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Sachs v. Jefferson Loan Co.

July 16, 2010


On appeal from Superior Court of New Jersey, Law Division, Hudson County, Docket No. L-1414-07.

Per curiam.


Argued April 26, 2010

Before Judges Reisner and Chambers.

This suit was brought by plaintiffs Charles and Carol Sachs to collect on five debentures in the principal amount of $71,000. A jury verdict held defendant Jefferson Loan Company (Jefferson) liable in breach of contract for the $71,000. The jury found that two officers of Jefferson, defendants Harold P. Cook, III and Sean Caposella, had breached their fiduciary duty to plaintiffs and had caused harm to plaintiffs. The jury, however, did not award any monetary damages against Cook or Caposella.

Due to this apparent inconsistency, plaintiffs moved for an additur or, in the alternative, a new trial on damages against the individual defendants. That motion was denied by order dated June 12, 2009, and plaintiffs appeal. Because the verdict appears to be inconsistent and may result from some jury confusion with respect to the charge, we reverse and direct that plaintiffs' claims against defendants Cook and Caposella for breach of fiduciary duty be retried on all issues.


These are the pertinent facts. Jefferson is a licensed lender that made auto and other consumer loans. It funded the loans through monies received from the debentures issued to its principals, relatives, and friends and a line of credit with the Valley National Bank (the Bank). Cook was a sixty percent shareholder, president and a director of Jefferson. Caposella owned forty percent of Jefferson's shares and served as a director and at various times as its secretary or executive vice president.

Plaintiffs were among the debenture holders of Jefferson. Plaintiff Charles Sachs, an attorney, testified that he had performed legal services for Jefferson beginning in the mid-1960's until about 2000. In the early 1980's, he and his wife invested in Jefferson and received in turn debentures. Mr. Sachs handled the investment for the couple. He conceded that he did not ask for any financial statements of Jefferson before making his investment nor did he do so in the ensuing years.

In the debentures, Jefferson promised to repay the investment at a stated rate of interest. Plaintiffs' debentures were generally for three years and would usually be rolled over and renewed for another three year period. Further, Jefferson agreed to allow plaintiffs to cash in their debentures at any time without a penalty. According to Caposella, over the years, plaintiffs renewed their debentures and collected over $130,000 in interest on the debentures.

In 2001, Jefferson received a $12 million line of credit from the Bank guaranteed by Cook, Caposella and Cook's wife. The agreement required that Jefferson maintain a minimum amount of debenture financing which was later increased. Pursuant to the requirements of this agreement, Jefferson sent out a notice to its debenture holders upon renewal that one of its dealers had encountered financial difficulties and would be unable to satisfy its financial obligations to Jefferson. According to the notice, as a result of the default, Jefferson was advised by its accountant to set up a $1.4 million reserve for this loss. The letter also stated that "[i]n our judgment, the events concerning this dealer will not have a substantial negative effect on Jefferson and will not impact Jefferson's ability to carry on business as usual and meet its payment obligations. If you wish to receive the recently prepared financial statements, please let the undersigned know." This same letter was thereafter sent out at subsequent renewals without any revisions. Plaintiff Charles Sachs maintained he did not receive such a letter and presented the testimony of three debenture holders who also stated that they had not received such a letter.

We will not review in detail Jefferson's downward spiral, resulting in further monies borrowed from the Bank. Caposella and Cook conceded that Jefferson did not send financial statements to the debenture holders which detailed Jefferson's fiscal difficulties. On December 13, 2006, Jefferson wrote to its debenture holders advising that it was ceasing operations and was going into liquidation. It attributed this circumstance to its low loan volume due to the state of the auto industry and the popularity of leasing. Jefferson owed the Bank, a secured creditor, $7.5 million. However, Jefferson had been able to negotiate with the Bank to allow the debenture holders to share equally in revenues once the Bank was paid the first $3.5 million. As Cook testified, this agreement he negotiated on behalf of the debenture holders was against his own self interest since he and his wife had guaranteed the loans made by the Bank.

At issue in this case, are the five debentures held by plaintiffs when Jefferson went into liquidation. They are debenture number 1341 issued on February 10, 2004, for the principal sum of $2,000; debenture number 1541 issued on December 1, 2004, for the principal sum of $20,000; debentures number 1444 and 1445 issued on July 1, 2005, for a principal sum of $23,000 each; and debenture number 1315 issued on September 23, 2006, for the principal sum of $3,000. Each of these debentures was for a three year period and paid interest at the rate of ten percent per annum. The total principal amount of these debentures was $71,000 as of December 2006.

Plaintiffs filed this lawsuit against Jefferson, Cook, and Caposella, asserting claims of common law fraud and violations of the New Jersey Uniform Securities Law, N.J.S.A. 49:3-47 to -76, against all defendants. They also made claims against Jefferson for breach of contract and against the individual defendants for breach of fiduciary duty. Plaintiffs' claim of breach of fiduciary duty was based on the contention that Cook and Caposella ...

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