any additional payment aside from the $80,000 she had previously received for her shares in HMC. Markind also appeals from the August 29, 2007 order, denying her motion for reconsideration. We reverse; and remand the matter to the trial court for further proceedings consistent with this opinion.
Markind was a 5% shareholder in HMC, and individual defendants, Barton Weisman; his son, Andrew S. Weisman; Howard L. Lipschutz; and Arthur Krosnick served as HMC's Board of Directors and Officers. Together the four individual defendants and their immediate family members owned 75% of the outstanding stock of HMC. On November 30, 2004, the Directors notified Markind that because of Medicenter's operational losses as a nursing home, HMC had entered into a tentative contract to sell Medicenter to a non-profit school, with the sale expected to yield approximately $2,000,000 in cash to HMC.
On January 7, 2005, HMC's Directors issued a notice to the shareholders, advising that there would be a shareholders' meeting on January 31, 2005, to vote on the approval of the asset sale to the private school for the gross sale price of $8,000,000.*fn3 The notice described the sale as including "all of the Corporation's right, title, and interest in the Holiday Medical Center Nursing Home facility, including the land, the building and contents of the building (collectively, the 'Facility'). The Sale does not include the Corporation's computers, software, or Facility's policies and procedures." Moreover, the notice indicated that HMC would donate approximately $3,000,000 of the sale proceeds to the buyer as a charitable contribution.*fn4
On March 1, 2005, HMC sold Medicenter to the private school for $8,000,000. In accordance with the terms of the contract, $3,275,464.87 was deducted from the purchase price to pay off an existing mortgage lien, and $2,895,060.45 was donated back to the private school as a seller's concession. After payment of other miscellaneous closing fees, HMC received $2,000,000 from the sale. Barring any dispute, Markind, as a 5% shareholder of HMC, was entitled to receive $100,000 from the sale proceeds, or $1,727 per share.
On March 23, 2005, Markind sent a notice of her dissent to the asset sale, and demanded payment of the fair value of her shares in HMC, pursuant to N.J.S.A. 14A:11-2(3). Failing to receive an offer from HMC to purchase her shares, Markind made a demand on the corporation to commence an action to determine the fair value of her shares, pursuant to N.J.S.A. 14A:11-7(1). On HMC's failure to file the action, Markind filed her complaint in the Chancery Division on August 4, 2005, naming the individual defendants and the various corporations in which Markind alleged the named individual defendants had financial interests. In addition to her demand for an accounting and for payment of the fair value of her shares, Markind also alleged fraud against all defendants, demanding exemplary damages.
On November 18, 2005, the trial judge granted defendants' motion, dismissing Markind's claims against the individual defendants for any damages caused by their actions or omissions as Directors of HMC, determining that as a dissenting shareholder, Markind no longer possessed the right to assert such claims; however, the judge denied defendants' motion "to the extent it [sought] to insulate the individual Directors from a cause of action on behalf of [HMC] . . ., determining that "any recovery for the Directors' wrongdoing is the property of the corporation, and the case should move forward in that regard."*fn5 Markind does not challenge these determinations.
On January 6, 2006, the trial judge heard argument on Markind's motion to enjoin distribution of the sale proceeds. HMC acknowledged that it not only had distributed 80% of the sale proceeds to all shareholders except Markind, but also had kept $550,000 in an escrow fund to cover cost of litigation, ongoing corporate operating expenses, and Markind's share of the sale proceeds. Although the judge denied Markind's motion, determining that she had not satisfied the four-prong standard of Crowe v. De Gioia, 90 N.J. 126, 132-35 (1982), he suggested that HMC distribute $80,000 to Markind, the equivalent of 80% of the $100,000 she would have received had she not dissented from the sale transaction. On January 13, 2006, HMC complied with the judge's suggestion and made the $80,000 distribution to Markind.
On October 6, 2006, the parties appeared before the court on Markind's motion for partial summary judgment, seeking an order determining that the $8,000,000 sale price represented the value of HMC, on which the fair value of her shares in the corporation should have been determined. Rather than deciding the motion, the judge exercised his discretion, stating that it would be appropriate from the cost effectiveness of the litigation to appoint an independent appraiser, pursuant to N.J.S.A. 14A:11-8(c) "to receive evidence and report to the [c]court on the question of fair value" of the corporation.
On October 16, 2006, an order was entered appointing CBIZ Valuation Group, LLC (CBIZ) as the independent appraiser. On March 14, 2007, CBIZ issued its report, determining that operating Medicenter "was marginally financially feasible." CBIZ appraised HMC in the alternative as: 1) a going concern, that is, determined its value as a nursing home facility; and 2) a liquidation value, that is, determined the sale value of the facility to a third party to use as a school. CBIZ determined that the going concern value as of January 30, 2005, was $5,540,000, and that the liquidation value as of the same date was $7,000,000. Neither Markind nor HMC disputed CBIZ's alternate valuations or the methodologies it had used in determining those valuations.
