FOURTEEN FLORENCE STREET CORPORATION, a New Jersey Corporation, MECCA & SON TRUCKING COMPANY, INC., a New Jersey Corporation, and HELEN MECCA, Plaintiffs-Respondents/ Cross-Appellants,
ARMENIA COFFEE CORP., a New Jersey Corporation, REGAL TRADING, INC., a New York Corporation, JOSEPH APUZZO, JR., and JOSEPH APUZZO, SR., Defendants-Appellants/ Cross-Respondents, and HUDSON'S COFFEE, INC., a New Jersey Corporation, JAMES CAPOZZI, SIDNEY ABRAMOWICZ, COFFEE TRADE SERVICES, INC., a New Jersey Corporation, and DENNIS PUTIS, FREDRICK KAPPLER and JAVIER MORA, (a.k.a. SAN FRANCISO GROUP), Defendants.
NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION
Argued November 28, 2012
On appeal from the Superior Court of New Jersey, Chancery Division, Hudson County, Docket No. C-265-04.
James F. Keegan argued the cause for appellant/cross-respondent Armenia Coffee Corp. (Bendit Weinstock, attorneys; Mr. Keegan and Sherri Davis Fowler, on the briefs).
Dewey Golkin (Law Offices of Jeffrey Golkin) of the New York bar, admitted pro hac vice, argued the cause for appellants/cross-respondents Joseph Apuzzo, Sr., Joseph Apuzzo, Jr. and Regal Trading, Inc. (Jeffrey Golkin and Mr. Golkin, attorneys; Messrs. Golkin, on the briefs).
Richard W. Wedinger argued the cause for respondents/cross-appellants (Barry, McTiernan & Wedinger, attorneys; Mr. Wedinger, Patricia S. Casamento and Matthew P. Mann, on the briefs).
Before Judges Simonelli, Koblitz and Accurso.
This is a fraud action involving the control of a now-defunct coffee roaster, Hudson's Coffee, Inc. (Hudson's). Defendants Armenia Coffee Corp. (Armenia), Joseph Apuzzo, Jr. (Apuzzo, Jr.), Joseph Apuzzo, Sr. (Apuzzo, Sr.) (collectively the Apuzzos), and Regal Trading, Inc. (Regal) appeal from a final judgment following a bench trial adjudging them liable to plaintiffs Fourteen Florence Street Corporation (Fourteen Florence), Mecca & Son Trucking Company, Inc. (Mecca Trucking), and Helen Mecca (collectively plaintiffs, the Meccas, or the Mecca Entities) for damages of $685, 216.20 and pre-judgment interest. Plaintiffs cross-appeal from the denial of their claims for punitive damages and attorneys' fees.
The trial court determined that the Apuzzos, through their control of both Hudson's and its green coffee supplier Armenia, created a fraudulent security interest in Hudson's assets. After Hudson's had become insolvent and owed hundreds of thousands of dollars in back rent to the Meccas, who had sued to evict Hudson's, the Apuzzos, acting through Armenia, repossessed virtually all of Hudson's machinery, equipment, inventory, and finished goods thus putting those assets beyond the Meccas' reach with the intent to defraud them. The court found that the Apuzzos thereafter transferred Hudson's assets to Regal, a corporation they owned, which continued the business of Hudson's pursuant to a de facto merger. The Apuzzos then liquidated Hudson's in a bankruptcy proceeding.
Because there are ample facts in the record to support the trial judge's conclusions, we affirm the judgment against the Apuzzos, Armenia, and Regal but reverse one aspect of the damage award and remand for reconsideration and any recalculation of pre-judgment interest. We affirm the court's denial of punitive damages but reverse the court's denial of attorneys' fees limited to one aspect of plaintiffs' claim.
A brief procedural history will be helpful to an understanding of the issues. Plaintiffs filed their fraud action in December 2004. In November 2005, Hudson's filed a Chapter 7 bankruptcy petition. In February 2006, the bankruptcy trustee removed the fraud action to bankruptcy court. Thereafter, the Mecca Entities, the Apuzzos, and Armenia all filed proofs of claim. In May 2007, the bankruptcy court entered an order permitting the Mecca Entities to intervene as co-plaintiffs with the trustee. The trustee then filed an amended complaint that included plaintiffs' claims as well as a cross-claim against plaintiffs for amounts Hudson's had paid them prior to Armenia's repossession and Hudson's petition.
