Court Opinion

ID: 4430028
Source: CourtListenerOpinion
Date Created: 2019-08-20 19:34:27.119775+00
Date Added: 2024-06-11T14:57:24.223993
License: Public Domain

NOT FOR PUBLICATION WITHOUT THE
              APPROVAL OF THE APPELLATE DIVISION

                                    SUPERIOR COURT OF NEW JERSEY
                                    APPELLATE DIVISION
                                    DOCKET NO. A-0275-17T4

METRO COMMERCIAL
                                         APPROVED FOR PUBLICATION
MANAGEMENT SERVICES,
INC., and DANIEL HUGHES,                       November 19, 2018

                                             APPELLATE DIVISION
     Plaintiffs-Respondents,

v.

NANCY VAN ISTENDAL,

     Defendant-Appellant.
____________________________

           Argued October 10, 2018 – Decided November 19, 2018

           Before Judges Hoffman, Suter and Firko.

           On appeal from Superior Court of New Jersey,
           Chancery Division, Burlington County, Docket No. C-
           000036-16.

           Steven C. Forman argued the cause for appellant
           (Steven C. Forman, attorney; Steven C. Forman, of
           counsel and on the briefs; Jeffrey Zajac, on the briefs).

           Benjamin W. Spang argued the cause for respondents
           (Dilworth Paxson LLP, attorneys; Thomas S. Biemer,
           Benjamin W. Spang, and Nicholas M. Donzuso, on the
           brief).

     The opinion of the court was delivered by
FIRKO, J.S.C. (temporarily assigned).

      Defendant Nancy Van Istendal appeals from an order granting summary

judgment dismissal of her counterclaim asserting claims of minority

shareholder oppression while employed as an at-will employee. She contends

that she had a reasonable expectation of continued employment after a

thirteen-year history with her former employer, and that her at-will designation

was irrelevant and erroneous, even though she stipulated by way of a Consent

Order that the parties' Shareholder Agreement was valid and states that she

contracted to be an employee at-will. Therefore, we conclude that she could

not have a reasonable expectation of continued employment and we affirm.

                                        I.

      The facts derived from the summary judgment record, viewed "in the

light most favorable to [defendant,] the non-moving party[,]" Globe Motor Co.

v. Igdalev, 225 N.J. 469, 479 (2016) (citing Rule 4:46-2(c)), are summarized

as follows. Plaintiff Metro Commercial Management Service, Inc. (Metro) is a

closely held real estate management company.         In 1993, plaintiff Daniel

Hughes (Hughes) incorporated Metro and became its president and sole

shareholder. Defendant, an accountant, was a Metro employee at that time.

As an incentive, in 2001 Hughes allowed her to become a twelve percent

shareholder pursuant to a Stock Purchase and Transfer Restriction Agreement

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and Metro's Chief Financial Officer (CFO). In 2002, the parties and Nina

Kilroy (Kilroy), a non-party to this action, entered into a Shareholders

Agreement (Agreement) providing for Metro to issue stock options to

defendant for the purchase of nine shares of common stock, paid through

bonuses. Her salary was $125,040 for 2003, plus annual increases based upon

the lesser value of a five percent increase or the annual increase set by the

Consumer Price Index.      In pertinent part, the Agreement contained in the

shareholder's stipulation that they were "employee[s]-at[-]will" and that they

could be "terminated by [Metro] at any time for any reason." Each shareholder

also agreed that upon termination of employment, the shareholder would be

"deemed to have made an offer to sell the shares to Hughes, the non-selling

[S]hareholder and/or [Metro] in accordance with the time and conditions of

section five," which sets forth the process for selling shares. Fair market value

was to be determined by averaging the appraisals chosen by each party and a

neutral appraiser. Metro was entitled to redeem the outstanding shares based

upon the appraisal methodology described.

