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Royce v. Royce


August 4, 2010


On appeal from Superior Court of New Jersey, Chancery Division, Morris County, Docket No. C-62-07.

Per curiam.


Argued: May 5, 2010

Before Judges Cuff and C.L. Miniman.

Plaintiffs appeal from an order entered following trial on two of several issues raised in plaintiffs' complaint concerning the business operations of plaintiff Royce Contractors, Inc. and plaintiff Royce Services, LLC. We affirm in part, reverse in part, and remand for a new trial.

Plaintiff Christopher Royce and defendant Joseph Donald Royce, Jr., are brothers. They started working together in 1998 and formed Royce Contractors, Inc. in 2000. The firm performed demolition and site work in some of the northern counties of New Jersey. The brothers also formed Royce Services, LLC to perform the snow plowing contract for the Willowbrook Mall in Passaic County.

On April 18, 2007, Christopher and the two business entities filed a complaint against Joseph, his wife, and a joint venture known as Antonucci-Farren, LLC and its principals, John and Phil Antonucci. Christopher alleged that Joseph had formed a joint venture with the Antonucci cousins that diverted assets and corporate opportunities from the Royce business enterprises to the Antonucci business enterprises. Christopher sought temporary and permanent injunctive relief against his brother, compensatory and punitive damages from his brother for breach of the shareholder agreement and breach of his fiduciary duties, and compensatory and punitive damages against the Antonucci defendants for breach of a joint venture agreement.

It was undisputed that the Antonucci cousins approached Joseph in early 2005 to join them in an entity known as Antonucci-Farren, LLC to bid on a contract for work at the Indian Point nuclear facility in New York. They obtained the contract and commenced work at the facility in 2005.

Christopher alleged that he and Royce Contractors were members of the joint venture and should receive one-third of the profits from the joint venture. Joseph and the Antonucci defendants asserted they were the only members of the joint venture. They also asserted that the joint venture had compensated Royce Contractors and Royce Services for the use of its equipment and personnel.

It was also undisputed that Christopher and Joseph executed a Shareholder Agreement governing Royce Contractors, Inc. and Royce Services, LLC. Articles V and VI of the agreement included an exclusive employment clause and a non-competition clause, respectively. Article V provided:

Each of the Original Shareholders (i) shall be employed on a full-time basis by the Corporation and the LLC and (ii) shall devote his full business time and effort to the business of the Corporation and the LLC, for which he shall receive compensation as an employee of the Corporation and the LLC, the amount of which compensation shall be determined from time to time by the Board of Directors of the Corporation and the managing members of the LLC.

Article VI provided:

Each of the Original Shareholders hereby agree that, during the term of this Agreement, he (i) will not, directly or indirectly, engage or invest in, own, manage, operate, control, participate in the ownership, management, operation, financing or control of, be employed by or associated, or in any manner connected with, lend his credit to, or render service or advice to, any business or commercial enterprise or pursuit, other than the Corporation and the LLC, but (ii) will devote his full time and attention to the business and activities of the Corporation and the LLC.

On October 8, 2008, the General Equity judge entered a Special Pretrial Conference Order bifurcating the trial and directing that two issues would be tried commencing January 26, 2009: the issues of "ownership" and "agreement." As directed, trial proceeded for two days. On February 27, 2009, the trial judge issued an oral decision in which she held that neither Christopher nor Royce Contractors held any interest in the joint venture.

The trial judge rejected Christopher's claim to an interest in the joint venture or that Joseph's interest included Christopher and entitled him to an equal share of Joseph's one-third participation in the profits of the joint venture. The judge stated:

[T]his Court accepts as more credible the testimony of Joseph Royce that there was no agreement for a 50/50 split of these proceeds from the Antonucci-Farren contract. Christopher just did not present sufficient . . . proof to this Court either by his own actions, words and conduct at that time that he was actually relying on income that he said was going to get dreamed up by Joe.

The judge found insufficient proof of an express oral agreement between the brothers or an implied agreement. She stated:

So there [i]s insufficient proof as to an express oral agreement that Chris Royce receives 50 percent of the profits to . . .

