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Michael Naso, Frank Naso, and Zeta Products, Inc., A New Jersey v. Aaron Pogach

SUPERIOR COURT OF NEW JERSEY APPELLATE DIVISION


June 27, 2011

MICHAEL NASO, FRANK NASO, AND ZETA PRODUCTS, INC., A NEW JERSEY CORPORATION, PLAINTIFFS-APPELLANTS,
v.
AARON POGACH, MYRNA SPRINGEL, AND PREMIER MOULDING, INC., A PENNSYLVANIA CORPORATION, DEFENDANTS, AND BARRY SPRINGEL, DEFENDANT-RESPONDENT.

On appeal from Superior Court of New Jersey, Union County, Law Division, Docket No. L-429-08.

Per curiam.

NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION

Argued November 9, 2010

Before Judges Graves and Messano.

Plaintiffs Michael Naso, Frank Naso, and Zeta Products, Inc. (Zeta), appeal from the part of a judgment entered on March 15, 2010, that ordered them to return "the molds that were supplied by [defendant] Barry Springel in a joint venture." The judgment also awarded plaintiffs $56,786.08, but that award is not challenged. We affirm.

The Nasos are the owners of Zeta, a manufacturing company engaged in the process of plastic injection molding. Springel is an entrepreneur who worked in the lighting industry for several years. During that time, he acquired approximately sixteen molds that were used to manufacture lighting fixtures. On March 10, 2004, Springel transferred his interest in these molds to his mother, defendant Myrna Springel (Myrna), under the following terms:

In consideration of another loan in the sum of $10,5000 [sic] made to me by Myrna Springel, I give and assign all of my rights and interest, ownership and otherwise to my 16 molds (inclusive of one owned by my friend and account, Jade Sade[)] to her and her principal company, Premier Moulding, Inc., a Pennsylvania corporation.

The loan is without interest and all told, I owe approximately $47,000 to her without any interest.

The molds had been bought by me during my years in business and used by me and my business known as Haven Enterprises. Myrna Springel has and will allow me to continue to use the molds as though they are stillmine in my business or any business [with] which I am affiliated . . . however, the said molds belong to her and her principal company Premier Moulding, Inc., which I operate for her. Upon payment of all monies to her owed by me, the molds will then again be mine.

In March 2005, Michael Naso replied "to an online ad for a business opportunity" posted by Springel. In response, Springel sent him some information, including "a number of line drawings, a sell sheet for lighting fixtures, and a handwritten note." According to Naso, Springel never mentioned that his mother or anyone else was involved with his business. However, these initial discussions "went nowhere," and the parties did not speak for several months.

Unbeknownst to the Nasos, Springel filed for Chapter 7 bankruptcy in August 2005. In his bankruptcy petition, he stated that Haven Enterprises had ceased doing business on July 5, 2005. Springel also reported total assets of $5500 and total liabilities of $299,944.18, and he denied the existence of "any property owned by another person that the debtor holds or controls."*fn1 The petition was granted, and Springel's debts were discharged in November 2005.

At some point in August 2005, Springel reinitiated contact with Michael Naso, and they met at Zeta's place of business. During the meeting, Springel and Naso discussed forming a partnership or joint venture to manufacture plastic covers for lighting fixtures using Springel's molds. According to Naso, "[e]verything was to be 50/50." Springel was to "continue the relationship with his current customers and [the Nasos] would take over the manufacturing" until the parties formed "an independent company which would be owned . . . 50 percent by Mr. Springel, 50 percent by the Naso brothers."

Michael Naso also testified that Springel indicated at the meeting that "Haven Enterprises was the company . . . through which he conducted his business." However, Springel explained the next day that he had closed Haven Enterprises and was doing business as Premier Moulding, Inc. Shortly thereafter, the parties orally agreed to proceed and Springel began accepting orders. Pursuant to the agreement, all payments from customers went into Premier Moulding's bank account.

On September 6, 2005, Springel shipped several molds to plaintiffs. However, the molds were in need of repairs and, according to Naso, the parties "agreed that the balance of those repair costs would be paid from proceeds from the profits or the money generated from the sales." Plaintiffs were able to manufacture and ship products beginning in November 2005.

In January and August 2006, the parties met with Milton Abelowitz, a Pennsylvania attorney, in an effort to formalize their arrangement by creating a limited liability company. They failed to reach a final agreement, however, and Springel suggested that they use his wife's uncle, defendant Aaron Pogach, as their attorney.*fn2

On October 17, 2006, Michael Naso provided Pogach with a written summary of the parties' joint operations. The summary explained that the parties planned to create a new business entity to which all joint assets and liabilities would be transferred. The new business was to have a "checking account under control of both parties."