In September 2008, the trustee settled its claims with plaintiffs. The settlement provided for a remand to State court of plaintiffs' "particularized" claims against defendants with plaintiffs being free to bring any other claims by amendment in the State court action. Plaintiffs settled the trustee's cross claims against them with a payment of $45, 000, and received assignment of allowed claims against Hudson's estate under $20, 000. The bankruptcy court approved the settlement by order of September 17, 2008.
Armenia appealed that order to the district court contending that remand to State court was improper. The district court affirmed the order, rejecting Armenia's claim. The court termed the situation
somewhat atypical, because the alleged "superseding complaint" was filed by the Trustee on behalf of the Debtor's Estate, whereas the state court complaint was filed by the Mecca Entities against, among others, the Debtor. Because the interests of the Trustee and the Mecca Entities are not completely aligned, it is difficult to justify stripping the Mecca Entities of their claims merely because the Debtor filed for bankruptcy, and the Trustee filed a complaint on behalf of the Estate. In any event, Armenia does not provide any cases in which a removed complaint filed by one party was superseded by the filing of a Trustee's complaint in Bankruptcy Court, and the Court is unable to otherwise identify any.
The district court also rejected Armenia's claim that the bankruptcy court failed to determine whether the remaining state claims were "'particularized'" to plaintiffs or "'core' claims" belonging in bankruptcy. It thus held that the bankruptcy court did not err in remanding plaintiffs' original complaint to State court.
Following reinstatement of the state action, the Assignment Judge entered an order for the voluntary dismissal without prejudice of plaintiffs' claims against Hudson's in accordance with the federal court order approving the bankruptcy settlement. The order also allowed defendants to file a motion for summary judgment if they contended plaintiffs' claims were barred by virtue of that bankruptcy settlement. Defendants thereafter made such a motion. The Assignment Judge found that issues of fact precluded summary judgment and so denied the motions, subject to defendants' right to renew them after plaintiffs had presented their proofs at trial.
We draw the following facts from the record. James Capozzi and Sidney Abramowitz were coffee traders employed by Armenia before leaving to start their own company, Coffee Trade Services (Coffee Trade). In 1997, Capozzi and Abramowitz began to organize a new roast coffee business, which they would eventually call Hudson's. Although still operating Coffee Trade, Capozzi and Abramowitz began to purchase equipment for Hudson's, which they stored in Jersey City in a building owned by Fourteen Florence, one of the Meccas Entities, pursuant to an oral understanding with plaintiffs.
The Meccas, friends of Capozzi's, eventually agreed to invest $300, 000 in Hudson's in return for a one-third interest in the new company, the other two-thirds to be owned one-third each by Coffee Trade, and investors known as the San Francisco Group. The Meccas' investment was to be comprised of cash, trucking services and the forbearance of rent at the property where Hudson's had been storing its equipment and where it would eventually produce coffee.
Although Hudson's evidently did business from sometime in 1997, there was no certificate of incorporation filed until May 1999. In that certificate, Capozzi was listed as director and registered agent. Capozzi was also Hudson's president and treasurer, and had control over the corporate books and records. No stock was issued. Capozzi and the Meccas also eventually formalized a five-year lease between Hudson's and Fourteen Florence back-dated to January 1998, which memorialized the terms of the arrangement by which they had begun operating. Hudson's agreed to pay Fourteen Florence a yearly rental of $4.00 per square foot for 13, 936 square feet, or $4, 645.33 per month. The lease also recognized that an additional 4680 square feet was to be added to the size of the leasehold at the same charge per square foot. Beginning in January 2001, however, rent would increase by $.25 per square foot. Additionally, the tenant would be responsible for tax increases above the 1998 levels and could exercise a five-year extension at its option.
Hudson's expanded its space in the building and the rent increased several times accordingly. Beginning in March 1999, the actual rented space increased to 23, 296 square feet, for a monthly rental of $7, 765.33. Eleven months later, in February 2000, the rented space climbed to 34, 612 square feet, for $11, 537.33 per month.
In May 2000, the Meccas, having become increasingly concerned about their investment, were looking to be bought out. Capozzi approached Apuzzo, Jr., at Armenia, which had been providing Hudson's with its supply of coffee beans, to see if the Apuzzos were interested in taking the Meccas' place. Armenia was one of the largest coffee importers in the United States. Apuzzo, Jr. was president and his father, Apuzzo, Sr. was chairman, and, although they had no ownership in Armenia, they operated it for three Panamanian companies as a means of distributing Columbian coffee in the United States. The Apuzzos agreed to invest in Hudson's, but asked Capozzi not to tell plaintiffs of their involvement because some of Armenia's customers might see it as a conflict.
