Court Opinion

ID: 3191353
Source: CourtListenerOpinion
Date Created: 2016-04-05 14:05:19.738458+00
Date Added: 2024-06-11T14:36:09.118337
License: Public Domain

NOT FOR PUBLICATION WITHOUT THE
               APPROVAL OF THE APPELLATE DIVISION

                                     SUPERIOR COURT OF NEW JERSEY
                                     APPELLATE DIVISION
                                     DOCKET NO. A-0696-14T4

STERLING LAUREL REALTY, LLC,
individually and derivatively
on behalf of LAUREL GARDENS
CO-OP, INC., and MICHAEL ROKOWSKY,
as a member of the Board of
Directors of Laurel Gardens
                                        APPROVED FOR PUBLICATION
Co-Op, Inc. through appointment by
Sterling Laurel Realty, LLC,                 April 5, 2016

         Plaintiffs-Appellants,            APPELLATE DIVISION

v.

LAUREL GARDENS CO-OP, INC.,
DANIEL HUDSON, ROSEMARY
FARRELL, ROBERT STANZIONE
and CHRISTINE HOIE,

          Defendants-Respondents.
———————————————————————————————————————-

         Argued February 2, 2016 – Decided April 5, 2016

         Before Judges Reisner, Hoffman and Leone.

         On appeal from Superior Court of New Jersey,
         Chancery Division, Monmouth County, Docket
         No. C-120-13.

         Steven   Siegel   argued   the    cause  for
         appellants (Sills Cummis & Gross, P.C.,
         attorneys; Mr. Siegel, of counsel and on the
         briefs; Anthony S. Bocchi, of counsel).

         Martin N. Crevina argued the cause for
         respondents as to Counts I, II and IV
         (Buckalew    Frizzell   &    Crevina,  LLP,
         attorneys; Mr. Crevina, on the brief).
            Sandra Calvert Nathans argued the cause for
            respondents as to Counts III, V and VI
            (Schenck,   Price,  Smith   &   King,  LLP,
            attorneys; Ms. Nathans and James A. Kassis,
            on the brief).

    The opinion of the court was delivered by

HOFFMAN, J.A.D.

    Plaintiffs         Sterling   Laurel        Realty,   Inc.      (Sterling)      and

Michael    Rokowsky      appeal   from        two   Chancery     Division      orders

entered    on   September     19,       2014.       The   first      order     denied

plaintiffs' motion for partial summary judgment, and the second

order granted summary judgment in favor of defendants Laurel

Gardens    Co-Op,      Inc.   (the      Co-Op),     Daniel     Hudson,       Rosemary

Farrell,    Robert      Stanzione,      and     Christine      Hoie,1    dismissing

plaintiffs'     complaint.        The    central     issue     in    this    case    is

whether a majority of the Co-Op's Board could amend the bylaw

definition of a quorum (for purposes of shareholder meetings)

from a majority of the shareholders to twenty percent of the

shareholders.         Because allowing the Board to change the quorum

definition by amending the bylaws would allow it to reduce the

rights     of   the     shareholders      without     their      involvement,        we

conclude the bylaw amendment was invalid.                   We therefore affirm

in part, and reverse and remand in part.

1
  Hudson, Farrell, Stanzione, and Hoie are shareholders in the
Co-Op and are also four of the seven members of its Board of
Directors (the Board).

                                          2                                  A-0696-14T4
                                           I.

     We glean the following undisputed facts from the summary

judgment record.        The Co-Op is a New Jersey corporation that

owns and operates a residential apartment complex in Eatontown.

Sterling was the Co-Op's sponsor regarding its conversion to the

cooperative form of ownership and continues to own approximately

twenty-five       percent    of    the    cooperative      apartments,         and   thus

holds    approximately       twenty-five         percent   of    the    Co-Op's      total

stock.        As the Co-Op's sponsor, Sterling is entitled to appoint

two individuals to the Board, one of whom is Rokowsky.

     Since its inception in 1986, the Co-Op has been controlled

by      two     governing      documents:          (1)     the     certificate          of

incorporation, and (2) the bylaws.                  The one-page certificate of

incorporation       simply     sets      forth    the    Co-Op's       name,   purpose,

address, and authorized number of shares.                       The twenty-one page

bylaws explain in detail the methods and procedures governing

the operation of the Co-Op.

