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Sipko v. Koger, Inc.

Supreme Court of New Jersey

July 2, 2013

ROBERT SIPKO, Plaintiff-Appellant and Cross-Respondent,
v.
KOGER, INC., KOGER DISTRIBUTED SOLUTIONS, INC., KOGER PROFESSIONAL SERVICES, INC., KOGER LIMITED (DUBLIN), RASTISLAV SIPKO and GEORGE SIPKO, Defendants-Respondents and Cross-Appellants.

Argued January 3, 2013

On certification to the Superior Court, Appellate Division.

Michael S. Stein argued the cause for appellant and cross-respondent (Pashman Stein, attorneys; Mr. Stein and Dennis T. Smith, on the briefs).

Paul A. Sandars, III, argued the cause for respondents and cross-appellants (Lum, Drasco & Positan, attorneys; Mr. Sandars, Bernadette H. Condon, and Scott E. Reiser, on the briefs).

PATTERSON, J., writing for a unanimous Court.

In this appeal, the Court considers the revocability of a gift of stock in one company and the validity of stock transfers in two other companies.

Robert Sipko (Robert) and Rastislav Sipko (Ras) are the sons of George Sipko (George). In 1994, George founded Koger, Inc. (Koger), which Robert and Ras later joined. On an unspecified date in or around 2000, George made a gift of 1.5 percent of Koger stock to each of his sons. The gift was not documented in any writing. George formed Koger Distributed Solutions, Inc. (KDS) in 2002 and Koger Professional Services, Inc. (KPS) in 2004. Robert and Ras each owned fifty percent of the stock in KDS and KPS. According to the testimony of George and Ras, George created KDS and KPS for estate planning and liability purposes and the companies had no independent function. Robert testified that the companies had a third function, software development. KDS and KPS reported substantial gross and net income in their first few years. According to Robert, on February 3, 2006, George became angry after learning about a romantic relationship in which Robert was involved and threatened to physically harm Robert unless he signed certain documents. George and Ras contend that any document signed by Robert was executed voluntarily. Robert signed a document, dated "02/03/2006, " transferring his stock in KDS "For Value Received." A second document, dated "12/31/04, " transferred Robert's KPS stock using the same language. Robert testified that he signed the KPS document on February 3, 2006, and it was backdated. George and Ras explained the 2004 date by identifying this agreement as a component of a 2004 transaction that was never completed. Robert resigned from Koger on March 10, 2006. At a December 11, 2006 board meeting, George conducted a purported recall of Robert's 1.5 percent share of Koger stock, effective on March 10, 2006.

Robert filed this action against George, Ras, Koger, KDS, and KPS seeking damages and equitable relief. Defendants filed a counterclaim asserting several causes of action. The trial court found that the gift of Koger stock was unconditional and therefore effective. Because the court did not find that Robert was an oppressed shareholder under N.J.S.A. 14A:12-7(1)(c), however, it did not order a buyout of Robert's Koger stock. By virtue of the trial court's order, Robert remained a 1.5 percent shareholder of Koger. Furthermore, the trial court found that KDS and KPS were created for the sole purpose of estate planning and liability protection and that they had no value as distinct companies. The trial court concluded that Robert, recognizing that his interests in KDS and KPS had no value, voluntarily surrendered those interests. The Appellate Division reversed the trial court's determinations regarding both George's gift of Koger stock and Robert's surrender of his holdings in KDS and KPS. The panel rejected the trial court's finding that George's gift to Robert was unconditional based on George's and Ras's testimony that the gift was conditioned on Robert's continued employment in the family business and Robert's concession that all three family members anticipated that Robert would continue to work at Koger at the time of the gift. In addition, the panel determined that Robert's transfers of KDS and KPS stock were void for lack of consideration because Robert received nothing of value in exchange for his interests. Finally, the panel concurred with the trial court's determination that Robert was not an oppressed shareholder. The Court granted Robert's petition, limited to the question of whether George's gift of Koger stock was conditioned on Robert's continued employment at Koger, and granted defendants' cross-petition, limited to whether Robert retained his holdings in KDS and KPS. 208 N.J. 598 (2011); 210 N.J. 24 (2012); 210 N.J. 25 (2012).

