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Banco Popular North America v. Pepe Sneakers

July 29, 2009

BANCO POPULAR NORTH AMERICA, PLAINTIFF,
v.
PEPE SNEAKERS, PEPE MANIA, INC., AND STEVEN PEPE, DEFENDANTS-APPELLANTS, AND THE ESTATE OF JOSEPH S. PEPE, III, AND SUSAN PEPE, INDIVIDUALLY AND AS ADMINISTRATOR OF THE ESTATE OF JOSEPH S. PEPE, III, DEFENDANTS/THIRD-PARTY PLAINTIFFS-RESPONDENTS,
v.
ANNE PEPE, THIRD-PARTY DEFENDANT.



On appeal from Superior Court of New Jersey, Law Division, Union County, Docket No. L-2469-05.

Per curiam.

NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION

Argued February 10, 2009

Before Judges Fuentes, Gilroy and Chambers.

Defendants Steven Pepe and Pepe Sneakers, a/k/a Pepe Mania, Inc., appeal from the order of the Law Division granting summary judgment to defendants, third-party plaintiffs the Estate of Joseph S. Pepe, III, and Susan M. Pepe, individually and as the administrator of the Estate of Joseph S. Pepe, III. By so doing, the court dismissed Steven's cross-claim seeking to establish a constructive trust on life insurance proceeds that Steven asserts was intended to fund a shareholders' buyout agreement.

We reverse. After carefully reviewing the record before us, we are satisfied that defendants raised sufficient issues of material fact entitling them to a trial on the merits. These are the salient facts.

I.

Steven Pepe and Joseph Pepe were equal shareholders in Pepe Sneakers, Inc. and Pepe Mania, Inc. Through these corporations, the brothers operated a footwear store called Sneaker Mania. According to Steven, he and Joseph were advised by their accountant, Sam Vassallo, to purchase life insurance policies on one another's lives to enable the surviving brother to buy out the shares owned by the decedent brother from his estate. Steven alleges that he and his brother met with Vassallo, an insurance agent named John Azzara, and a lawyer named Anthony Pantano to draft a shareholders agreement that would accomplish this goal.

On March 5, 1997, before executing any shareholders agreement, each brother purchased a life insurance policy on his own life in the amount of $250,000. Steven designated his wife as the beneficiary; Joseph initially designated his mother, third-party defendant Ann Pepe, as the beneficiary; in 1999, Joseph removed his mother and designated his wife Susan M. Pepe as beneficiary.

In the insurance agent's report accompanying the policy application for Joseph's policy, question 12 asked to state the purpose of the insurance; a box located below this question was marked "buy-sell." In his memorandum of opinion, the motion judge found that the words "probable buy-sell" were written on the report for Steven's policy. However, this report was not included in defendants' appendix. In a letter accompanying the applications to the insurance company home office, the insurance agent noted that "[a]pplicants currently do not have a Buy and Sell Agreement in place, but intend to pursue one in the future."

The brothers finally executed a formal Shareholders Agreement (Agreement) on June 5, 1997, two months after purchasing their individual life insurance policies. The Agreement provided that Steven would purchase a $250,000 life insurance policy on Joseph's life, and Joseph would purchase a policy of equal value on Steven's life, designating an unnamed "trustee" as beneficiary on both policies. Under the Agreement, the policies shall be deposited with the Trustee who shall hold them and any proceeds received thereunder IN TRUST for the purposes of this agreement . . . . Each Shareholder shall pay all premiums due on the policies taken out by him on the life of the other Shareholder and shall deposit proof of payment with the Trustee within fifteen (15) days after the due date of each premium.

The provisions of the Agreement governing the purchase of the shares from the proceeds of the life insurance policies read as follows:

E. Purchase of Shares on Death

Upon the death of a Shareholder, the surviving Shareholder shall purchase from the estate of the deceased Shareholder, and the estate of the deceased Shareholder shall sell all of the decedent's Shares ...


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