SUPERIOR COURT OF NEW JERSE Y APPELLATE DIVISION DOCKET NO . A

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- 18T4 GIORDANO DECANDIA, a/k/a JORDAN DECANID I A, Plaintiff

- Appellant,

v . ANTHONY T. RINALDI, LLC d/b/a THE RINALDI GROUP, a New Jersey Limited Liability Company, and ANTHONY RINALDI (as an individual and member), Defendants/Third

- Party Plaintiff s - Respondent s ,

v. ELAINE DECANDIA, Third

- Party Defendant.

______________ _______________

Submitted September 14, 2020

– Decided Before Judges Hoffman and Suter.

NOT FOR PUBLICATION WITHOUT THE AP PROV AL OF THE APPELLATE DIVISION This opinion shall not "constitute precedent or be binding upon any court." Although it is posted on the internet, this opinion is binding only on the parties in the case and its use in other cases is limited. R. 1:36

- 3.

O cto ber 5 , 20202 A

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- 18T4 On appeal from the Superior Court of New Jersey, Chancery Division, Un ion County, Docket No. C

000 124

- 17. Spinella Law Group, attorneys for a ppellant (Ja ck T. Spinella and Jessica M. Wilde, on the briefs). Baron Samson LLP, attorneys for respondents (Andrew Samson, of counsel and on the brief).
PER CURIAM Plaintiff appeals from the May 14, 2019 Chancery Division order entered in favor of defendants , An thony T. Rinaldi, LLC (the LLC) , and its owner, Anthony Rinaldi. In 2017, p laintiff sued defendants, alleging they wrongfully deprived him of his ownership interest in the LLC , without compensat ion

. Following a bench trial, the trial judge denied p la inti ff's claims for relief and granted defendants' request for judgement on two counterclaims. Having considered the parties' contentions in light of the record and the applicabl e principles of law, we affirm in part, and vacate in part. Specif ically, we vac ate

o nly the trial judge's determination that plaintiff 's conduct constituted a breach of the statutory duty of loyalty set forth in N.J.S.A. 42:2C

- 39.
I We derive the following facts from the tria l rec ord. The LLC engages in construction management and general contracting services, primarily in New3 A

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Jersey and New York

. Rinaldi formed the LLC in 2003. Plaintiff began work ing for the LLC in 2011 , signing a limited liability operating agreement on Febru ary 14, 2011 (the 2011 Agreement)

. This document amended the prior operating agreement, which had designated Rinaldi "the sole Member and Chief Executive Manager of the [LLC] ." The 2011 Agreement provid ed that Rinald i "has ele cted
to admit one a ddit ional Member, [ p ] laintiff ," but also stated that Rinaldi "shall continue to serve[] as the [LLC] 's only Manager and Chief Executive Manager

. . . . " Addressing management of the LLC , the 2011 Agreement provided:

Members that are not Managers shall ta ke n o par t whatsoever in the control, management, direction, or operation of the [LLC] 's affairs and shall have no power to bind the [LLC] . The Managers may from time to time seek advice from the Members, but they need not accept such advice, and at all ti mes the M anagers shall have the exclusive right to control and manage the [LLC]

. The 2011 Agreement included , as Exhibit C , a schedule labeled "Capital Contributions," which allocated ninety percent ownership to Rinal di and ten percent ownership to plaint iff. The schedule included a note clarifying that plaintiff's "ownership interest is performance based rather than through capital contributions, and . . . shall be increased to, as incentive , [twenty percent] of the net profits made on the business procu red by hi m for the [LLC] ." P laintiff also4 A

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received a corresponding certificate denoting his ten percent membership interest. Rinaldi testified that when he hired plaintiff, the parties agree d plaintiff would receive compensation in the form of a salary and "[ten ] percent profit sharing." According to Rinaldi, profit

- sharing is a prevalent and customary compensation mechanism within the commercial construction industry. The
LLC 's comptroller likewise testified at trial that the parties advised her of pl aint iff's non - equity profit

- sharing arrangement in 2011. The comptroller also testified that s he h er s elf had a twenty percent profit

- sharing arrangement with the LLC and that plaintiff receive d the same deal, just with a lesser share

. On September 25, 20 13, the p arties signed an amended operating agreement (the 2013 Agreement) , adding two other members and allocating to them similar perce ntage interests in the LLC

. The Capital Contributions

s chedule to the 2013 Agreement changed plaintiff's percentage in the LLC from ten percent to twenty percent and noted plaintiff's "ownership interest is performance based rather than through capital contribution, based upon his abilities to procure and brin g in business to the [LLC] ." Plaintiff also received
a corresp ondi ng ce rtificate denoting his twenty percent membership interest , and the LLC voided the previously