      In September 2015, defendant was terminated; three months later, she

instituted suit seeking reinstatement of her employment with Metro and

position as CFO. In her complaint, defendant alleged she was an "oppressed

shareholder" under N.J.S.A. 14A:12-7(1)(c), based upon her reasonable

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expectation of continued employment, notwithstanding her at-will status. Her

complaint1 was dismissed, without prejudice, with the trial court finding that

her termination did not constitute shareholder oppression because her

termination was authorized under the Agreement, and she had no reasonable

expectation of continued employment based, in part, upon her at-will status.

In April 2016, Metro filed the subject action to compel defendant to sell her

shares in accordance with the appraisal method noted above. 2 Defendant filed

a counterclaim, again seeking reinstatement and alleging shareholder

oppression by Hughes for:

            (1) making a third-party a [ten] percent shareholder of
            Metro without the knowledge and consent of
            [d]efendant;

            (2) unilaterally deciding to rebrand the company
            including a new logo and web[]site;

            (3) unilaterally deciding to terminate the director of
            operations and human resources director;

            (4) unilaterally revising the employee handbook;

            (5) unilaterally deciding to move the Pennsylvania
            office of Metro;

1
  The prior litigation was encaptioned: Nancy Van Istendal v. Metro
Commercial Management Services, Inc. and David Hughes, C-121-15.
2
  Metro's complaint was settled based upon a Consent Order that defendant's
shares would be appraised and sold in accordance with the Agreement.

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            (6) unilaterally negotiating the buyout of a retiring
            shareholder; and

            (7) negligently and/or intentionally mismanaging
            Metro in an effort to devalue the shares of Metro to
            the detriment of [defendant].

      After thirteen years of employment with positive performance reviews,

defendant asserted that "her termination without cause violated her reasonable

expectation of continued employment even though she was an at-will

employee." Claims of breach of fiduciary duty and tortious interference were

also pled. In her Statement of Reasons, dated March 10, 2016, relative to the

first lawsuit, Judge Paula T. Dow found that "the [Agreement] controls and

[defendant] did not have a reasonable expectation of continued employment."

Accepting all of defendant's allegations as true, under Rule 4:6-2(e), the judge

could not "glean the fundament of a cause of action" by defendant, or t hat

"Hughes abused his authority as an officer and director of [Metro]."

Defendant "did not have a reasonable expectation of continued employment"

and she was "not without recourse since the [Agreement] provides a

repurchase option for [her] stocks."       The judge dismissed defendant's

complaint without prejudice, and therefore she contends that her claims remain

viable.

      Following discovery in the matter on appeal, Metro moved for summary

judgment on defendant's counterclaim, on the grounds that: (1) defendant did

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not prove minority shareholder oppression; (2) Hughes did not mismanage

Metro, but rather made "routine business decisions;" and (3) pursuant to the

Agreement, Hughes's shares were not restricted, and he was not required to

seek defendant's approval before transferring any of his shares.

      In Judge Dow's Statement of Reasons dated August 4, 2017, she stated:

            The court finds conclusive Section [nine] (iii) of the
            [Agreement],     which     specifically  states   that
            [d]efendant was an at-will employee, and could be
            terminated "at any time for any reason." In light of
            this provision, the court cannot find that [d]efendant
            had a reasonable expectation of continued
            employment. Accordingly, [d]efendant's reasonable
            expectations as a minority shareholder were not
            violated when her employment was terminated.

      The motion was granted and the counterclaim was dismissed.         This

appeal followed.

      Defendant raises the following points on appeal:

            POINT I:

            THE CHANCERY DIVISION COMMITTED PLAIN
            ERROR BY HOLDING THAT THE DEFENDANT'S
            EMPLOYMENT AT[-]WILL STATUS, IN AND OF
            ITSELF, PRECLUDED A FINDING THAT SHE
            HAD NO CONTINUED EXPECTATIONS OF
            EMPLOYMENT.