In October 2006, Springel began taking a "draw" of $875 per week from the Premier Moulding bank account. According to Michael Naso, this idea had initially been discussed at an earlier meeting during which Springel had insisted that he needed a draw "if [he was] no longer permitted to accept receivables and control the account." Naso stated that he and his brother responded with "skepticism" and did not agree to the draw.*fn3 Plaintiffs did not learn about Springel's withdrawals until sometime in February 2007.

In January 2007, the parties started using the name "Premier Lighting Enterprises, LLC." They opened a checking account for the new company using $5000 from Premier Moulding's account.

The Nasos, Springel, and Pogach met in February 2007, because Premier Moulding owed Zeta "a considerable sum of money." In an effort to alleviate the Nasos' concerns, Springel provided them with copies of bank statements and online access to the Premier Moulding bank account. Michael Naso testified that he was "appalled at what [he] saw":

[A] lot of money from the Premier Moulding checking account was finding its way to restaurants by way to debit cards, cash withdrawals from ATM machines, checks for . . . what looked to be auto payments, insurance payments, . . . there was even one payment to Drexel University to maintain a spot for [Springel's] son.

All sorts of personal items passed through the checking account.*fn4 And it created a lot of friction with us because Zeta Products was not being paid.

At the same meeting, the Nasos questioned the economic viability of the business because they "had been operating for a while and bills were mounting up."

According to Michael Naso, plaintiffs' relationship with Springel continued to deteriorate in the spring of 2007:

At that time the situation with nonpayment had become very serious. There were endless delays in providing an accurate accounting of the affairs of Premier Moulding which were necessary so we could finalize the agreement among us as to what specifically were the assets, what specifically were the receipts, the legitimate business expenditures from Premier Moulding, and what profit, if any, there was which, according to our understanding, was to be divided 50 percent [to] Mr. Springel and 50 percent [to] the Naso brothers.

When it got to the point where I saw that there were endless delays, I just . . . got a feeling that something is not right.

And I began to poke around online seeing if [Springel's] name would pop up. A friend of my brother's managed to provide us with a [LexisNexis] report.*fn5 And in that . . . report I saw that Mr. Springel had filed for bankruptcy in August [2005] . .

The LexisNexis report further revealed that Pogach had represented Springel in the bankruptcy proceeding. Based on this information, the Nasos sent Springel and Pogach a letter dated June 11, 2007, advising that they "ha[d] determined to terminate all further negotiations with Mr. Springel related to Premier Lighting Enterprises, LLC and related business and to end their business relationship in as orderly a manner as possible." Plaintiffs claimed that Zeta was owed $109,211.94-- $79,771.93 from Premier Moulding and $29,440.01 from Premier Enterprises--and that Zeta had paid $26,000 to repair the molds. They proposed a settlement plan involving reimbursement in exchange for the return of the molds to Springel.

Nevertheless, plaintiffs continued to utilize the molds to market and sell products, and they contacted several customers originally solicited by Springel to encourage them to buy products from Zeta. For example, a July 6, 2007 letter stated that Zeta would "continue to manufacture and provide directly to the customer the products and services previously offered through Premier Moulding, Inc. and Premier Lighting Enterprises, LLC."

Springel rejected plaintiffs' initial settlement offer. In a letter to plaintiffs' attorney dated July 12, 2007, Pogach included the following hand-written postscript: "Premier Moulding Inc. was incorporated [February 17, 2004], about 1 1/2 years before Springel's bankruptcy. Premier is owned entirely by Myrna Springel [and] she [and] Premier are the owners of themolds." Pogach attached copies of Premier Moulding's certificate of incorporation and the March 10, 2004 letter purporting to transfer ownership of the molds to Myrna. At trial, Michael Naso testified that this letter was his first indication that Springel did not own the molds or Premier Moulding.

In a letter to Pogach dated July 25, 2007, Myrna subsequently granted her son power of attorney to recover the molds. She explained:

Over the past years I have loaned a great sum of money to my son, Barry.

In 2004, I again loaned him monies so that he could operate his business, Haven Enterprises. At that time, all of his interests in some sixteen (16) molds were turned over to me. In fact, one belonged to his account and good friend, Jack Sade.

I gave him permission to continue to use the molds in his business, then and now. However, the molds are mine and belong to me and Premier Moulding, Inc., a company operated by my son and owned entirely by me.