     Four bylaws have particular relevance to the case under

review.        First, Article I, Section 4 (the shareholder-quorum

provision)       establishes      the    requisite       quorum    for    shareholder

meetings,       requiring    the    presence,       "either       in    person     or   by

proxy[, of] the holders of a majority of the shares of the

Cooperative, including unsold shares," in order "to permit the

                                           3                                     A-0696-14T4
transaction of any business."               Second, Article II, Section 5

(the Board-quorum provision) establishes the requisite quorum of

directors     for   Board   meetings,       requiring   the   presence     of    "a

majority of the number of directors" in order to hold a vote on

any measure requiring Board approval.             Third, Article X, Section

2 authorizes the Board to amend the bylaws by a two-thirds vote.

Finally, Article X, Section 3 (the sponsor-protection provision)

protects Sterling's rights, stating that

            any provision hereof may not be altered,
            amended or repealed in such a manner as
            would   adversely    affect   the   rights   or
            interests   of   the    Sponsor   under   [the]
            Offering   Plan   (or    its   successors   and
            assigns) in any shares and accompanying
            proprietary   leases    that  may   have   been
            pledged with the Sponsor in connection with
            financing the purchase of apartments in the
            building.

      On June 1, 2012, Hudson, as the Board President, sent a

notice   to    the    Co-Op's    shareholders       informing     them     of     a

shareholders meeting scheduled for June 18, 2012.                 Attached to

this notice was a proposed amendment to the Co-Op's bylaws (the

sublease amendment) that would require, "as a pre-condition for

any   application     to    sublease    a    [Co-Op]    Apartment,   that       the

Apartment Owner shall have acquired the Apartment for a minimum

of one (1) year before applying to sublease the Apartment."                     By

limiting the scope of permissible subleases, the amendment, if

enacted, would ultimately reduce the ratio of rental units to

                                        4                                A-0696-14T4
owner-occupied     units   within        the       Co-Op.         Due   to    market

conditions,    reducing    this    ratio       would       make   it    easier     for

prospective buyers to obtain financing to purchase a share of

the   Co-Op.     The   amendment     contained         a    provision     exempting

Sterling from the sublease restriction.

      Plaintiffs expressed concerns about the sublease amendment

and the effect it would have on Sterling's rights as the Co-Op's

sponsor.2   On July 15, 2012, Rokowsky sent a letter to the other

Board   members,   claiming       that       the   sublease       amendment      would

violate the sponsor-protection provision.                  The letter explained:

            The   proposed   amendment  will  harm the
            interests of [Sterling] in that we may
            choose to sell our units to potential
            purchaser(s) who are investor(s) . . . who
            would want to sublease their units rather
            than occupy the units themselves.

            The proposed amendment which would restrict
            them from doing so for one year, and would
            cause such purchasers to shy away from
            purchasing   our   units,   thus   adversely
            affecting   the   pool  of   our   potential
            purchasers and making it reduce the value of
            our units.

2
  Rokowsky sent an email to the Board's administrative assistant
on June 6, 2012, requesting a complete list of all shareholders,
including addresses, so that plaintiffs could state their
concerns to the shareholders.      Although the Board had not
provided plaintiffs with such a list at the time they filed
their complaint, plaintiffs thereafter received the list.

                                         5                                   A-0696-14T4
       Although defendants planned for a shareholder vote on the

sublease amendment at the June 18, 2012 shareholders meeting,

not enough shareholders were present at the meeting to establish

a quorum.3        Defendants scheduled another vote for July 19, 2012,

but again no quorum of shareholders was reached.                       Accordingly,

defendants scheduled a third shareholders meeting to take place

immediately after the Board's monthly meeting on August 9, 2012.

This   time,      in   addition   to   the      proposed        sublease   amendment,

defendants        proposed   an   amendment          to   the    shareholder-quorum

provision (the shareholder-quorum amendment).                      The shareholder-

quorum   amendment       would    reduce       the   necessary      quorum   from   "a

majority of the shares of the cooperative" to "twenty (20%)

percent of the shares of the cooperative."                       This amendment was

intended as a cost-saving measure, due to the time and cost

associated with rescheduling shareholders meetings that fail to

reach a quorum.

       On August 7, 2012, Rokowsky sent another letter to the rest

of the Board, objecting to the shareholder-quorum amendment.                        In

addition     to    citing    to   several      New    Jersey      statutes   that   he

claimed prohibited the amendment, Rokowsky argued that

             only requiring a Twenty percent quorum does
             not and [cannot] accurately reflect the

3
  Neither Sterling nor its appointed Board members attended this
meeting, or any relevant meeting thereafter.

                                           6                                 A-0696-14T4
              interests of a majority of shareholders and
              specifically that this would allow matters
              to be voted on at regular or special
              shareholder meetings without requiring the
              presence, or input of a Holder of Unsold
              Shares.   Furthermore the proposed amendment
              will harm the interests of Sterling, Holder
              of Unsold Shares in that it will lower the
              property values of units at [the Co-Op]
              because potential purchasers will shy away
              from purchasing units at [the Co-Op] due to
              the fact that Shareholders meetings can go
              forward   with    only   a    twenty  percent
              shareholder    representation     and  change
              gravely important matters at their whim.