- issued certificate.5 A

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In 2015, plaintiff and Rinaldi began n egotiating a buy

- sell agreement that would enable either Rinaldi or plaintiff to buy out the ot her' s wif e , in the event one of them died. Rinaldi te stified that the purpose of the buy

- sell agreement was to make plaintiff a twenty percent equity partner in the LLC

. The parties met to discuss the proposed agreement in July 2015. The initial draft st ated plai ntiff would own twenty percent of the common stock of the LLC upon signing the agreement

. P laintiff rejected t hese terms , believing he already owned twenty percent of the LL C and thus the agreement granted him no additional equity. On October 19, 2015, t he parties met to review a revised draft of the buy

sell agreement. Rinaldi and two other employees who attended the meeting all testified that the purpose of the meeting was to discuss making plaintiff an equity partner. The LLC 's accountant, who was present at the meeting, testified that the parties discussed the tax implications and financial liability associated with becoming an equity partner. According to the accoun tant, plaintiff expressed interest in "profits, not taxes" and want ed to avoi d any personal liability on the
LLC 's bonds. The discussions at this meeting then turned to other liabili ties associated with ownership. Rinaldi disclosed to plaintiff that the LLC was currently under6 A

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criminal investigation by the Manhattan District Att orney 's office , after the New York Department of Buildings concluded that numerous safety violations caused a death at a LLC construction si te. R i naldi and the LLC's comptroller, both present at this meeting, testified that upon hearing of the safety viol ation s and criminal investigation, plaintiff grew concerned that his certificate might expose him to criminal liability for the construction site death. In response, R i naldi told plaintiff that if t he potential liability worried him , he should resign and retur n his certificate to the LLC 's lawyer. Plaintiff told R i naldi that he did not have the certificate with him at that time, but he would return it to the LLC 's lawyer. Shortly after this meeting, plaintiff provided his membership certificate to th e LL C's a ttorney; h owever, at trial, plaintiff insisted that he did so because he believed turning over the certificate was necessary to execute the buy

- sell agreement. Plaintiff claimed he believed the parties would resolve their differences over the agr eeme nt's terms and dropped off the certificate so it could be properly notated and attached to the agreement. Plaintiff did not sign the certif icate or provide an explanatory writing. The parties never finalized the buy

- sell agreement, and plaintiff neve r re claim ed his certificate. Following the surrender of his certificate, p laintiff received bonuses instead of the profit

sharing compensation he received in the past.7 A

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P laintiff and Rinaldi 's relationship soured in March 2017, leading Rinaldi to terminat e pl ainti ff's employment with the LLC

. According to p laintiff , on March 21, 201 7, his last day working at the LLC , R i naldi and another employee met with plaintiff and assured him they would "work out a buyout of [plaintiff']'s membership interest in the [ LLC] ." R inaldi denied making such a statement to plaintiff.
In 2016, the year before he left the LLC, plaintiff be gan discussions with McGowan Builders ( McGowan ) , a direct competitor of the LLC

. McGowan eventually offered plaintiff a job, and he signe d an empl oyment agreement with the firm on April 28, 2017. Notably, in the employment agreement, plaintiff confirmed he was not a "partner, stockholder, director, manager [or] member" in "any business that competes with the business of" McGowan

. Even be fore signi ng this agreement, on his last day of employment with the LLC , plaintiff forwarded to his wife a proposed bu dget prepared by the LLC as part of a bid to provide construction management services to a firm called Silverback Properties ( Silverback )

. Pl aintif f's wife then sent this budget to McGowa n , which later submitted its own competing bid to Silverback. Plain tiff thereafter met with Silverback, unsuccessfully attempting to persuade the firm to accept McGowan 's bid.8 A

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On September 15, 2017, plai ntif f file d a complaint against the LLC and Rinaldi, seeking various forms of relief, including a declarat ion that plaintiff had a twenty

- percent ownership interest in the LLC , the appointment of a custodian to protect plaintiff's ownership interest, an or der requir ing defendants
to purchase plaintiff's ownership interest, and an award of damages and attorneys' fees. Plaintiff based his claims for relief on the following legal theories: 1) minority member oppression , under N.J.S.A. 42:2C

- 48; 2) breach of
f iduc iary d uties; and 3) piercing the corporate veil. Defendants filed an answer, whi ch included affirmative defenses and co unterclaims , as well as a third