HELD: George's gift of Koger stock to Robert was unconditional and therefore irrevocable. Robert's transfers of KDS and KPS stock are void for lack of consideration.

1. If a gift is premised upon the fulfillment of a condition by the donee, then the gift must be returned if the donee fails to perform the condition. If the gift is absolute and made voluntarily with a full understanding of its effect, it is irrevocable. There is no evidence that George imposed a condition that Robert continue to work at Koger, or any other condition, on his gift of Koger stock. George's gift was not documented in any writing. Neither George nor Ras identified a specific conversation in which George articulated an intent to impose a condition on the gift. They provided nothing more than conclusory statements that such a condition was imposed, which Robert refuted. The family members' shared anticipation that their business would remain intact is not tantamount to the imposition of a condition on the gifts at issue. The trial court's finding that George's gift was unconditional and irrevocable was based upon substantial evidence. Therefore, George's December 11, 2006 revocation of that gift had no effect. Because Robert was found not to be an oppressed shareholder of Koger, his remedy is limited to the reinstatement of his 1.5 percent interest in Koger. (pp. 14-18)

2. The parties agree that Robert surrendered his stock in KDS and KPS, but dispute whether the stock transfers are void for lack of consideration. The trial court's finding that KDS and KPS lacked value was not supported by the evidence. In 2006, indisputably the year of the KDS stock transfer and the probable year of the KPS stock transfer, both companies had substantial revenue. In addition, at trial, Robert offered the unrebutted testimony of a valuation expert who valued KDS at $1, 547, 278 and KPS at $34, 973, 236 at the commencement of this litigation. Although the remainder of the trial court's findings regarding KDS and KPS were firmly grounded in the evidence, even under the deferential standard that governs the Court's review, the trial court's conclusion that KDS and KPS were devoid of value cannot be sustained. Robert's interests in KDS and KPS clearly had value. (pp. 18-20)

3. The existence of consideration for Robert's transfer of his interests in KDS and KPS was not reached by the trial court. Consideration is a bargained-for exchange of promises or performance that may consist of an act, a forbearance, or the creation, modification, or destruction of a legal relation. In general, contracts are enforceable only if they are supported by consideration. The phrase "For Value Received" appears on each of the two writings that memorialize Robert's surrender of his interests in KDS and KPS. Although that phrase commonly denotes that consideration has been delivered, courts often seek additional evidence of consideration. The Court rejects as implausible defendants' contention that Robert's relinquishment of the responsibilities and risks of his ownership in KDS and KPS met the requirement for consideration. Robert resigned as an employee of the entities in a separate transaction that followed the transfers of his stock. Moreover, defendants' contention is undermined by their claim that Robert surrendered his interest in KPS on December 31, 2004, not February 3, 2006. Defendants do not suggest, and the record does not demonstrate, that any transfer of money or other value was exchanged for Robert's interests in KDS and KPS. The transactions lacked consideration, and are therefore void. (pp. 20-23)

4. The ruling that the transfers of Robert's interests in KDS and KPS are void requires the trial court to reinstate Robert's claims as they relate to KDS and KPS. Although the determination of the trial and appellate courts that Robert is not an oppressed shareholder within the meaning of N.J.S.A. 14A:12-7(1)(c) remains in effect, other remedies may be available in this case. In Brenner v. Berkowitz, 134 N.J. 488 (1993), the Court recognized that a minority shareholder's failure to demonstrate conduct that rises to the level of oppression does not prevent the court from considering equitable remedies appropriate to the individual case. (pp. 23-26)

The judgment of the Appellate Division is AFFIRMED IN PART and REVERSED IN PART, and the matter is REMANDED to the trial court for proceedings consistent with this opinion.

