SERENE GORET, JAY GORET, ROSALIND E. ROBERTS, DIANE JACOBS, IRWIN JACOBS, JILL D. COHEN and EDYTHE SUBARSKY, Plaintiffs-Appellants/ Cross-Respondents,
H. SCHULTZ & SONS, INC., ROBERT S. SCHULTZ, DAVID SCHULTZ and JEROME SCHULTZ, Defendants-Respondents/ Cross-Appellants.
NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION
Argued October 15, 2012
On appeal from Superior Court of New Jersey, Chancery Division, Essex County, Docket No. C-153-08.
Paul F. Carvelli argued the cause for appellants/cross-respondents (McCusker, Anselmi, Rosen & Carvelli, P.C., attorneys; Mr. Carvelli, on the brief).
Matthew M. Oliver argued the cause for respondents/cross-appellants (Lowenstein Sandler PC, attorneys; Mr. Oliver and Bernard J. Cooney, on the brief).
Before Judges Graves, Espinosa, and Guadagno.
Plaintiffs Serene Goret, Jay Goret, Rosalind E. Roberts, Diane Jacobs, Irwin Jacobs, Jill D. Cohen, and Edythe Subarsky are minority shareholders of H. Schultz & Sons, Inc. (the Company), a family owned and operated close corporation. In June 2008, plaintiffs filed this action against the Company and its majority shareholders, defendants Robert S. Schultz, David Schultz, and Jerome Schultz. Plaintiffs alleged defendants "abused their authority as officers and directors of the Company and engaged in acts of oppression towards plaintiffs and otherwise treated plaintiffs unfairly." In addition, plaintiffs claimed that defendants breached their fiduciary duty to plaintiffs, and that they violated New Jersey's minority shareholder oppression statute, N.J.S.A. 14A:12-7(1)(c).
Following a bench trial, the court determined that plaintiffs were not oppressed, but found that Robert breached his fiduciary duty to plaintiffs by failing to inform them of an offer to purchase real estate owned by the Company for $7.4 million. On appeal, plaintiffs argue the court erred by finding that defendants did not engage in oppressive conduct. Plaintiffs also contend the court erred by only requiring the Company to provide them with information concerning major business decisions "until the company is able to resume paying dividends." In a cross-appeal, defendants argue the trial court erred in finding that Robert breached his fiduciary duty to plaintiffs. For the reasons that follow, with the exception of one modification, we affirm the judgment entered by the trial court.
The facts are relatively straightforward. In the 1920s, Hall Schultz formed Prince Range Company (Prince Range), for the retail sale of household cookware items. Hall also formed the Company for the wholesale distribution of household products and cookware. Over the years, ownership of both companies passed to Hall's four children and then to their children. The Company remains a small, family owned and operated business with approximately fifty employees. Plaintiffs are Hall's granddaughters and their spouses, who collectively own 44.1 percent of the Company's stock. The remaining shares of the Company are owned by defendants, Hall's grandsons.
At its peak, Prince Range had forty locations and approximately 130 employees. However, in the mid-1980s, profits began to decline because of increased competition from large discount retailers. Due to declining sales and sustained losses, all of the shareholders approved a liquidation plan for Prince Range in 1989. As a result of the unanimous decision, Prince Range's assets and real estate were liquidated and distributed to the shareholders.
During this same period, the Company was able to successfully develop its business as a "middleman" distributor to major retailers, such as Sears, Bradlees, Bloomingdale's, and F.W. Woolworth & Co. The parties agree that the Company's unwritten policy was to distribute annual profits to all shareholders in proportion to their ownership interest.
According to the minority shareholders who testified (Serene, Jay, and Jill), they either inherited their respective shares in the Company or received them as gifts. They have never been employed by the Company, and they never served as officers or directors. Ordinarily, minority shareholders were not consulted about business decisions, and they only received informal "updates" at family gatherings regarding the status of the Company.
Prior to 2004, none of the minority shareholders complained about their passive shareholder status. Jay explained that shareholder meetings were not necessary, because "the business had been doing well, except for a couple of bumps in the road a couple of years, and we felt there was no reason to disturb anything." Serene testified she never requested a shareholder meeting because "[w]e were very satisfied with the business. They were very successful and there was no reason to. We were very happy with them." In addition, Jill testified that shareholder meetings were not necessary because "[w]e were getting distributions and we were pleased with them and it was sort of a family history that you just take what you get and you go along with it."
Jay testified that although there was "no written guaranty there would be annual distributions, " he came to expect them because "[t]hey were always there." He also testified as follows:
My expectations were that we would receive a fairly continuous flow of dividends from the Company. We had expectations that we would have a valuable property, a valuable stock to pass on either for ourselves or to pass on to our children and grandchildren. We expected that the management would act to preserve shareholder value in the Company, the management would -- in the cases where the company was not being profitable, would take actions to reduce their pay to more reasonable numbers since there could be distributions to the stockholders.
We also felt that we would never be in a position where we would have to sue the relatives to have our voices heard.
Serene testified she expected "to be treated fairly and equally like we did with them. The way we did when we handled Prince Range." Additionally, Jill testified that her expectations as a shareholder "were that the Company would be run in a manner where it would be profitable. I ...