- party complaint against plainti ff's wife. The counterclaims alleged 1) breach of the common law dut y of emplo yee loyalty ; 2) breach of duty of loyalty , pursuant to N.J.S.A. 42:2C

- 39 ; a nd 3) defamation. The claims against plaintiff's wife were dismissed before trial. The trial judge held a bench trial over various dates in February and March 2019. On May 14, 2 019, the judge issued a twenty

- one - page written opinion accompanied by an o rder denying all of plaintiff's requests for relief

. Additionally, the order grant ed two of defendants' counterclaim s , finding plaintiff breached both the common law duty of employ ee loyalty as well as the9 A

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statutory duty of loyalty set forth in N.J.S.A. 4 2:2C

- 39 ; however, the order denied defendants' defamation counterclaim.
In the accompanying written decision, after discussing at length the evidence and testimony presen ted at tri al, the judge concluded that plaintiff did not have an ownership stake in the LLC

. Rather, the judge determined that plaintiff was merely an employee who received additional compensation through a profit

- sharing arrangement

. T he judge found tha t pl aintif f’s act of turning over his certificates to the LLC ' s attorney " demonstrated his express will to withdraw as a member ," thus effecting his disassociation from the LLC under
N.J.S.A. 42:2C

- 46

. Next, the trial judge invoked the doctrine of "uncl ean hands, " as the basis for reje cting plaintiff's claims of minority member oppression, breach of fiduciary loyalty, and shareholder liability. The judge found that plaintiff sending the LLC 's confidential information to his new employer placed him "befo re t he cou rt with unclean hands," and therefore he could not recover in equity. The judge also noted that she has the discretion to invoke the unclean hands doctrine sua sponte

. Finally, addressing defendants' counterclaims, the trial judge explained th at p lainti ff transmitting the LLC 's proposed budget for the Silverback bid to10 A

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McGowan constituted a breach of the common law duty of employee loyalty as well as the statutory duty of loyalty owed by LLC members , under N.J.S.A.
42:2C

- 39 ; h owever, the judge foun d insu fficient proof to award damages to defendants on their counterclaims; as a result, she awarded "nominal damages of $1.00." T he judge also rejected defendants' counterclaim for defamation, citing the absence of any "direct testi mony of defamation ." This a ppeal followed.
II "Final determinations made by the trial court sitting in a non

- jury case are subject to a limited and well

- established scope of review." D'Agostino v. Maldonado , 216 N.J . 16 8, 182 (2013) (quoting Seidman v. Clifton Sav. Bank,
S

. L

. A

. , 205 N.J. 150, 169 (20 11)). "Findings by the trial judge are considered binding on appeal when supported by adequate, substantial and credible evidence." Rova Farms Resort, Inc. v. Inv estors Ins . Co. of Am. , 65 N.J. 474, 484 (1974). Moreover, w e only disturb the credibility determinations of the trial judge if "convinced that they are so manifestly unsupported by or inconsistent with the competent, relevant and reasonably credible evidence a s to offen d the interests of justice." Metuchen Sav. Bank v. Pierini , 377 N.J. Super. 154, 161 (App. Div. 2005)(citation and internal quotation marks omitted). Moreover , we11 A

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defer to the trial court's credibility determinations because it "' hears the case ,

se es and observes the witnesses, and hears them testify,' affording it 'a bett er perspective than a reviewing court in evaluating the veracity of a witness.'" Gnall v. Gnall , 222 N.J. 414, 428 (2015)(quoting Cesare v. Cesare , 154 N.J. 394,
412 (1998)).
P lain tiff f

irst argues the trial judge committed legal error in finding that he " disassociated himself" from the LLC by turning over his shares to the LLC's attorney. Plaintiff argues that, pursuant to N.J.S.A. 12A:8

- 304(c), the mere delivery of his certif icat e to t he LLC's attorney, without plaintiff indorsing the certificate, can not constitute legally competent evidence of his intent to transfer his shares back to the LLC

. Initially, we note it is not clear that N.J.S.A. 12A:8

- 304 , which concerns securi ty c ertifi cates, is applicable to plaintiff 's return of his profit

- sharing docum ents. Regardless, plaintiff's argument ignores section (d) of the statute , which
states, "against a transferor, a transfer is complete upon delivery." N.J.S.A. 12A:8

- 304 (d). Thu s, pla intiff's delivery of the certificate to the LLC's attorney completed
t he transfer of his profit

