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Herb Berger v. Gerald Holmes


April 23, 2012


On appeal from the Superior Court of New Jersey, Law Division, Monmouth County, Docket No. L-2003-02.

Per curiam.


Submitted May 4, 2011

Before Judges Ashrafi, Nugent and Kestin.

Defendant Ele Chesney is a former officer and shareholder of defendant Ocean Microwave Corporation (Ocean), a close corporation whose assets were sold in 2000 for more than seventeen million dollars,*fn1 the sale spawning the litigation now before us involving the parties' claims to the sale proceeds. Chesney appeals from three Law Division orders: the November 10, 2009 order that dismissed as time-barred Chesney's cross-claim seeking an additional two-and-one-half percent of the sale proceeds; the May 11, 2009 summary judgment order that dismissed her cross-claim seeking back pay from defendant Gerald Holmes; and that part of the August 9, 2006 order that awarded counsel fees to Holmes for motion practice necessitated by Chesney's violation of discovery orders.

We reject Chesney's argument that a jury, not the trial judge, should have resolved the disputed facts underlying Holmes and Ocean's statute-of-limitations defense. We further conclude that the trial court correctly dismissed Chesney's cross-claim for back pay on the ground that Chesney could not recover from Holmes wages due her from Ocean; and that the trial court properly exercised its discretion when it sanctioned Chesney for failing to make discovery. Accordingly, we affirm.


We derive the following facts from the motion record, including the Lopez*fn2 hearing. When plaintiff, Herb Berger, and defendant, Gerald Holmes, formed Ocean in 1986, they hired Chesney and offered her ten of Ocean's 100 shares of stock, which she purchased, and which were issued to her in May 1987. According to Chesney, Berger and Holmes also promised that she would receive five additional shares within five years. She received only two-and-one-half additional shares. Holmes has disputed her entitlement to anything more.

Chesney received the additional two-and-one-half shares in January 1994 when Ocean cancelled all of its outstanding stock and issued new stock certificates evidencing Holmes's eighty-seven-and-one-half percent and Chesney's twelve-and-one-half percent ownership interests in the company. Chesney claimed that during the intervening years she had demanded her additional five shares, but Holmes had not issued them to her. When he issued the additional two-and-one-half shares in January 1994, she protested that she was supposed to get five shares. Holmes responded, "I'm only giving you two-and-one-half percent now." Chesney asked when she would receive the other two-andone-half percent and Holmes replied that he would think about it. Chesney pressed, saying she would like "to make sure that I get the other two-and-a-half percent." Holmes said that he would take care of her additional two-and-one-half percent "after we close." From 1994 through the asset sale in 2000, Chesney "kept asking" Holmes for the additional two-and-one-half shares.

Holmes disputed Chesney's claim by presenting the testimony of William Hagaman, the accountant for Ocean and Holmes. Hagaman testified that Holmes reissued the stock in 1994 to consummate the compromise and settlement of Chesney's claim to an additional five shares of stock. According to Hagaman, Chesney had complained in 1994 about not receiving five additional shares. Holmes disputed that Chesney was entitled to five additional shares, so Hagaman mediated the dispute. The parties reached a compromise that resulted in Chesney receiving two-and-one-half additional shares. Hagaman witnessed Holmes sign a stock certificate transferring the additional two-andone-half shares to Chesney, and considered the dispute settled.

In response to questions posed during cross-examination, Hagaman said he recalled a telephone conversation that occurred shortly before the sale of Ocean in 2000, in which Chesney allegedly raised issues about the additional two-and-one-half stock shares and back pay. Hagaman later testified that he remembered Chesney complaining about back pay, but not the additional two-and-one-half shares of stock.

Chesney and Holmes disputed the facts concerning the claim for back pay, which dates to 1996, when Holmes reduced Chesney's salary. Chesney claimed that she voluntarily accepted a temporary salary reduction due to the company's financial difficulties; Holmes claimed that the reduction was permanent and was due to both financial difficulties and Chesney's poor behavior.

