Court Opinion

ID: 819806
Source: CourtListenerOpinion
Date Created: 2013-02-06 17:50:11.654347+00
Date Added: 2024-06-11T09:03:00.737662
License: Public Domain

NOT PRECEDENTIAL

                UNITED STATES COURT OF APPEALS
                     FOR THE THIRD CIRCUIT
                          ____________

                              No. 08-3872
                             _____________

                         SAMUEL YAROSH, Jr.,
                   both individually and derivatively on
                    behalf of Fox Development, Inc.,
                                                      Appellant

                                    v.

CAROLE SALKIND; STEVEN SALKIND; MORTON SALKIND; PETER ROSEN;
ROSEN & AVIGLIANO; BARBARA COHEN; JOHN HARRIS; MALLER, EDIDIN
 COMPANY, P.C.; ANSEL EDIDIN; INFRAME, INC.; DAN BATES; ULYSSES
   CORPORATION; LIBERTY SPEEDWAY; MAPLE INDUSTRIES; GIANT
 ASSOCIATES; ACME ASSOCIATES, INC.; LEISURE HEIGHTS, INC.; SABAL
                           INDUSTRIES
                          _____________

        APPEAL FROM THE UNITED STATES DISTRICT COURT
                FOR THE DISTRICT OF NEW JERSEY
                      (D.C. Civil No. 2-04-cv-01816)
            District Judge: Honorable Dennis M. Cavanaugh
                             ____________

                Submitted Under Third Circuit LAR 34.1(a)
                            January 17, 2013
                             ____________

          Before: SMITH, CHAGARES and BARRY, Circuit Judges

                    (Opinion Filed: February 6, 2013)
                             ____________

                               OPINION
                             ____________
BARRY, Circuit Judge

       Samuel Yarosh, Jr., appeals the District Court’s grant of defendants’ motions for

summary judgment as to his individual claims and his derivative claims on behalf of Fox

Development, Inc. (―Fox‖) against Carole Salkind (―C. Salkind‖), Morton Salkind (―M.

Salkind‖), Steven Salkind (―S. Salkind‖), Barbara Cohen, John Harris, John Quinn,

InFrame, Inc., Dan Bates, Ulysses Corporation, Sabal Industries, Liberty Speedway,

Maple Industries, Giant Associates, Acme Associates, Inc., and Leisure Heights, Inc. We

will affirm.

                                     I. Factual Background

       On or about May 1, 1995, Yarosh met M. Salkind, an introduction arranged by

Peter Rosen, Yarosh’s attorney. At this meeting, or shortly thereafter, Yarosh and M.

Salkind allegedly entered into an oral agreement to be equal partners in the development

of a property in Rockaway Township known as ―Lot 48.‖ The development was to be run

out of Fox, one of M. Salkind’s existing companies. M. Salkind’s wife, C. Salkind, was,

at all relevant times, the sole shareholder of Fox; M. Salkind, the sole Director; and C.

Salkind and the Salkinds’ son, S. Salkind, Officers. The claims in this case stem from the

more than fifteen-year-old alleged oral agreement.

       Yarosh originally planned to develop Lot 48 as a retail mall. When Yarosh and

M. Salkind were unable to secure the required zoning change for a mall, the two decided

to develop Lot 48 as a senior housing development called ―Fox Hills.‖ From 1995

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through 1997, Yarosh and M. Salkind worked on developing Fox Hills. In 1997,

Rockaway Township approved the construction of Fox Hills on Lot 48, and Yarosh and

M. Salkind began selling units. Construction on Fox Hills began on September 7, 1997.

       Yarosh alleges that throughout the period of their relationship, M. Salkind, at times

with the assistance of other defendants, engaged in a scheme to defraud Yarosh of

millions of dollars in profits from Fox Hills, loot Fox of its assets, unlawfully divert Fox

funds to other persons and entities, alter Fox’s books, and invest the money diverted from

Fox into purchases of real estate to the detriment of Yarosh and Fox.1

                               II. Procedural Background

       Yarosh’s 33-count Second Amended Complaint asserted derivatively on behalf of

Fox, and individually on his own behalf, federal claims under the Racketeer Influenced

and Corrupt Organizations Act of 1970 (―RICO‖), state RICO claims, and additional state

tort and statutory claims. On March 25, 2006, the District Court bifurcated the case and

ordered that the first phase of discovery proceed only on ―the question of whether

[Yarosh] either owned an equity interest in [Fox] as a shareholder, partner or otherwise,

or was somehow cheated out of such an interest.‖ At the conclusion of phase one

discovery, the parties moved for summary judgment. Yarosh moved for partial summary

judgment on the issue of shareholder status. Defendants moved for summary judgment

on all claims. On August 19, 2008, the Court granted defendants’ motions for summary

1
  On May 28, 2008, M. Salkind pled guilty to tax evasion in connection with Fox’s tax
filings.
                                           3
judgment.

       Yarosh timely appealed. We stayed the appeal pending resolution of M. Salkind

and C. Salkind’s bankruptcy proceedings. On January 10, 2012, we lifted the stay after

the Bankruptcy Court granted Yarosh’s motion for relief from the automatic stay in both

bankruptcy proceedings so that this appeal could go forward, and because resolution of

the bankruptcy proceedings is years away and, in any event, would likely have no impact

on our decision.