CHIEF JUSTICE RABNER, JUSTICES LaVECCHIA and ALBIN, and JUDGE RODRÍGUEZ (temporarily assigned) join in JUSTICE PATTERSON's opinion. JUSTICE HOENS and JUDGE CUFF (temporarily assigned) did not participate.

OPINION

PATTERSON JUSTICE

This case arises from a bitter dispute that divided a family and its successful software development business. In 2006, in the wake of a family conflict over a woman with whom he was involved, plaintiff Robert Sipko (Robert) became estranged from his father George Sipko (George) and his twin brother Rastislav Sipko (Ras). Robert then left his employment with the company that George had founded, Koger, Inc. (Koger), and signed documents memorializing a transfer of his interests in two other family-owned corporations, Koger Distributed Solutions, Inc. (KDS), and Koger Professional Services, Inc. (KPS). At a board meeting of Koger later that year, George initiated a recall of 1.5 percent of Koger stock that he had given Robert in 2000.

In 2007, Robert filed this action against George, Ras, Koger, KDS, KPS and a fourth family-owned corporation, Koger Limited (Dublin) (collectively, defendants) seeking damages and equitable relief. Defendants filed a counterclaim asserting several causes of action. This appeal arises from two determinations made by the trial court following a bench trial: its ruling that George's gift of 1.5 percent of the stock in Koger was unconditional and therefore irrevocable, and its ruling that Robert's transfer of his stock in KDS and KPS was voluntary and legally binding. The Appellate Division reversed both trial court findings. The panel held that George's gift of Koger stock to Robert was conditioned on Robert's continued employment in the family business and that Robert's transfer of his stock in KDS and KPS was void for lack of consideration.

We affirm in part and reverse in part the Appellate Division's determination. We reverse the panel's order reversing the trial court's determination with respect to George's 2000 gift of Koger stock to Robert and reinstate the trial court's finding that the gift was voluntary and irrevocable. We affirm and modify the panel's decision regarding Robert's transfer of KDS and KPS stock. We hold that, in accordance with their terms, the KDS and KPS stock transfers required consideration, and that no consideration was given to Robert in exchange for his surrender of the stock. We therefore reinstate Robert's claim seeking an accounting of the revenues, distributions, assets and liabilities (Count One), his claims requesting appointment of a provisional director or special fiscal agent to protect his interests (Counts Two and Three), his claim requesting injunctive relief (Count Four), his claims requesting dissolution or the forced sale of his interests, pursuant to N.J.S.A. 14A:12-7, as an oppressed minority shareholder (Counts Five and Six), and his claim seeking compensatory and punitive damages for breaches of fiduciary duty by George and Ras (Count Seven), insofar as those claims relate to KDS and KPS. We remand to the trial court for consideration of those claims and a determination of the appropriate remedy.[1]

I.

George, an experienced computer programmer, emigrated from Slovakia to the United States in 1990. After several years working in the programming field, George decided to start his own business. On December 15, 1994, George and an associate with business expertise, Paul Piringer (Piringer), merged two preexisting entities into Koger, a New Jersey "S" corporation.[2]Initially, George and Piringer were Koger's only employees, with George developing software and Piringer handling marketing and other business functions for the company. At Piringer's suggestion, the company focused its marketing on one customer base, the hedge fund industry. Piringer's role in Koger ended in late 1999 or early 2000, when George bought out his interest in Koger. George involved his sons in Koger's operations almost from the company's inception. Robert joined Koger in 1997, left in 1998 and returned in 2000. Ras joined the company in 1998.

After a modest beginning, Koger began to attract clients. By 2000, Koger had five employees: George, Ras and Robert, as well as the manager of the company's Irish operations, Koger Limited (Dublin), and a software engineer based in Slovakia. Two years later, the company had between ten and ...


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