- sharing interest , notwithstanding the lack of indorsement. Pursuant to section (d), the absence of a necessary indorsement simply prevents a transfer ee f

rom be coming a "protected purchaser." N.J.S.A. 12A:8

- 303

.12 A

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While plaintiff's unendorsed surrender of his certificate prevented the LLC from attaining protected purchaser status and allows plaintiff to challenge t he validity of the transfer, it did no t re nder t he transfer invalid. The trial judge, after assessing the credibility of witnesses and weighing the evidence presented, found that plaintiff's surrender of his certificate "demonstrated his express will to w ithdraw as a member." Under N.J.S.A. 42:2 C

- 46 (a ), a person becomes dissociated as a member from a limited liability company when "[t] he company has notice of the
person ' s express will to withdraw as a member ." N.J.S.A. 42:2C

- 46 (a). Therefore, plaintiff' s surrender of his shares disassociate d hi m from the LLC and validly transferred his profit

- sharing interest back to the LLC

. T he trial judge' s decision turned on two key findings. First, the judge found that plaintiff did not have an ownership interest in the LLC

. While the operating agree ment and c ertificate denoted plaintiff own ed a twenty

- percent membership interest, the judge found this referred to plaintiff's arrangement to

re ceive a twenty percent share of the business he brought in. The judge acknowledged there was evidence supporti ng b oth po sitions, but ultimately, the judge' s assessment of witness testimony and credibility revealed that plaintiff relinquished whatever owne rship interest he may have held in the LLC

. Specifically, the judge relied on the testimony of other employees , wh o stat ed13 A

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plaintiff wanted profits instead of the increased tax bu rden and potential criminal and financial liability associated with ownershi p. The judge also relied on the fact that plaintiff did not indicate he had an ownership interest when filing his taxes and balked at the idea of personally guaranteeing the LLC 's credit and bonds. Further, the operating agreement precluded plaintiff 's participation in management of the LLC and in fact, plaintiff was not involved in the management. The judge als o fo und pl ausible Rinaldi's explanation that he referred to plaintiff as a partner to third parties only to enhance the LLC 's stature. We defer to the judge's finding here as it was supported by substantial evidence and based on her assessment of the cred ibil ity of the evidence presented. The trial judge 's second critical finding was that plaintiff' s act of turning

over his certificates to the LLC 's attorney " demonstrated his express will to withdraw as a member. " Under N.J.S.A. 42:2C

- 46(a), such an act con stitut es a n event causing a person to be " dissociated as a member fr om a limited liability company." Thus, the judge' s conclusion that plaintiff dissociated from the LLC turned on this factual finding. In her decision, the judge explained how her

ass essm en t of the evidence and witness credibility led her to make this finding:

Shortly after the October meeting [plaintif f] dropped off his shares at the office of the corporate attorney. He says this was to enable the shares to be notated and attached t o th e prop osed agreement. At this point in14 A

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- 18T4 time there was no agreement. Rinaldi believes he did it due to concerns regar ding the criminal investigation. While his actions could be consistent with either point of view, the court finds the fact that [plai ntif f ] lef t no instructions and did not again inquire about the shares strongly supports the point of view that he was tur ning his shares in. He also represented to McGowan that he had no ownership in Rinaldi. He received a bonus, not a distribution in D ecem ber 20 15. The court finds [plaintiff] disassociated himself from the [LLC] as of the date he dropped the shares off. This demonstrated his express will to withdraw as a member

. Again, we defer to the credibility determinations of the trial judge in

asse ssing the evidence and testimony presented. There was substantial evidence supporting the finding that plaintiff expr essed his intent to dissociate as a member of the LLC , including testimony showing plaintiff sought to avoid criminal liability, testi mony that plaintiff turned in his membership certificate after Rinaldi suggested he do so to effect his resignation, and e vidence showing plaintiff did not receive profit sharing compensation after he surrendered his certificates

. We discern no basis to d istu rb the judge's finding. We conclude the trial judge's determination that plaintiff was not a part

- owner of the LLC wa s supported by substantial, credible evidence.
P laintiff next argues that, even if he did dissociate from the LLC when he turned in his member ship certificate, he did not lose his "economic rights" and thus remains entitled to receive compensation for th e fair value of his ownership15 A

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interest. As previously noted , the trial judge properly found that plaintif f did not have an ownership inte rest i n the LLC