Chesney testified that, when the parties were negotiating Ocean's sale in 2000, Holmes said to her, "[W]ell, I guess we're going to have to take care of Herb now." Chesney responded, "[A]nd we're going to have to take care of my back pay and . . . my additional [two-and-one-half] percent." According to Chesney, Holmes said he would take care of it "when the time comes." When the company was sold, however, Chesney received twelve-and-one-half percent of the sale proceeds. She was not compensated for back pay.

In April 2002, Berger commenced an action against Holmes and Ocean seeking his share of the sales proceeds. Those parties eventually settled their dispute, but not before impleading Chesney as an indispensable party on October 7, 2002. Chesney filed an answer in January 2003 and asserted, among other claims, a cross-claim seeking an additional two-and-one-half percent of the sale proceeds and back pay totaling $211,120. When Holmes and Ocean answered her cross-claim, they included as an affirmative defense that her claim was barred by the applicable statute of limitations.

Discovery was contentious. The parties' motion practice resulted in the court dismissing Chesney's pleadings for failure to make discovery and awarding $7,891.84 to Holmes and Ocean for attorneys' fees. Additionally, in August 2007, the court conducted a hearing to determine whether Chesney had spoliated evidence. On August 12, 2008, the court entered an order declaring that because Chesney had permitted spoliation of evidence, Holmes and Ocean were entitled to an adverse inference charge at trial.

In January 2009, Holmes and Ocean filed a motion to dismiss Chesney's cross-claim for back pay. On May 11, 2009, the court granted the motion. Thereafter, on the first day of trial, October 12, 2009, Holmes and Ocean filed a motion in limine that included a request for a Lopez hearing on the statute-of-limitations defense.*fn3 The court granted the motion, conducted the hearing, and dismissed Chesney's remaining claim for the additional shares of stock as barred by the statute of limitations. This appeal followed.


Chesney first contends that the trial court erred by considering, as an in limine motion rather than a summary judgment motion, Holmes and Ocean's motion seeking a Lopez hearing; and by dismissing her cross-claim for a greater share of the sale proceeds based upon Holmes and Ocean's statute-of-limitations defense. Chesney argues that had the court considered the motion for what it was -- a summary judgment motion -- the jury, not the court, would have resolved her and Hagaman's conflicting testimony about her claim to additional stock.

Holmes and Ocean counter that their statute-of-limitations defense required the court, not a jury, to decide when Chesney's cause of action accrued. They argue that Chesney's attempt to avoid the statute of limitations implicated the discovery rule, an equitable doctrine that a court must apply at a hearing outside of the presence of the jury.

Although we agree with Chesney that Holmes and Ocean improperly and belatedly filed their motion as an in limine motion, we disagree with her assertion that a jury should have decided the issue. Accordingly, because Chesney does not challenge the trial court's findings of fact or its legal conclusions based upon those findings, we affirm the court's decision.

It has long been settled that "whenever a plaintiff claims a right to relief from the bar of the statute of limitations by virtue of the so-called 'discovery' rule, the question as to whether such relief is properly available shall be deemed an issue for determination by the court rather than by the jury." Lopez, supra, 62 N.J. at 272. That is so because "[t]he discovery rule is essentially a rule of equity . . . develop[ed] as a means of mitigating the often harsh and unjust results which flow from a rigid and automatic adherence to a strict rule of law." Id. at 273-74.

[S]tatutes of limitations are statutes of repose and the principal consideration underlying their enactment is one of fairness to the defendant. So in each case the equitable claims of opposing parties must be identified, evaluated and weighed.

Where . . . they cannot be wholly reconciled, a just accommodation must be reached. We think this can better be done by a judge than by a jury. In the first place the question as to the application of the statute of limitations is ordinarily a legal matter and as such is traditionally within the province of the court. Furthermore, submission of the issue to a jury is in every sense awkward. It is true that the time of discovery is a question of fact, and so could be left to a jury. But, as we have indicated, the matter does not rest there. It is not every belated discovery that will justify an application of the rule lifting the bar of the limitations statute. The interplay of the conflicting interests of the competing parties must be considered. The decision requires more than a simple factual determination; it should be made by a judge and by a judge conscious of the equitable nature of the issue . . . . [Id. at 274-75 (citation omitted).]