Accordingly, the parties filed cross-motions for summary judgment based on the valuations contained in CBIZ's report. Markind moved for partial summary judgment, requesting that the court accept CBIZ's valuation of the real estate of $7,000,000 as the fair value of the real estate and appoint CBIZ, or another qualified appraiser, to appraise the value of the nursing home license held by the corporation. Markind asserted that by setting the value of the corporation at $7,000,000, she was due an additional payment of $116,226.76 from HMC, exclusive of her share of the value of the nursing home license or any other assets held by the corporation. ($7,000,000 - the mortgage loan balance of $3,075,464.87 = $3,924,535.13 x 5% = $196,226.76 - $80,000 previously received = $116,226.76).
HMC filed a cross-motion for summary judgment seeking to:
1) establish that the going concern value of $5,540,000 represented the value of the corporation; 2) determine that Markind was not entitled to any additional payments from the corporation as fair value for her shares of stock; 3) enjoin Markind's actions and to set them aside; and 4) assess Markind for its costs and expenses in defending the action. While the cross-motions were pending, Markind filed a second motion for counsel fees and costs, asserting that she was required to have filed the complaint and prosecute the action, because of HMC's failure to identify the fair value of the corporation or offer her payment for her shares of stock.
On June 22, 2007, the trial judge rendered his decision, granting HMC's motion in part, determining that Markind was not entitled to any additional payments from HMC for the fair value of her interest in the corporation, having previously received a fair value for her shares of stock when she received the $80,000 from HMC in January 2006; and denying HMC's motion for attorney's fees and costs in defending the action. The judge also denied Markind's motions. In rendering his decision, the judge stated:
In the instant case since neither party has argued that the other's preferred valuation method is generally not acceptable to the financial community, the [c]court has the discretion to pick either one or even substitute a different method entirely. The Delaware cases cited, the [c]court notes are not directly on point because they deal with dissents to mergers, not the dissent of the sale of substantially all the corporate assets. However, in the absence of any cases on point in New Jersey, the Delaware Court's reasoning regarding the purpose and intent of the fair value remedy is persuasive.
When the vote was taken regarding the sale of the assets, plaintiff's choice was between approving the sale to the buyer or continuing the ongoing operations of [Medicenter]. Thus, what the majority shareholders stripped plaintiff of was her ongoing interest in Medicenter, and it is the fair value of that interest that the Statute entitles her to. But the [c]court['s] finding is that the plaintiff's motion for Summary Judgment based on highest and best use analysis must be denied. The facts remain unchallenged. However, since the plaintiff is not entitled to a highest and best use evaluation, the plaintiff is not entitled to [a] valuation of the licenses independent of the going concern valuation. The value of the licenses is already incorporated in the going concern valuation. And the [c]court would note that . . . the value of the license was addressed by . . . CBIZ.
The [c]court also notes in terms of establishing fair value that the defendant undertook to go through a series of different analyses as to the return or fair share of the plaintiff.
The best case scenario, as cited by the defendant, is that if the highest best use were utilized on a $7 million cash deal [it would] result in . . . $93,192 versus an actual sale donation or difference of about $13,977.
The going concern analysis would establish the [Medicenter] at 5,540,000 and again the highest and best use would be at seven million. The [c]court notes here that there was a sale of eight million, albeit with a charitable donation. But the arithmetic as set forth in the defendant's moving papers is persuasive that running the various analyses runs a range or return for the shareholder of anywhere from [$40,000] to $80,000.
Both parties have moved for costs and expenses in the within litigation. The costs and expenses of bringing an action to assess fair value of a dissenting shareholder's share shall be determined by the [c]court and a portion then assessed as the [c]court finds equitable upon the parties. When an offer of payment to a dissenting shareholder is not made in good faith or when no offer is made at all, the dissenting shareholder must bring an action to receive the fair value of the shares. The [c]court may in its discretion award reasonable counsel fees and expenses.
Now, in this instance the [c]court does not find the record supports the view that there was any bad faith on the part of defendant nor the view that there was any self[-]dealing or anything other than an arms[-]length transaction. It may well be, according to the plaintiff's position, that due diligence was lacking with respect to the marketing of the property, but the ultimate sale at eight million bears out the finding that the ultimate business decision or business judgment of the [c]orporation was one that was reasonable and consistent with good business practices here.
The defendant argues that plaintiff should bear the costs because the litigation was costly and the defendant made payment to the plaintiff in good faith. However, the defendant only made payment at the invitation of the [c]court. And the defendant makes no argument that the plaintiff conducted the litigation in such a way as to make it equitable for the plaintiff to bear all costs.
Similarly, the plaintiff's motion for costs and expenses are denied, as the [c]court will deny those of the defendant. It appears that [Medicenter] has already given Markind more than she is legally entitled to, although the [c]court is not inclined to alter that. It ...