       The    five   Board    members   present       at    the   August    9,   2012

meeting      unanimously     approved   both    the    shareholder-quorum         and

sublease amendments to the bylaws.

       On July 29, 2013, plaintiffs filed a six-count verified

complaint against the Co-Op and the Board members who approved

the amendments.       In addition to asserting claims of shareholder

oppression,      breach      of   contract,     and    tortious     interference,

plaintiffs sought two forms of injunctive relief: a declaratory

judgment pronouncing the amendments null and void, and an order

enjoining the Co-Op from enforcing the amendments.                   At the close

of     discovery,    the     parties    filed     cross-motions      for    summary

judgment.

       After   hearing     oral   argument,     the    motion     judge    concluded

that      neither     amendment        violated       the     sponsor-protection

provision, and that the Board had the authority to amend the

                                         7                                  A-0696-14T4
shareholder-quorum          provision.          Accordingly,        the    judge     denied

plaintiffs'       motion,      granted      defendants'            cross-motion,          and

dismissed plaintiffs' complaint with prejudice.

       Plaintiffs filed this appeal on October 3, 2014, initially

challenging      the   validity      of    both      the    shareholder-quorum            and

sublease      amendments;      however,         at   oral        argument,    plaintiffs

advised that they had abandoned their challenge to the sublease

amendment,      thus   limiting      their       arguments         on    appeal     to    the

validity of the shareholder-quorum amendment.

                                           II.

       When    reviewing      an   order    granting         summary       judgment,       we

"employ the same standard [of review] that governs the trial

court."       Henry v. N.J. Dep't of Human Servs., 204 N.J. 320, 330

(2010) (quoting Busciglio v. DellaFave, 366 N.J. Super. 135, 139

(App. Div. 2004)).            Summary judgment is appropriate "if the

pleadings,       depositions,        answers          to         interrogatories          and

admissions on file, together with the affidavits, if any, show

that    there    is    no    genuine      issue      as     to    any     material       fact

challenged and that the moving party is entitled to a judgment

or order as a matter of law."              R. 4:46-2(c).

       In   support    of    their     challenge       to    the        validity    of   the

shareholder-quorum          amendment,      plaintiffs           argue    that     the    New

Jersey Business Corporation Act (the Act), N.J.S.A. 14A:1-1 to

                                            8                                      A-0696-14T4
17-18, precludes the Board from unilaterally reducing the Co-

Op's    shareholder-quorum        requirement.        Defendants      counter     by

arguing that N.J.S.A. 14A:2-9 authorizes the Board to amend a

bylaw provision to lower the quorum requirement.                  We agree with

plaintiffs.

       When interpreting a statute, we give the relevant language

its ordinary meaning and construe it "in a common-sense manner."

State ex rel. K.O., 217 N.J. 83, 91 (2014); see also N.J.S.A.

1:1-1   (stating     that   the    words   of   a    statute    are   customarily

construed according to their generally-accepted meaning).                     We do

not add terms which may have been intentionally omitted by the

Legislature,   nor     do   we    speculate     or   otherwise    engage     in    an

interpretation which would avoid its plain meaning.                    DiProspero

v. Penn, 183 N.J. 477, 492 (2005).              Where plain language "leads

to a clear and unambiguous result, then the interpretive process

should end, without resort to extrinsic sources."                       State v.

D.A., 191 N.J. 158, 164 (2007) (citation omitted).

       Here, the applicable statutory language leads us to a clear

and unambiguous result.           N.J.S.A. 14A:5-9 states, in pertinent

part:      "Unless     otherwise     provided        in   the    certificate      of

incorporation or this act, the holders of shares entitled to

cast a majority of the votes at a meeting shall constitute a

quorum at such meeting."           We interpret this plain language to

                                       9                                   A-0696-14T4
mean       that,    in   order      to   hold    a     vote      amongst    the    Co-Op's

shareholders, a majority of all shares in the Co-Op must be

represented at the meeting.               We further conclude, based on the

plain language of the statute, that a valid modification of the

Act's majority quorum requirement in this case could occur only

by amending the Co-Op's certificate of incorporation.4

       A     straightforward         application           of    this      interpretation

reveals that defendants' attempt to alter the shareholder-quorum

requirement         using     the    bylaws      was       improper.        The    Co-Op's

certificate         of   incorporation          does       not   address     the    quorum

required to conduct business at shareholders meetings.                                Thus,

the Act's majority quorum requirement clearly controls.

