On appeal from Superior Court of New Jersey, Chancery Division, Morris County, Docket No. C-51-04.
NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION
Before Judges Grall, Messano and LeWinn.
Plaintiff Lawrence Antonucci formerly practiced medicine with defendants Charles Shioleno, Domenick Randazzo and Nicholas Ricculli in a professional corporation known as Morris County Cardiology Consultants, P.A. (MCCC). MCCC is organized under "The Professional Service Corporation Act" (PSCA), N.J.S.A. 14A:17-1 to -18. Shioleno, Antonucci, Randazzo and Ricculli all held shares issued by MCCC when Antonucci left the practice on December 31, 2003.
After Antonucci left MCCC and established his own practice, he commenced this litigation against MCCC and his former associates. Claiming to be an oppressed shareholder of MCCC within the meaning of N.J.S.A. 14A:12-7(1)(c), Antonucci sought declaratory, injunctive and compensatory relief. He also asserted entitlement to relief based on breach of duties of loyalty, good faith, fair dealing and honesty; fraud; violation of the Conscientious Employee Protection Act (CEPA), N.J.S.A. 34:19-1 to -8; and tortious interference with contractual relations and prospective economic advantage. He also sought relief on the basis of his ownership interest in Ogden Property Partnership, LCC, an entity established to hold and lease property to MCCC. Pursuant to Ogden's operating agreement, all doctors with an equity interest were permitted to acquire an interest in Ogden and receive a share of the rent paid by MCCC. Defendants counterclaimed, alleging that Antonucci libeled MCCC, defamed Shioleno and tortiously interfered with the contracts between MCCC and Randazzo and Ricculli.
Prior to trial, Antonucci's CEPA claim was dismissed on motion for summary judgment, and his claim of tortious interference was dismissed as moot. On summary judgment, the judge also determined that Antonucci was entitled to the value of his interest in Ogden under the terms of its operating agreement, and the parties subsequently reached an agreement on the value of that interest. Thus, the case was tried on Antonucci's claims asserting status as an oppressed shareholder, breach of duties of loyalty, good faith, fair dealing and honesty and fraud and defendants' counterclaims.
An issue important to Antonucci's oppressed shareholder claim was decided by Judge MacKenzie prior to trial and was not disturbed by the judge who tried the case and entered final judgment. Judge MacKenzie determined that MCCC's share structure that "distinguish[es] between 'Class A voting' and 'Class B non-voting' shares is illegal" because MCCC's certificate of incorporation did not specify that there were two classes of shares. N.J.S.A. 14A:2-7(1)(d); N.J.S.A. 14A:7-1(1)-(2) and N.J.S.A. 14A:7-2(1)-(2). For that reason, the judge declared that all of the shares must be treated as shares of the same class.
Because material facts were in dispute, Judge MacKenzie did not decide whether Shioleno's actions on behalf of MCCC were illegal. That question, along with Antonucci's claims of fraud and breach of fiduciary duty and defendants' counterclaims, were tried in a bench trial before a different judge.
That judge determined that the parties failed to establish their claims. On motion for reconsideration, however, the judge issued an amended judgment in favor of Antonucci requiring MCCC and defendants Shioleno and Randazzo, as shareholders of MCCC, to purchase his share for $234,000, plus $45,889.63 in prejudgment interest. The judge did not state a legal basis for granting relief or piercing the corporate veil.
Antonucci appeals. He alleges that the judge erred by understating his percentage share of MCCC, reducing the amount due for his shares to reflect the value he received by having his patients follow him when he left MCCC and determining that he failed to establish his right to relief as an oppressed shareholder and a victim of breach of duty and fraud.
Defendants cross-appeal. They assert that having determined that Antonucci was not entitled to relief as an oppressed shareholder, the judge erred by requiring them to buy his shares. They also argue that the judge overstated Antonucci's percentage share of MCCC and the value of his shares. Defendants do not challenge the dismissal of their claims.
