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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 failed to disclose to the debenture holders when they rolled over their debentures that Jefferson was insolvent.

The case was tried to a jury which found that Jefferson had breached its agreement with plaintiffs and awarded plaintiffs damages of $71,000 against Jefferson. The jury found that Cook and Caposella had breached their fiduciary duty to plaintiffs and that the breach had harmed plaintiffs, but the jury awarded no damages against these defendants. The jury rejected all other claims against the defendants. While the apparent inconsistency in the verdict was raised with the court at sidebar, the trial court did not resubmit the question to the jury. See Mahoney v. Podolnick, 168 N.J. 202, 222 (2001) (permitting the trial court to reinstruct and resubmit a question to ensure the answer accurately reflects the jury's finding when answers appear to be inconsistent).

Plaintiffs thereafter moved for an additur on the verdict with respect to Cook and Caposella or in the alternative they sought a new trial on the issue of damages with respect to these defendants. The trial court denied the motion, noting that the jury may have determined that plaintiffs had been harmed only in theory given the profits they had made on the debentures. On appeal, plaintiffs contend that the jury verdict is inconsistent and that either an additur or a new trial on damages is warranted.


A motion for a new trial should be granted "if, having given due regard to the opportunity of the jury to pass upon the credibility of the witnesses, it clearly and convincingly appears that there was a miscarriage of justice under the law."

R. 4:49-1(a). The court may not substitute its judgment on the damage award in place of the jury's, and may act only where the damage verdict shocks the judicial conscience and "lead[s] to a conviction that to sustain the award as rendered would be manifestly unjust." Love v. Nat'l R.R. Passenger Corp., 366 N.J. Super. 525, 533 (App. Div.), certif. denied, 180 N.J. 355 (2004). A motion for a new trial on damages will be granted if the award "is patently inadequate or excessive, i.e., the result of mistake, compromise, bias, or prejudice." Ibid. When reviewing a trial court decision on a motion for a new trial, we apply the same standard as the trial court. Ibid. However, in our review, we will accord deference to the trial court's "feel of the case," but not "when it concerns matters 'apparent from the face of the record with respect to which [the trial judge] is no more peculiarly situated to decide than the appellate court.'" Von Borstel v. Campan, 255 N.J. Super. 24, 29 (App. Div. 1992) (quoting Baxter v. Fairmont Food Co., 74 N.J. 588, 600 (1977)).

Plaintiffs contend that a finding that defendants Cook and Caposella breached their fiduciary duty and harmed plaintiffs is inconsistent with the award of no damages. Based on this record, due to the ambiguity in the way in which the damages issues were presented to the jury, we cannot say whether or not the verdict is consistent.

Certainly, an award of damages after these findings would have been consistent. However, an award of no damages may also be consistent with the proofs. The jury could have concluded that even though defendants should have provided additional information to the debenture holders, plaintiffs would have continued the investment anyway. The jury also could have determined that if defendants had provided all of the debenture holders with information that Jefferson was failing, the debenture holders would have sought payment on the debentures, accelerating Jefferson towards liquidation so that the debenture holders would be no better off than they are now. Indeed, by delaying the liquidation, defendants provided plaintiffs with more interest than they otherwise would have earned.

However, the jury also may have awarded no damages because it believed that to do so may have resulted in a double recovery to defendants. Nowhere in the transcript of the charge we have is the jury told that plaintiffs' recovery will be limited to $71,000.*fn1 As a result, the jury may have believed that by awarding plaintiffs damages against Jefferson in the sum of $71,000, plaintiffs had been made whole and that adding an award of $71,000 against the individual defendants would have resulted in a recovery of $142,000. Further, we note that when discussing plaintiffs' claim under the Uniform Securities Law the trial court stated that "the reasonable measure of damages . . . recoverable is the amount of the plaintiffs' investment minus the interest received by the plaintiffs." Since plaintiff's investment was $71,000 and the interest earned was more than $130,000, this statement would suggest that plaintiffs had no damages.

The charge should have explained to the jury that it must award the full amount of the damages for each damage question it reached, and that the court would mold the verdict to assure that plaintiffs did not recover more than $71,000. We conclude that without this instruction, the charge was confusing and clearly capable of producing an unjust result. See Pressler, Current N.J. Court Rules, comment 3.3.2 on R. 2:10-2 (stating when reviewing a charge, we must look at it as a whole and determine whether it "conveyed the law to be applied by the jury in clear and understandable language without misleading or confusing [the jury]"). As a result, the motion for a new trial should have been granted.

Generally, where the damage verdict must be overturned, the retrial is on the question of damages only unless there is a specific reason to overturn the liability verdict too. Fertile v. St. Michael's Med. Ctr., 169 N.J. 481, 499 (2001). An excessive damage award will warrant a new trial on all issues where there is "trial error, attorney misconduct or some other indicia of bias, passion or prejudice, impacting on the liability verdict." Ibid. In addition, the retrial will be on all issues where "the issue of damages for some reason is so interrelated with liability that one cannot be retried alone without working an injustice." Id. at 499 n.7.

Here the claims against the individual defendants were submitted to the jury on the theory that defendants breached their fiduciary duty by failing to disclose at the time of renewal of the debentures that the company was insolvent. However, because the financial condition of the company deteriorated over a period of time and different debentures came up for renewal at different times, we cannot infer from the liability verdict at what point in time the jury determined that defendants had breached their fiduciary duty and which renewals were affected by the breach of fiduciary duty. While plaintiffs maintain that they could have cashed in their debentures at any time, we do not know from this verdict whether the jury determined that this would have happened. Thus, the liability determinations are interrelated with the calculation of damages, and the amount of damages cannot be ascertained from this liability verdict. Accordingly, liability must also be retried.

The verdict on the breach of fiduciary duty claim against Cook and Caposella is reversed and remanded for a new trial on both liability and damages.

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