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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 ...

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