. Because plaintiff retain ed no compensable ownership interest upon his dissocia tion from the LLC , his argument fails. Plaintiff further argues the trial judge mis appli ed the unclean hands doctrine, which precluded the consideration of his equit able claims. We disagree. In order to recover in equity, a party "must be with clean hands." Heuer
v. Heuer , 152 N.J. 226, 238 (1998). The unclean hands doctrine provides, "a court should not grant relief to one who is a wrongdoer with respec t to the

s ubject matter in suit." Faustin v. Lewis , 85 N.J. 507, 511 (1981)

. However, there are limits to the doctrine's application. Heuer , 152 N.J. at 238

. For example, the unclean hands doctrine "should not be used as punishment but to further the

a dvan cement of right and justice." Pellitteri v. Pellitteri , 266 N.J. Super. 56, 65 (App. Div. 1993) ( citing Heritage Bank, N.A. v. Ruh , 191 N.J. Super. 53, 71

- 72 (Ch. Div. 1983))

. The doctrine:

[D] oes not repel all sinners from courts of equity, nor does it apply to every unconscientious act or inequitable conduct on the part of the complainants. The inequity which deprives a suitor of a right to justice in a court of equity is not general iniquitous conduct unconnected with the act of the defendant whic h th e comp laining party states16 A

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- 18T4 as his ground or cause of action; but it must be evil practice o r wrong conduct in the particular matter or transaction in respect to which judicial protection or redress is sought. [ Heuer , 152 N.J. at 238 (quoting Neubeck v . Ne ubeck , 94 N.J. Eq. 167, 170 (E. & A. 1922)). ]

" ' It is the effect of the inequitable conduct on the total transaction which is determinative whether the maxim shall or shall not be applied. ' " Heuer , 152 N.J. at
238 (quoting Untermann v. Untermann , 1 9 N. J. 507 , 518 (1955) ). Applying the doctrine of unclean hands is within the court's discretion. Borough of Princeton v. Bd. of Chosen Freeholders , 169 N.J. 135, 158 (2001). Trial courts are permitted to invoke the doctrine sua sponte in order to furth er t he int erests of justice and pu blic policy. Trautwein v. Bozzo , 39 N.J. Super. 267, 268 (App. Div. 1956). Plaintiff asserts the court's application of the unclean hands doctrine was inappropriate because there was no correlation between his wrongful cond uct an d the underlying controv ersy , and because defendants suffered no injury

. Here, the plaintiff's wrongful conduct was towards defendants, in that he misappropriated the LLC's confidential information and provided it to a direct competitor. T his was not wr ongful conduct towards an unrelated third party. Instead, plaintiff's conduct d erived directly from his employment relationship with defendants and from the ir underlying emp loyment dispute. Plaintiff also17 A

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c ontend s defendants suffered no injury sinc e McGo wan failed to win the contract despite having access to the LLC's confidential information while preparing its competing bid . This argument lacks merit . The act of plaintif f misappropriat ing the LLC's confidential information constituted a brea ch o f loya lty and an injury, notwithstanding the absence of provable damages

. The trial court recognized this in its award of nominal damages to defendants. W e are satisfied the tria l judge properly appli ed the unclean hands doctrine in t his

case . Final ly, plaint iff challenges the trial court's determination that plaintiff breached the statutory duty of loyalty , contrary to N.J.S.A. 42:2C

- 39 , in granting defendants ' second counterclaim. Specifically, plaintiff asserts the statute only imposes a duty of loya lty up on members of member

- m anaged LLCs and on managers of manager - managed LLCs. Plaintiff argues that he was a member of a
manager - manag ed LLC and therefore, the statute did not apply to him. We agree ,

as a plain reading of the statute indicates tha t it appl i es to member s of " member

managed " limited liability compan ies. N.J.S.A. 42:2C

- 39(a). The limited liability operating agreement gov erning plaintiff’s employment with the LLC clearly stated it was a manager - managed LLC and explic itly provided tha t Ri naldi was " the [LLC] 's only Manager and Chief18 A

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Executive Manager." The agreement further stated, " Members that are not Managers shall take no part whatsoever in the control, management, direction, or operation of the [LLC]'s affairs and shall have no p ower to bi nd the LLC ." The trial record clearly estab lished that plaintiff was not involv ed in the da y - to

day management of the LLC

. T he facts clearly show ed the LLC was a manager managed LLC and plaintiff was only a member. Therefore, N.J.S.A. 42:2C

- 39 imp osed n o duty upon plaintiff; as a result, we vacate the judge ' s determination that plaintiff breac hed this statutory duty. While we vacate that portion of the judge's order, we note that she did not award defendants any damages for the statutory viola tion ; in a ll other respects, we affirm the order under review. Affirmed in part and vacated in part.