On appeal from Superior Court of New Jersey, Law Division, Sussex County, Docket No. L-628-06.
NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION
Submitted February 15, 2012 -
Before Judges Yannotti and Kennedy.
Plaintiff Sierra Technologies, Inc. (Sierra), appeals from a judgment dismissing its complaint on a promissory note against defendant Thomas F. Daley (Daley) following a jury verdict finding that Daley did not fail to repay the note. Daley cross- appeals from an order entered at the close of all the evidence dismissing his counterclaim for payment for "professional services" allegedly rendered to Sierra for the years 2001 and 2002. For reasons stated in this opinion, we affirm on the appeal and cross-appeal.
Sierra is an aerospace electronics firm founded in 1992. Daley, a Sierra shareholder, worked for the company and served as Vice President and General Counsel. In 1998, several Sierra shareholders gave notice that they wanted to sell their shares, and Daley and three others expressed an interest in purchasing those shares. Each purchaser, including Daley, agreed to pay $1.6 million for the shares, which would raise their ownership interest in Sierra by two percent.
One of the purchasers paid cash for the shares, but the other three, including Daley, paid $160,000 and accepted a loan from Sierra of $1.44 million to pay the balance. Daley, like the others, signed a promissory note agreeing to repay that sum, plus interest, by May 14, 2003. The note provided, among other things, that it would be an "[e]vent of [d]efault" if the borrower failed to apply to the "prepayment of the Note" all the proceeds of any dividend or distribution paid to the borrower by Sierra, within ten days of the borrower's receipt of such funds.
With this purchase, Daley's ownership interest in Sierra rose to five percent. By August 1999, through the application of dividends, distributions and bonuses otherwise due to him, Daley had paid over $860,000 on the note, leaving a balance due of $751,005.91.
In 1998, Sierra's shareholders had formed Clearwire Technologies, Inc., a wireless technology enterprise, and Sierra loaned $18.4 million to Clearwire as "seed money" to get the business started. Jeffrey Miller, the former chief financial officer for Sierra, testified that "the tax people" suggested dividing Clearwire's debt to Sierra among Sierra's shareholders "[s]o instead of [Sierra] having a big note, 20 shareholders would have small . . . note portions." Because Daley was a five percent shareholder, he received a K-1 from Sierra in 2000 reflecting a "distribution" to him of $920,000.
Sierra claimed that this "distribution" was merely a paper transaction for "tax" purposes and that no money actually changed hands. Daley claimed that as a consequence of a $100 million investment in Clearwire made by a group of investors from Goldman Sachs in 2000 and 2001, the $920,000 distributed to him as a result of the Clearwire transaction was paid over to Sierra in full satisfaction of Daley's remaining obligation on the 1998 note.
Another Sierra shareholder who had purchased Sierra shares in 1998 under the same arrangement as Daley, testified that he had received Clearwire stock in exchange for his interest in the $18.4 million debt owed by Clearwire and that he later sold that stock in the "public market." He added that he later entered into a "compromise arrangement" with Sierra over the remainder due on his note.
Daley also testified that Sierra owed him $450,000 for work he performed on behalf of Sierra in coordinating the efforts of outside counsel in litigation matters that concerned the company. Daley claimed that this figure was based on "three years of activity" between 1999 and 2002 and that the work was undertaken pursuant to a verbal agreement with John Gero, the "chairman" of Sierra. Gero denied such an agreement. Daley never produced time records or otherwise explained how the sum he claimed was calculated.
At the close of all the evidence, Sierra moved to dismiss Daley's counterclaim for "professional services." The trial judge granted the motion, stating "the paucity of proofs in this case [is] so extreme that there is no genuine factual issue established by the defendant in connection with his claim for the ...