In June 2000, Capozzi informed Michael Mecca, Helen Mecca's son and vice-president of Mecca Trucking, that Hudson's had found a replacement for the Meccas. Hudson's agreed to repay them the balance of their capital contributions, which the Meccas valued at about $360, 000, and to start paying monthly rent going forward. Capozzi understood that the Apuzzos were paying $600, 000 into Hudson's for the Meccas' share. Although Apuzzo, Jr. testified that Armenia wired $150, 000 into Hudson's account, Hudson's bank records listed the amount as only $124, 990.
The parties still had no written agreements as to ownership in Hudson's prior to the Apuzzos' involvement. Rather, the first time the parties documented their relationship was in a shareholders' modification and consent agreement among Apuzzo, Jr., Capozzi, and Abramowitz (both individually and as a representative of Coffee Trade) dated February 8, 2001. According to that agreement, Apuzzo, Jr., made a $600, 000 contribution in return for a one-third interest in Hudson's. He also became a director. The modification further provided that certain payments to Hudson's "had already been advanced toward this dollar amount and that the balance will be paid out based on cash flow demands." The February 2001 modification also indicated that two-thirds of Hudson's was then owned by Coffee Trade, although Capozzi testified that the San Francisco Group still owned one-third at that time, even though Hudson's had yet to formally issue any stock.
Prior to the February 2001 modification, Capozzi had maintained control over Hudson's bank account which was the only account used or applied to Hudson's debts. Shortly after the February 2001 modification, Apuzzo, Jr. began handling the books at Armenia's New York offices. A New York bank account for Hudson's was opened, with Apuzzo, Jr. having authority to sign checks. Shortly thereafter, Hudson's maintained only one account, the one Apuzzo, Jr. controlled.
According to the minutes from Hudson's March 2001 board of directors' meeting, the Apuzzos, Capozzi, and a representative of the San Francisco Group met to discuss various company matters. Apuzzo, Jr., Capozzi, and the representative of the San Francisco Group were confirmed as directors. The minutes then related that "the issuance of the shares were delivered and signed by all parties for Armenia Coffee, Coffee Trade Services and San Francisco and agreed to proportionately, " and that Apuzzo, Jr. was "representing Armenia." Capozzi, describing the one-third ownership share of the "Apuzzo group, " testified that he understood that at that point Armenia was represented on Hudson's board. In any event the "original share book" was to be kept at Armenia. The minutes further stated that the "execution of the Shareholders' Agreement of Hudson's Coffee was distributed and signed by all parties, " and that future agenda items were to be submitted to Apuzzo, Jr. in advance. Among matters decided were that rent would be "delayed until more funds from [the] business became available, " and that no more money would be put into Hudson's.
In December 2001, the parties entered into another shareholders' modification agreement. The parties' interests were stated as 41.5% for Apuzzo, Jr., 41.5% for Coffee Trade, and 17% for the San Francisco Group. According to the modification, Apuzzo, Jr., had advanced or contributed a total of $500, 000 for his 41.5% interest, and "payments to Hudson['s] have already been advanced toward this dollar total." The agreement was to be governed by New York law, and the integration clause included language to the effect that it "sets forth the entire agreement and understanding of the parties hereto and supersedes any and all written or oral agreements or representations between the parties hereto relating to the transactions contemplated by this agreement or related documents." No further explanation appears for the changes in the ownership proportions of Coffee Trade and the San Francisco Group other than that it was "for consideration received."
In February 2002, Capozzi (on behalf of Hudson's), a representative of the San Francisco Group, Abramowitz (on behalf of Coffee Trade), and Apuzzo, Jr. signed another shareholders' modification. It recited that Apuzzo, Jr., had advanced to, or on behalf of, Hudson's, a total of $560, 000, and owned 51.5% of the company. As in the prior modifications, it represented that "payments to Hudson['s] have already been advanced toward this dollar total." Distributions were to be made only by majority vote of the shareholders and agreement by the board, and while Apuzzo, Jr., continued to have a seat on the board, other members were to be elected by majority vote of the shareholders.