                                 III. Standard of Review

       The District Court had subject matter jurisdiction under 18 U.S.C. § 1965 and 28

U.S.C. § 1331, and supplemental jurisdiction over Yarosh’s state claims. We have

jurisdiction under 28 U.S.C. § 1291. We exercise plenary review over the Court’s grant

of summary judgment. In re Sunrise Sec. Litig., 916 F.2d 874, 878 (3d Cir. 1990).

Applying the same standard as applied by the District Court, we will affirm a grant of

summary judgment only when the pleadings, depositions, answers to interrogatories,

admissions, and affidavits, viewed with all inferences in favor of the non-moving party,

show there is no genuine dispute as to any material fact and the moving party is entitled to

judgment as a matter of law. Fed. R. Civ .P. 56(a); see Celotex Corp. v. Catrett, 477

U.S. 317, 330 (1986); Azur v. Chase Bank, USA, Nat’l Ass’n, 601 F.3d 212, 216 (3d Cir.

2010) .

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                                       IV. Analysis

                                   A. Derivative Claims

       A plaintiff bringing a derivative action on behalf of a corporation must allege that

he or she was ―a shareholder or member at the time of the transaction complained of, or

that [his] share or membership later devolved on [him] by operation of law.‖ Fed. R. Civ.

P. 23.1(b)(1); Kauffman v. Dreyfus Fund, Inc., 434 F.2d 727, 735 (3d Cir. 1970)

(―[S]tock ownership in a corporation [is a] prerequisite for bringing a derivative action in

its behalf.‖).

       Yarosh was never a shareholder of Fox and, therefore, lacks standing to bring

derivative claims on its behalf. Fox only ever had one shareholder—C. Salkind. Yarosh

admits he has no proof of stock ownership or a proprietary interest in Fox. There is no

stock certificate. There is no written shareholder agreement. There is no written

agreement between Yarosh and M. Salkind defining Yarosh’s connection to Fox. There

is no Fox document listing Yarosh as an owner or possessing an ownership interest.

Yarosh never spoke to C. Sikland about ownership and there is no documented request

for a stock certificate or other written document evidencing an ownership interest. There

is no evidence Yarosh was ever represented to others as a shareholder or possessing an

ownership interest, and in no personal document (e.g., tax return, financial statement,

                                             5
personal loan) does Yarosh declare an ownership interest in Fox.2

       Yarosh has, therefore, failed to set forth any facts supporting even an inference

that he was a shareholder. He argues, however, that he was to be ―equal partners‖3 with

M. Salkind under the terms of their oral agreement, which, in his view, meant a 50%

ownership interest in Fox. Yarosh’s purported understanding of ―equal partners‖ as

involving an ownership interest, however, is belied by his own testimony distinguishing

―partner‖ from ―shareholder.‖ Yarosh testified that when he discovered evidence of tax

fraud and knew an IRS investigation was imminent, he ―[did] not want to be a

shareholder. [He] want[ed] to be a partner. If [he] was a shareholder [he] would be

involved with the IRS and the U.S. Attorney’s office, because [he] found . . . massive

Internal Revenue fraud.‖ (J.A. 778). He testified that before he discovered the fraud, he

was asking for stock certificates, but stopped after becoming aware of the potential

investigation because he feared liability and, thus, wanted no ownership interest in the

company.

       Yarosh also contends that a $250,000 loan he made to Fox—and which was repaid

with interest—was a shareholder loan and supports his purported ownership interest.

There is no evidence that this was a shareholder loan. The corporate tax forms Yarosh

2
  Furthermore, in unrelated collection proceedings, Yarosh claimed under oath that his
relationship with Fox was that of an employer/employee and that his assets in Fox did not
include an ownership interest. (J.A. 1314–1318, 1320).
3
  The original complaint only spoke of a ―partner‖ relationship between M. Salkind and
Yarosh. The Second Amended Complaint redefined their relationship as one of ―equal
shareholders.‖
                                             6
points to list one lump sum for shareholder loans; the constituent loans are not delineated.

To conclude that this shareholder loan line item includes Yarosh’s loan would be pure

speculation.

       Finally, Yarosh states he was listed as a joint client with M. Salkind on Fox’s legal

bills and was listed as a 10% owner of Fox on a Fox-drafted loan application. Rosen,

Fox’s attorney, testified that a client name is used only as a filing and reference aid and is

of no consequence. Rosen said he simply included Yarosh’s name because he often

worked directly with Yarosh on Fox-related matters. In terms of the document to which

Yarosh refers, it was not a loan application at all but a proposal, and it was prepared by

Summit Bank, not Fox. Finally, and most importantly, it proposed that Yarosh guarantee

10% of the loan; there is no mention of ownership.

                                        B. Individual Claims

       Yarosh also asserts that the District Court erroneously dismissed his individual

claims and criticizes the Court for not providing separate analyses of his derivative claims

and individual claims. However, Yarosh himself failed to clearly separate his individual

claims from his derivative claims in his 140-page Second Amended Complaint.

Likewise, on appeal, he fails to even identify his individual claims, much less explain

why their dismissal was erroneous. Indeed, we are unclear what the individual claims are,

much less if any of them remain following the dismissal of the derivative claims based on

a finding of no ownership interest. Given this lack of clarity, we can no more perform a

                                              7
separate analysis of the purported individual claims than could the District Court.

                                     VI. Conclusion

       The Order of the District Court will be affirmed.

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