At this time I want you to represent my interests in retrieving these molds. I continue to have confidence in my son's integrity and therefore, this letter shall be his power of attorney to act on my behalf in getting the molds back to me and Premier Moulding.

Plaintiffs ceased all joint-enterprise activity in August 2007. At that time, according to Michael Naso, all remainingorders were filled and shipped, "all receipts that were collectable had been collected," and plaintiffs' accountants liquidated the joint venture's assets and "closed the LLC."

On September 6, 2007, Myrna, Springel, and Premier Moulding filed a complaint in Pennsylvania against the Nasos and Zeta, requesting punitive damages and the return of the molds. The complaint identified Pogach as the attorney of record. The Nasos and Zeta counterclaimed for $111,889.91, plus punitive damages, and requested an accounting of "all amounts received and paid out by Premier Moulding, Inc., during the tenure of the business relationship."

Plaintiffs filed a complaint in New Jersey on February 4, 2008. Among other things, the complaint sought damages of $111,890.21 and an accounting of "all amounts [received] and paid out of [Premier Moulding's account] during the continuance of the temporary joint venture." Defendants answered and Springel counterclaimed for return of the molds in December 2008.

On December 10, 2009, all parties except Springel reached a settlement. The Nasos, Zeta, Myrna, Premier Moulding, and Pogach agreed to dismiss with prejudice all claims against one another in both New Jersey and Pennsylvania. Thus, the only remaining dispute at trial concerned plaintiffs and Springel.

A bench trial took place on December 15 and 16, 2009, and the court heard testimony from Michael Naso, Springel, and Pogach. In relevant part, Naso testified that plaintiffs did business with Springel based on a belief that he owned the molds:

[I]f I had [known] that he was not the owner of the molds, it would have [had] a material effect on the understanding under which we were operating. We had decided from the onset, the very first time we met face to face, that these molds were going to be transferred to the newly formed LLC and they would become the property of the LLC. Meaning we would own them jointly.

Obviously, if [Springel] did not have title to the property, there was no way he could have transferred them to the LLC.

According to Naso, the discovery of Springel's bankruptcy played a key role in their decision to terminate the joint enterprise. He testified that at that point, he and his brother "felt that [they] had been taken advantage of and lied to all along."

In contrast, Springel stated that his lack of title to the molds and prior bankruptcy "in no way compromised the functionality of [the] joint venture operation." He further asserted that neither issue was "a factor [in] how the business was presented and represented to the Nasos."

The court rendered a written decision on January 29, 2010, awarding plaintiffs $56,786.08 and ordering the molds returned to Springel. The court characterized the dispute as a "prospective business deal gone wrong" and rejected plaintiffs' claims for punitive damages, finding that the parties had entered into the partnership "with honest hopes for profit." In addition, the court found that "any damages sustained by plaintiffs did not come from their entry into the relationship through fraud but the manner in which the operation was conducted after entry."

To calculate plaintiffs' damages, the court used the financial information plaintiffs introduced at trial, including the costs to repair the molds. The court also found that the enterprise was "a joint venture wherein each party was to risk or gain 50%," and it determined that plaintiffs were entitled to half of their claimed losses. In addition, the court decided that Springel was entitled to the molds based on the power of attorney from his mother.

Final judgment was entered on March 15, 2010.*fn6 On April 13, 2010, plaintiffs advised Springel that they were appealing the judgment and therefore would not return the molds. A notice of appeal was filed on April 30, 2010. Springel filed a motion to enforce the judgment, and plaintiffs cross-moved to stay the judgment. On May 14, 2010, the court denied plaintiffs' request for a stay and granted Springel's motion to enforce. A subsequent motion to relieve plaintiffs from the judgment was denied.

On appeal, plaintiffs raise the following arguments:

POINT I

BECAUSE [SPRINGEL] DID NOT HAVE ANY LEGAL OR EQUITABLE INTEREST IN THE MOLDS, THE TRIAL COURT COULD NOT AND DID NOT ORDER PLAINTIFFS TO RETURN THE MOLDS TO [HIM] BASED ON [HIS] INTEREST IN THE MOLDS.

POINT II

THE TRIAL COURT ERRED IN HOLDING THAT [SPRINGEL] WAS ENTITLED TO RECOVER THE MOLDS ON THE BASIS OF MYRNA'S POWER OF ATTORNEY.