Chesney argues that her avoidance of Holmes and Ocean's statute-of-limitations defense did not involve the discovery rule. Rather, it was based upon her denial of Hagaman's assertion that she had compromised and settled her claim to an additional five shares of stock by accepting two-and-one-half shares. Chesney maintains that she had a straightforward factual dispute with Hagaman and Holmes that should have been resolved by a jury.

We disagree with Chesney for two reasons. First, as explained by the Supreme Court in Lopez, "the question as to the application of the statute of limitations is ordinarily a legal matter and as such is traditionally within the province of the court." Id. at 274. Second, Chesney's argument is premised on the fallacy that the discovery rule was not implicated. Hagaman's testimony, if believed in its entirety, would have disposed of the question of whether Chesney settled her claim. But had Hagaman's testimony been rejected, there would have remained the question of when Chesney's cause of action accrued. In fact, that was precisely the issue the trial court decided when it concluded that Chesney could not have reasonably relied upon Holmes's statements, first uttered in 1994 and repeated periodically between then and 2000, that Chesney's claim to the additional two-and-one-half shares of stock would be dealt with at some future date or when the company was sold.

The issues concerning the statute of limitations had not been clearly framed when the court commenced the Lopez hearing. That unfortunate situation occurred because Holmes and Ocean waited until the day set for trial to move on their statute-of-limitations summary judgment motion and then filed it as a motion in limine. The motion was untimely, even if considered as a motion in limine. Absent a waiver of pretrial exchange, Rule 4:25-7(b) "requires an exchange of information between the parties seven days before the first scheduled trial date in the form of [a] pretrial statement required by Appendix XXIII." Pressler & Verniero, Current N.J. Court Rules, comment 2 on R. 4:25-7 (2012). The pretrial statement shall include, among other things, "[a]ny in limine or trial motions intended to be made at the commencement of trial, with supporting memoranda." Pretrial Information Exchange, Pressler & Verniero, supra, Appendix XXIII to R. 4:25-7(b) at 2606.

But the motion was not a motion in limine. A motion in limine is a "pretrial request that certain inadmissible evidence not be referred to or offered at trial." Black's Law Dictionary 1109 (9th ed. 2009). Here, Holmes and Ocean sought a judgment dismissing with prejudice the first count of Chesney's cross-claim. In other words, they sought summary judgment.

The procedure employed here is inherently unfair to both the party opposing such a motion and to the court. It deprives the opposing party of the time afforded by Rule 4:46-1 to frame and prepare a response to a summary judgment motion. It potentially deprives a party of the opportunity to adequately prepare for and present evidence at a Lopez hearing. And it results in the possibility (in this case the reality) of the opposing party spending time and money unnecessarily preparing for trial.

Such belated filings also deprive the court of the opportunity to evaluate pleadings and narrow the issues to be decided if a hearing is required. The confusion in this case --about whether the discovery rule was implicated, or, instead, whether Holmes and Ocean were asserting that Chesney had settled a disputed claim -- illustrates the problems that can occur when a party untimely files a summary judgment motion in the guise of a motion in limine.

Procedural improprieties notwithstanding, Chesney had six years in which to file a motion to strike the defense. Significantly, Chesney does not argue in this appeal that Holmes and Ocean somehow misled her into believing that they had abandoned the defense, nor does she argue that the abrupt filing of a summary judgment motion, veiled as a motion in limine, prevented her from presenting relevant proofs. In light of those circumstances, we do not find that the trial court misapplied its discretion by conducting a Lopez hearing and deciding the issue.