       Defendants emphasize that, at all relevant times, the Board

had the authority to amend the bylaws.                           Notwithstanding this

position's         factual    accuracy,     the       Board's     general     ability      to

amend the Co-Op's bylaws lacks relevance here.                          N.J.S.A. 14A:5-9

makes      clear    that     an   amendment      to    a    corporation's      bylaws      is

4
   Although we need not address legislative history when
confronted with unambiguous statutory language, we briefly note
that the Act's legislative history supports our interpretation
in this case.    The commissioners' comments indicate that the
Act's requirement — that an entity must indicate a deviation
from the Act's default majority quorum provision in its
certificate of incorporation — is "a change from [repealed] R.S.
14:10-9, which permits [a deviation from the default majority
quorum provision] to be set forth in the bylaws."       N.J.S.A.
14A:5-9 (Comm'rs' cmt 1968).

                                            10                                     A-0696-14T4
insufficient to supplant the default majority quorum requirement

set forth in the Act; only an amendment to the certificate of

incorporation — which can only be approved by a vote of the

shareholders, see N.J.S.A. 14A:9-2(4) — could legally alter the

Co-Op's shareholder-quorum requirement.

       Defendants also contend that they were, for all practical

purposes, left with no choice but to reduce the shareholder-

quorum requirement, by way of a Board-approved amendment to the

bylaws.     They argue that plaintiffs, due to their substantial

percentage    of   shares    owned,       were   preventing             the   shareholders

from    conducting    any    meaningful          business          by    boycotting         the

shareholder meetings.

       We   find   this     argument      equally       unpersuasive.                 Despite

defendants'    arguments      to    the    contrary,         they       had    two    methods

available     to     them     for     addressing             plaintiffs'         perceived

obstructive behavior.         N.J.S.A. 14A:5-2 permits shareholders to

initiate    General   Equity       litigation      to    obtain          a    court-ordered

shareholders meeting.         At such a meeting, the majority quorum

requirement would have been waived by operation of law, because

"the   shareholders       present    in    person       or    by    proxy       and    having

voting powers shall constitute a quorum for the transaction of

the business designated in such order."                       Ibid.          Alternatively,

defendants could have convinced a majority of the shareholders

                                          11                                          A-0696-14T4
to attend the annual shareholders meeting and vote to amend the

certificate of incorporation to reduce the quorum requirement.

       However, as defendants did not use either of these methods

to    hold   a   shareholders       meeting,       we    conclude     that    the   Act's

default      majority     quorum    provision           controls,     and    defendants'

unauthorized       amendment       to    the       shareholder-quorum          provision

violated the Act's clear and unambiguous terms.                          See also In re

Brophy, 13 N.J. Misc. 462 (Sup. Ct. 1935) (establishing that, if

a statute requires an authorization or limitation to be set

forth in the certificate of incorporation, an action setting it

forth in the bylaws will be insufficient); Jones v. Wallace, 628
P.2d 388, 391 (Or. 1981) (invalidating, pursuant to the Oregon

Business      Corporation     Act,      O.R.S.      57.165,       a   bylaw    amendment

altering the corporation's shareholder-quorum requirement when

no    such    amendment     was     made      to    the     entity's        articles    of

incorporation).

       Allowing     the     Board       to    change       the    shareholder-quorum

requirement through a bylaw amendment would effectively reduce

the     rights     of     shareholders            without        their      consent    or

participation.       We find such a result to run contrary to the

Legislature's      intent    in     adopting       the    Act.        See   Vergopia    v.

Shaker, 191 N.J. 217, 235–36 (2007) (holding that a board of

directors cannot create bylaws that will substantially interfere

                                             12                                 A-0696-14T4
with the statutory rights given to shareholders).                      Therefore, we

reverse the motion judge's determination with regard to count

one.

       We further conclude that the claims seeking disclosure of

the shareholder list are moot, as the list has been provided.

Additionally, the claims seeking damages were properly dismissed

as unsupported by proof of damages.                     Plaintiffs' arguments to

the contrary lack sufficient merit to warrant discussion in a

written opinion.       R. 2:11-3(e)(1)(E).              Therefore, we affirm the

motion    judge's      dismissal     of        counts     two    through      six    of

plaintiffs'       verified   complaint,        and   reverse     the    dismissal    of

count one.        We remand to the Chancery Division for the limited

purpose   of   entering      an   order    invalidating         the    Co-Op's   bylaw

amendment    to    Article   I,   Section       4,   adopted     by    the   Board   on

August 9, 2012.

       Affirmed in part, reversed and remanded in part.

                                          13                                  A-0696-14T4