A. MYRNA'S POWER OF ATTORNEY WAS EFFECTIVELY TERMINATED PRIOR TO THE COMMENCEMENT OF THE TRIAL OF THE WITHIN ACTION.

B. EVEN IF MYRNA'S POWER OF ATTORNEY DID NOT TERMINATE BY VIRTUE OF THE RELEASE, THE TRIAL COURT NEVERTHELESS ERRED IN HOLDING THAT THE POWER OF ATTORNEY AUTHORIZED [SPRINGEL] TO APPEAR IN COURT AND OBTAIN RECOVERY OF THE MOLDS ON BEHALF OF MYRNA AND HER CORPORATION, PMI, INC.

POINT III

EVEN ASSUMING THAT [SPRINGEL] WAS ENTITLED TO RETURN OF THE MOLDS, THE TRIAL COURT'S ORDER IMPOSING NO RECIPROCAL CONDITIONS ON THE RETURN OF THE MOLDS WAS UNFAIR AND INEQUITABLE.

The scope of our review in a non-jury case is limited. We must decide whether the judge's factual findings "could reasonably have been reached on 'sufficient' or 'substantial' credible evidence present in the record considering the proofs as a whole." Cannuscio v. Claridge Hotel & Casino, 319 N.J. Super. 342, 347 (App. Div. 1999). We will defer to factual findings that are "supported by adequate, substantial and credible evidence." Rova Farms Resort, Inc. v. Investors Ins. Co. of Am., 65 N.J. 474, 484 (1974). However, "[a] trial court's interpretation of the law and the legal consequences that flow from established facts are not entitled to any special deference." Manalapan Realty, L.P. v. Twp. Comm. of Manalapan, 140 N.J. 366, 378 (1995).

Springel's counterclaim for return of the molds is effectively an action for replevin. Therefore, he is required to "establish his own title or right to possession." LaBash v. Edelman, 131 N.J.L. 36, 37 (E. & A. 1943). However, "[a] plaintiff seeking replevin generally only needs to show a superior right to that of the defendant." 77 C.J.S. Replevin § 23 (2006); see also Grimbalis v. Linfair, Inc., 126 N.J.L. 82, 84 (Sup. Ct. 1941) (noting that a "plaintiff's right to recovery [in replevin] is based upon the strength of his own title rather than upon the weakness of the defendant's title").

Plaintiffs argue on appeal that the purported transfer to Myrna in March 2004 was, in reality, a security agreement and thus that Springel had retained title over the molds at that time. They further claim that he lost title by failing to disclose the molds in his bankruptcy petition and therefore cannot establish a right to possession.

We have previously stated:

It is traditional that to promote justice a court of equity will look beyond the facial authenticity and perceptible efficacy of written instruments and explore the character of the transactions and the contemporaneous intentions of the parties.

Thus, not infrequently a deed, although absolute on its face, is in equity adjudged to be operative as a mortgage. [Yeck v. Rietzke, 33 N.J. Super. 371, 375 (App. Div. 1954) (citing Westcott v. Konstantynowicz, 139 N.J. Eq. 252 (Ch. 1947)); see also Vreeland v. Dawson, 55 N.J. Super. 456, 465 (Ch. Div. 1959) ("Equity will look beyond the written instrument and explore the character of the transaction and the contemporaneous intentions of the parties.").]

In this case, we find that the March 2004 transfer between Myrna and her son only granted Myrna a security interest in the molds. She received the molds in consideration of a loan; allowed Springel "to continue to use the molds as though they [were] still [his]"; and promised to restore full ownership to Springel "[u]pon payment of all monies to [Myrna] owed by [Springel]." Therefore, we agree with plaintiffs that the contract did not properly transfer ownership of the molds to Myrna.

Under these facts, Springel's ownership and possession of the molds were subject to divestment by either Myrna or the bankruptcy trustee. Nevertheless, his ownership interest remained superior to any right of possession held by plaintiffs. Accordingly, we find no error in the court's decision to award Springel possession of the molds.

Plaintiffs' remaining arguments are clearly without merit and require no further discussion. R. 2:11-3(e)(1)(E). We only note that all of the molds have been returned to Springel pursuant to the Law Division's May 14, 2010 order. Therefore, plaintiffs cannot enforce an artisan's lien under N.J.S.A. 2A:44-32, as it is a "possessory" interest. See Ferrante Equip. Co. v. Foley Mach. Co., 49 N.J. 432, 436 (1967) (noting that "New Jersey recognizes the common-law possessory artisan's lien").

Affirmed.

A-3766-09T3


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