Chesney next argues that the court erred by dismissing, on summary judgment, her back-pay claim against Holmes. She points to the trial court's acknowledgement of a factual dispute: her contention that her pay reduction was temporary, was attributable to Ocean's financial condition, and was to be reimbursed upon Ocean's sale; in contrast to Holmes's contention that her pay was permanently reduced due to a combination of Ocean's financial situation and her misconduct. Chesney reasons that the court improperly resolved this factual dispute on a summary judgment motion, and that the dispute should have been resolved by a jury.

When reviewing an order granting summary judgment, we "'employ the same standard [of review] that governs the trial court.'" Henry v. N.J. Dep't of Human Servs., 204 N.J. 320, 330 (2010) (quoting Busciglio v. DellaFave, 366 N.J. Super. 135, 139 (App. Div. 2004)). Thus, we must determine whether there was a genuine issue of material fact, and if not, whether the trial court's ruling on the law was correct. Prudential Prop. & Cas. Ins. Co. v. Boylan, 307 N.J. Super. 162, 167 (App. Div.), certif. denied, 154 N.J. 608 (1998).

Chesney did not file and pursue against Ocean her claim for back pay. She does not dispute that Holmes was acting as a corporate officer when he implemented her pay reduction. To the contrary, under her version of the relevant circumstances, she acknowledges that her salary was reduced due to Ocean's financial condition and thereby implicitly concedes that it was in the best interest of the corporation to reduce her salary. These facts do not establish a cause of action against Holmes.

As a threshold issue, we note that Chesney has not offered any competent proof, or even an argument, that there was consideration for Holmes's "agreement" that she would be compensated for her reduced salary when Ocean was sold. But beyond the question of whether there was consideration for Holmes's promise, an issue not addressed by the parties, Chesney does not assert that she bargained for Holmes to repay her out of his personal assets. She struck the alleged agreement with Ocean, not Holmes. Consequently, Chesney has no cause of action against Holmes for breach of contract.

Having no claim for breach of contract against Holmes, Chesney asserts that he is personally liable for her cumulative pay reduction because he orchestrated Ocean's breach of its agreement to compensate her upon the sale of its assets. Chesney, however, was an officer of Ocean when its assets were sold in 2000. She did not disclose her claim for back pay to Ocean's attorneys or accountants, the purchaser's attorneys or accountants, or anyone else. In short, there is no competent evidence that she ever asserted a claim for back pay against Ocean.

Chesney frames the issue concerning her back pay as follows: "Holmes agreed that at the time the company was sold [Chesney] would be reimbursed for the amount of the salary reduction. He[r] claim is that, in violation of that agreement, Holmes refused to allow the company to make the payment, thereby violating the agreement." Chesney's argument is unpersuasive because she blurs the distinction between Holmes acting within, and outside of, his capacity as a corporate officer. Chesney has presented no evidence to suggest that Holmes was acting in any capacity other than that of a corporate officer when he implemented her salary reduction. More significantly, Chesney cites no authority identifying or supporting a theory upon which a corporate officer is liable to another corporate officer for back pay claimed by the latter.

Central to principles of corporate law are "the fundamental propositions that a corporation is a separate entity from its shareholders, and that a primary reason for incorporation is the insulation of shareholders from the liabilities of the corporate enterprise." State, Dep't of Envtl. Prot. v. Ventron Corp., 94 N.J. 473, 500 (1983) (citation omitted). The liability of a corporation is not the liability of its officers and shareholders. See Richard A. Pulaski Constr. Co. v. Air Frame Hangars, Inc., 195 N.J. 457, 471-72 (2008). An officer is not liable for actions taken in the best interest of the corporation. Zeiger v. Wilf, 333 N.J. Super. 258, 284 (App. Div.), certif. denied, 165 N.J. 676 (2000).

Nonetheless, there are circumstances under which a party can hold corporate officers or shareholders liable for corporate debts. For example, in certain instances of fraud or injustice, courts may "pierce the corporate veil to impose liability on the corporate principals." Lyon v. Barrett, 89 N.J. 294, 300 (1982). Here, however, Chesney has not alleged that Ocean's corporate veil should be pierced, nor has she identified any other theory of liability that would permit her to recover against Holmes personally.