According to Capozzi's testimony, the $560, 000 sum reflected in that modification was once again to be in addition to the earlier amounts Apuzzo, Jr. had previously contributed, thereby bringing Apuzzo, Jr.'s putative investment to $1.66 million, for a 51.55% ownership in Hudson's. Apuzzo, Jr. testified that he had made contributions to Hudson's in February 2001 of $600, 000 and in February 2002 of an additional $560, 000, for a total of $1.16 million, in return for 51.5% of Hudson's stock, but he insisted that the change anticipated by the December 2001 modification agreement for his payment of $500, 000 in exchange for a 41.5% interest was never consummated. That testimony was at odds with his deposition in which he had acknowledged the December 2001 modification agreement. Apuzzo, Jr. had also testified at deposition that both he and Apuzzo, Sr. contributed sums to Hudson's in exchange for later acquiring shares. He subsequently maintained at trial that all sums advanced by Apuzzo, Sr. were loans and were not in exchange for any interest in Hudson's. He also pegged the amount that he and Apuzzo, Sr. "invested, loaned and have now lost" at $1.180 million.
Although Capozzi remained Hudson's president after the Apuzzos became involved in Hudson's, he testified that Apuzzo, Jr. handled all matters of income and expense, that Apuzzo, Jr. never provided him an accounting, and that he did not know what the company was doing in sales or how it was spending its funds. Neither did he know how much money Apuzzo, Jr. had actually contributed to Hudson's. Capozzi testified that he was not denied access to the books, he simply relied on Apuzzo, Jr. to keep him informed.
As of May 2002, Hudson's balance sheet reflected total assets of $1, 424, 485, of which $234, 679 represented cash, accounts receivable and inventory. Its then current liabilities (accounts payable, expenses and loans) totaled $1, 332, 365. Hudson's "paid-in capital" statement as of May 31, 2002, listed "Apuzzo's" contribution as $560, 000, while Coffee Trade and San Francisco Group's combined contribution totaled $627, 450.63.
On May 31, 2002, Capozzi wrote to Michael Mecca to confirm that Hudson's owed approximately $252, 095 in back rent and that the current monthly rent was $16, 429, with the lease due to expire on January 3, 2003. Hudson's did not renew its lease at the end of 2002. Nevertheless, it remained in the property and, according to Michael Mecca, continued in a month-to-month tenancy pending negotiations. The Meccas proposed a new lease by which rent would increase to $4.75 per square foot per year for the 46, 388 square feet leased, plus taxes and insurance. Although the parties never signed the proposed lease, beginning in January 2003, the Meccas began billing Hudson's monthly rent of $18, 361.91, plus an increased share of taxes, in accordance with the terms they had proposed. According to the proposed lease, effective January 2005, rent would increase again to $5.50 per square foot, or $21, 261.16 monthly.
As with the allegations that his father had invested in Hudson's, Apuzzo, Jr. also denied that Armenia had ever acquired an ownership interest in the company, notwithstanding the reference in the March 2001 Hudson's minutes to "issuance of shares" to the Armenia representative, or Capozzi's contrary understanding. Instead, he maintained that along with having sold Hudson's coffee, Armenia, like Apuzzo, Jr. and his father, had loaned Hudson's money and purchased equipment for it beginning in April 2000.
On February 15, 2003, Capozzi, on behalf of Hudson's, signed a note to Armenia to repay with interest the principal amount of $560, 000. Interest installments of $28, 000 were due each year on the anniversary of the note, with the first payment due in February 2004. That same date Capozzi also signed an agreement giving Armenia a security interest in Hudson's property as described in an attached schedule. The security interest covered past credit and extended to future advances and loans, and covered collateral that essentially represented all of Hudson's assets. Armenia never recorded a UCC filing statement of its security interest. Capozzi also personally guaranteed the note and security agreement. He testified that he gave the personal guarantees as a favor to Apuzzo, Jr., who had asked him to do so because Apuzzo, Jr. "was under a lot of pressure at Armenia, " and both Apuzzos were Capozzi's friends.
Armenia's records for the period beginning April 2000, indicated regular amounts extended to Hudson's for coffee sales, but also referenced such things as "customer advance, " "purchase of equipment, " "advance (loan)" and "advance/loan (Mecca)." They also recorded various payments by Hudson's. In August 2003 alone, Hudson's made payments to Armenia totaling approximately $350, 000, but, according to Apuzzo, Jr., those payments were not payment on the note. Further, although it had made a $107, 731.50 back payment to the Meccas in January, Hudson's had continued to be behind in its rent throughout 2003. According to Hudson's own records, as of April 30, 2003, it owed $283, 530.87 for "rent and contributions, " and owed Mecca Trucking an additional $6150. On November 24, 2003, counsel for the Meccas wrote to Hudson's that ...