            A.     Oppression In a Close Corporation Under
                   N.J.S.A. 14A:12-7(1)(c) Is Broader [t]han
                   Oppressive Conduct [i]n Traditional Corporate
                   Law Rules, and Includes All Conduct [that]

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                  Frustrates    a    Shareholder's     Reasonable
                  Expectations.

            B.    Termination of an At[-]Will Employee
                  Shareholder Without Cause [t]hat Frustrates the
                  Shareholder's Continued Expectations of
                  Employment Constitutes Oppression Under
                  N.J.S.A. 14A:12-7(1)(c).

            C.    Because the Plaintiff Had Reasonable
                  Expectations of Continued Employment, Her
                  Termination by Metro Constitutes Oppressive
                  Conduct Under N.J.S.A. 14A:12-7(1)(c).

            D.    "At[-]Will" Employment Status Is Irrelevant to
                  Whether a Shareholder Has a Reasonable
                  Expectation of Employment Under N.J.S.A.
                  14A:12-7(1)(c).

      In her appeal, defendant argues that the trial judge erred by granting

summary judgment in favor of plaintiffs.     We review a grant of summary

judgment de novo, observing the same standard as the trial court. Townsend v.

Pierre, 221 N.J. 36, 59 (2015). Summary judgment should be granted onl y if

the record demonstrates 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). We consider "whether the competent evidential

materials presented, when viewed in the light most favorable to the non-

moving party, are sufficient to permit a rational factfinder to resolve the

alleged disputed issue in favor of the non-moving party." Brill v. Guardian

Life Ins. Co. of Am., 142 N.J. 520, 540 (1995). If no genuine issue of material

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fact exists, the inquiry then turns to "whether the trial court correctly

interpreted the law." DepoLink Court Reporting & Litig. Support Servs. v.

Rochman, 430 N.J. Super. 325, 333 (App. Div. 2013) (citations omitted).

                                       II.

      We first address defendant's contention that corporate conduct can serve

as a basis of shareholder oppression, and that Hughes failed to exercise his

fiduciary duty to defendant. The trial court must evaluate the corporation's

need to manage its daily affairs, yet consider what "frustrates the reasonable

expectations of the minority shareholder." Muellenberg v. Bikon Corp., 143

N.J. 168, 179 (1996).      Defendant argues that Hughes "negligently and/or

intentionally mismanage[d] Metro in an effort to devalue shares" to her

detriment.     In evaluating the merits of defendant's counterclaim, the judge

found defendant admitted that Hughes "always served as President of Metro . .

. [and] [d]ecisions as to the basic, day[-]to[-]day operations of the company,

particularly    those   decisions   concerning    marketing,    operations,   and

employment, clearly fall within the purview of Metro's president."

Defendant's reliance on Muellenberg is unfounded since that case had nothing

to do with an at-will employee status. The Agreement here is a clear example

of "the understanding of the parties concerning their roles in corporate affairs."

Muellenberg, 143 N.J. at 177.       The Supreme Court went on to state "[t]he

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limited basis for statutory relief reflects an awareness that minority

shareholders know the limitations of their power at the time they make their

investment in a close corporation." Muellenberg, 143 N.J. at 180. As CFO,

the judge concluded that defendant did not have "a reasonable expectation that

her opinion would be taken into account with respect to these decisions." As

to the buy-out of Kilroy's shares, the judge found that defendant executed a

Redemption Agreement approving same without demanding an appraisal of

Kilroy's interest. This does not speak of shareholder oppression. We agree.

      We next address defendant's contention that her at-will status implied a

continued expectation of employment with Metro. The judge duly recognized

that there is no statute, case law, or rule in New Jersey that addresses whether

an employee's at-will status is a relevant consideration in analyzing whether an

employee has a reasonable expectation of continued employment. Here, the

record contains ample evidence to support the judge's conclusion that the

parties entered into the Agreement and stipulated that defendant was an at-will

employee.