The trial court granted summary judgment based upon the principle that "an officer who causes his corporation to breach a contract for what he conceives to be the best interest of the corporation does not thereby incur personal liability." Zeiger, supra, 333 N.J. Super. at 284. The court determined Chesney failed to establish that Holmes personally benefited from her pay reduction, reasoning that, absent expert testimony, Chesney could not demonstrate a personal financial gain to Holmes.

Chesney argues that the analysis the court engaged in was unnecessary and unresponsive to her theory of liability -- the theory that Holmes breached the agreement he entered into with Chesney. As we have previously explained, Chesney's argument ignores the undisputed evidence that it was Ocean, acting through Holmes, not Holmes individually, who reduced her pay.

Chesney has failed to identify a viable theory of personal liability against Holmes. Absent such a theory, supported by a competent factual foundation, the general principle that corporate officers and shareholders are not personally liable for corporate obligations is controlling and defeats Chesney's claim.


Lastly, Chesney argues that the trial court erred in awarding counsel fees to Holmes and Ocean as a discovery sanction. We disagree.

On August 24, 2005, Holmes filed a motion pursuant to Rule 4:23-5 to dismiss or suppress Chesney's pleadings for failure to produce documents in response to the March 7, 2003 demand for production of the documents Holmes had served under Rule 4:18-1. Although Chesney claimed to have complied with the document demand, she did not oppose the motion, and the court dismissed her pleadings in an order dated November 9, 2005.

On December 5, 2005, Chesney filed a motion "for Reconsideration and to Restore." The court denied the motion on January 9, 2006, ruling that a motion for reconsideration was inappropriate and that Chesney was required to file a motion under Rule 4:23-5(a)(1) to vacate the order dismissing her pleadings. Chesney filed that motion on February 9, 2006 and the court granted it on April 28, 2006. In granting the motion, the court ruled that Holmes and Ocean could submit an application for counsel fees. Thereafter, on Holmes and Ocean's fee application, and over Chesney's objection, the court awarded Holmes and Ocean $7,891.84.

Chesney argues that the court improperly imposed the sanctions because it eventually found that the documents no longer existed. We assume Chesney is referring to the court's determination in 2008 that Chesney had spoliated evidence. Obviously, that determination had not been made when the court ruled on Holmes and Ocean's discovery motion in November 2005. Moreover, Chesney did not oppose the 2005 discovery motion by claiming that the documents no longer existed; instead, she claimed she had previously provided them. In any event, the court's subsequent spoliation finding did not excuse Chesney's failure to oppose Holmes and Ocean's motion to dismiss her pleadings for failure to provide the discovery. In view of Chesney's failure to oppose the motion, we will not second-guess the trial court's 2005 decision to grant the motion to suppress Chesney's pleadings or its subsequent decision to sanction Chesney.

Having said that, we are constrained to point out that we do not encourage the type of motion practice that occurred here. Rule 4:24-2 provides explicitly that "[u]nless the court otherwise permits for good cause shown, motions to compel discovery and to impose or enforce sanctions for failure to provide discovery must be made returnable prior to the expiration of the discovery period." Holmes and Ocean filed their discovery motion more than two years after serving the discovery, after the period for discovery had ended, and after the case had been scheduled for trial. It does not appear from the record that Holmes and Ocean attempted to demonstrate good cause to support their belated filing. Nevertheless, Chesney did not oppose the motion and by the time the trial court decided the motion, the case had a lengthy discovery history that was presumably well-known to the trial court.

Finally, Chesney challenges the court's award of fees on three entries in Holmes and Ocean's fee application. The trial court did not award Holmes and Ocean the amount requested in their fee application, and explained its decision in a written memorandum. We find no misapplication of the trial court's discretion. See Rendine v. Pantzer, 141 N.J. 292, 317 (1995) (expressing the expectation that fee determinations by trial courts "will be disturbed only on the rarest occasions, and then only because of a clear abuse of discretion").


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