Joseph Royce. There [i]s also insufficient proof of an implied -- since the conduct of the two men clearly belies the idea that Chris was going to get 50 percent of the profits rather than Royce itself being paid the $400,000. There were no K1s declared.

There was no activity by him in the process at all. He never inserted himself into that work. And the insurance polices were distinct and separated and the accountant tracked the income separately to Joseph.

The judge also found that Christopher objected to the use of Royce equipment and Joseph's work on the Indian Point project. The judge reasoned that these objections were inconsistent with any expectation to participate in the profits from this contract. Accordingly, the judge found that Joseph had no obligation to share the profits he received from the Antonucci-Farren joint venture with Christopher.

On appeal, Christopher argues that the evidence adduced at trial established an express oral contract or an implied contract-in-fact or an implied contract-in-law. When a trial judge serves as the fact-finder in a non-jury setting, our standard of review of the facts as found by the judge is limited. We must canvass the record to determine whether the findings are supported by substantial evidence in the record. Rova Farms Resort, Inc. v. Investors Ins. Co. of Am., 65 N.J. 474, 484 (1974). If we so find, our review is complete. Ibid.

Here, having reviewed this record in its entirety, we conclude that the findings of fact made by the trial judge as to Christopher's claim to an equal share in the profits derived by Joseph from his work with the Antonucci-Farren joint venture are supported by substantial credible evidence in the record. We, therefore, affirm this portion of the March 13, 2007 order.

Christopher contends, however, that the trial judge erred by failing to find that Joseph's actions violated the Shareholder Agreement. Joseph argues that the trial judge found that the conduct of the brothers demonstrated that they had ignored and abandoned the non-compete and exclusive efforts provisions of the contract. We agree with Christopher and remand for a new trial on this issue.

We have identified two provisions in the Shareholder Agreement that have been referred to as the "exclusive effort" provisions. Plaintiffs allege that they did not consent to Joseph's involvement in the Antonucci-Farren joint venture and that his participation in the joint venture not only violated the express terms of the Shareholder Agreement, specifically the exclusive efforts provisions, but also diverted corporate opportunities from Royce Contractors and Royce Services, and appropriated corporate assets to benefit the joint venture.

The judge discussed the Shareholder Agreement in her oral decision. She stated:

Now, yes, there is a shareholder agreement in 2001 that was (indiscernible) competition and demanded full effort of Royce by its owner. But it's obviously a document that neither Chris not Joseph ever read or applied in day-to-day and year-to-year relationship. If the business -- if the agreement not to compete or to give full effort were never formally asserted by one or the other, particularly it's clear [be]cause [Christopher] knew about the Antonucci-Farren project back in 2005. But [Christopher] did [not] object or assert enforcement of that paragraph in any way then. He probably thought Joe was going to bring in a lot of money from the project and he did. And it's rather inconsistent to complain about the use of the equipment or Joe's time at the Indian Point project if, in fact, he was part of the deal.

Contrary to Joseph's argument, this discussion is not a definitive ruling on the issue of the Shareholder Agreement. In context, the Shareholder Agreement is discussed only in reference to whether Christopher had an interest in the joint venture or an agreement to participate equally in the profit derived by his brother from the joint venture.

It is clear from the briefs submitted by both parties that they believe the issue of breach of the shareholder agreement was before the court in the bifurcated trial. Joseph argues that the trial judge found that the parties' conduct over the years operated to revoke certain provisions of the agreement. Christopher argues that the judge erred by not enforcing the agreement.

We are satisfied that the several issues concerning breach of the Shareholder Agreement cannot be viewed as subsumed by the issue of whether Christopher held an interest in the joint venture itself or in his brother's share of the profits. The terms of the Shareholder Agreement were relevant to resolution of that issue, but whether Christopher held an interest in the joint venture or held an interest in the profits derived by his brother from the joint venture did not resolve the claims of diversion of corporate assets, the adequacy of compensation for the use of corporate assets, and other related issues. We, therefore, reverse and remand for further proceedings to address this distinct issue.

Affirmed in part; reversed and remanded in part.


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