      N.J.S.A. 14A:12-7(1)(c) sets forth the circumstances under which a

shareholder oppression action may be brought:

            [where] the directors or those in control have acted
            fraudulently or illegally, mismanaged the corporation,
            or abused their authority as officers or directors or
            have acted oppressively or unfairly toward one or

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             more minority shareholders in their capacities as
             shareholders directors, officers, or employees.

      Oppression in the context of an oppressed minority shareholder action,

however, does not require illegality or fraud by majority shareholders or

directors.   Brenner v. Berkowitz, 134 N.J. 488, 506 (1993).            Indeed,

"[o]ppression has been defined as frustrating a shareholder's reasonab le

expectations." Ibid.

      If a court determines that a person is an oppressed minority shareholder,

it may in its discretion impose equitable remedies, such as the appointment of

a custodian, or the sale of stock. Id. at 504, 510. The Legislature recognized

that minority shareholders in close corporations are uniquely vulnerable

because they may be frozen out of the decision making process. Id. at 505.

Oppression in an oppressed minority shareholder context does not require

illegality or fraud by majority shareholders or directors. Id. at 506-07. First

the court must determine the shareholders' expectations of the corporation.

See Exadaktilos v. Cinnaminson Realty Co., Inc., 167 N.J. Super. 141, 154-55

(Law Div. 1979).

      The complaining shareholder has the burden to demonstrate a nexus

between the alleged oppressive conduct and his or her interest in the

corporation. Brenner, 134 N.J. at 508. In determining that nexus, "[t]he court

has discretion to determine which factors are pertinent to its evaluation of the

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quality and nature of the misconduct . . . ." Ibid. A minority shareholder's

expectations must also be balanced against the corporation's ability to exercise

its judgment to run its business efficiently.    Muellenberg, 143 N.J. at 179

(citing Brenner, 134 N.J. at 517).

      Defendant is not challenging her at-will status. Rather, she urges this

court to consider the potential interplay between at-will status and a minority

shareholder's "reasonable" expectations of continued employment. She asser ts

that it was error for the court to conclude she was legitimately terminated.

      Termination of a minority shareholder's employment may constitute

oppression under N.J.S.A. 14A:12-7(1)(c), because a person who acquires a

minority share in a closely-held corporation often does so "but for the

assurance of employment in the business in a managerial position."

Muellenberg, 143 N.J. at 181. Such a person thus has a reasonable expectation

that they will enjoy "the security of long-term employment and the prospect of

financial return in the form of salary," and will have "a voice in the operation

and management of the business and the formulation of its plans for future

development."    Ibid.   Where these expectations are frustrated by majority

shareholders or directors, a court may find that oppression has occurred. See

Musto v. Vidas, 281 N.J. Super. 548, 557-58 (App. Div. 1995).

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      As the judge noted, the language in the section of the Agreement entitled

"Employment Relationship/Non-Compete/Non-Solicitation" is specific and

provides:

            (a) The Shareholders hereby agree to the following
            terms and conditions with regard to their continuing
            employment with [Metro]:

                  ....

            (iii) Each Shareholder acknowledges that she is an
            "employee at[-]will" and thus can be terminated by the
            Corporation at any time for any reason . . . .

      Defendant's at-will status was simply one of a myriad of uncontested

facts taken into account by Judge Dow.          Defendant relies on several

unpublished out-of-state cases, which we neither cite, R. 1:36-3, nor find

persuasive. Saliently, there were no written employment agreements in those

cases, and their holdings differentiate between wrongful termination as being a

wholly separate cause of action from an oppressed shareholder's potential

expectation of continued employment. Therefore, defendant's reliance upon

those cases is unfounded.

      Judge Dow correctly concluded that defendant had no reasonable

expectation of continuing employment with Metro and she correctly dismissed

defendant's claim a second time.

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      To the extent we have not addressed defendant's remaining arguments,

we find them without sufficient merit to warrant discussion in a written

opinion. R. 2:11-3(e)(1)(E).

      Affirmed.

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