For the reasons stated below, we affirm the judge's determination that Antonucci failed to establish any of his claims and vacate the judgment entered in his favor.
Shioleno was the first of the parties to establish a cardiology practice. In August 1986, he incorporated his practice as Charles A. Shioleno, M.D., P.A. pursuant to the PSCA. In September of that year he issued 200 of 2500 shares authorized in the certificate of incorporation to himself.
Antonucci met Shioleno while serving as a resident at a Morristown hospital. During 1988, he provided coverage for Shioleno on a part-time basis. The doctors made plans to work together after Antonucci finished his residency and a fellowship. In May 1989, Shioleno changed the name of his practice to Morris County Cardiology Consultants, P.A. The amendment indicated that there were 2500 shares entitled to vote at the time the amendment was adopted and that 2500 shares voted for the amendment.*fn1
In January 1990, Antonucci signed a five-year employment contract. With respect to equity in MCCC, Antonucci's employment contract specified that it was "anticipated" that at the end of five years Antonucci would be permitted to purchase "two hundred and fifty shares of the issued and outstanding stock of the Corporation from Shioleno, the sole stockholder of the Corporation, at the price of $5000." The contract did not state the number of shares that were "issued and outstanding" or include any other representation as to the percentage or nature of the interest accompanying a purchase of 250 shares.
According to Antonucci, he and Shioleno had discussions about becoming equal partners at the end of the five-year period. Shioleno, however, said he had made it clear that he would always retain the final say and a greater equity interest. Shioleno further observed that his retention of control and greater equity was implied by the small percentage of total shares, 250 of 2500, available to Antonucci under the contract of employment.
Minutes of a January 31, 1990 meeting of the Board of Directors, which then consisted of no one other than Shioleno, reflect his intent. The shares available to Antonucci were to be non-voting stock [issued] on an annual basis to eventuate an equal ownership of accounts receivable only by the end of a physician employee's fifth year of service and his or her presentation of appropriate licensure, staff privilege and cardiology board acquisition and entry into Memorial Cardiology, P.A. or other such corporation or partnership involved with providing hospital services at Morristown Memorial Hospital.
According to Shioleno, the value of the shares was limited to a portion of the accounts receivable because, in his view, accounts receivable and cash are the main assets of a professional practice. Antonucci acknowledged that MCCC leased most of its equipment and carried substantial debt.
The success of the practice in 1990 led Shioleno to permit Antonucci to purchase ten shares per year starting in 1991, rather than waiting until his fifth year as contemplated by the contract. Minutes of a January 31, 1991 Board meeting report the approval of the issuance of sixty shares of non-voting stock, ten to Antonucci and fifty to Shioleno, bringing Shioleno's total shares to 250. The minutes further reflect that the shares represent "ownership in the Corporation's accounts receivable" and the voting shares represent "ownership in the remaining assets," including "real estate acquired or otherwise under the control of the Corporation before January 1, 1995." As noted above, ten shares were issued to Antonucci on January 31, 1991.
There is no dispute that prior to the issuance of shares to Antonucci, Shioleno's actions, done as the sole shareholder and director of MCCC, were in conformity with N.J.S.A. 14A:17-6, a provision of the PSCA. There is also no dispute, however, that pursuant to N.J.S.A. 14A:7-1 and N.J.S.A. 14A:7-2, which are provisions of the "New Jersey Business Corporation Act" (NJBCA), N.J.S.A. 14A:1-1 to 16-4, Shioleno was required to accomplish that by amendment to MCCC's certificate of incorporation.
The pattern of annual stock issuance continued until Antonucci failed on his first attempt to pass his medical boards. Certificates reflect Antonucci's acquisition of ten Type B non-voting shares on January 31, 1991, ten on January 31, 1992, twenty on March 15, 1995, and ten on March 15, 1996. Although Antonucci claimed to be unaware of the other limitations on his shares reflected in the minutes of the January 31, 1990 and 1991 Board meetings, he understood the break in the issuance of shares between ...