Court Opinion

ID: 4523525
Source: CourtListenerOpinion
Date Created: 2020-04-08 14:07:28.597317+00
Date Added: 2024-06-11T09:25:59.533099
License: Public Domain

NOT FOR PUBLICATION WITHOUT THE
                               APPROVAL 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.

                                                        SUPERIOR COURT OF NEW JERSEY
                                                        APPELLATE DIVISION
                                                        DOCKET NO. A-4987-17T2

WHITESELL ENTERPRISES, LLC,

          Plaintiff-Appellant/
          Cross-Respondent,

v.

KENNETH LONG, KATHLEEN
LONG, and JONATHAN
SHEVELEW,

          Defendants,

and

JOHN SCHEFFEY,

          Defendant/Cross-Appellant.

                   Argued January 9, 2020 – Decided April 8, 2020

                   Before Judges Alvarez, Nugent and DeAlmeida.

                   On appeal from the Superior Court of New Jersey, Law
                   Division, Burlington County, Docket No. L-2397-14.
            William G. Wright argued the cause for
            appellant/cross-respondent (Capehart & Scatchard PA,
            attorneys; William G. Wright, on the briefs).

            Lawrence P. Powers argued the cause for
            respondent/cross-appellant (Hoagland Longo Moran
            Dunst & Doukas, attorneys; Lawrence P. Powers, of
            counsel; Richard J. Mirra, of counsel and on the briefs).

PER CURIAM

      Plaintiff Whitesell Enterprises, LLC, appeals a February 2018 jury

verdict, as captured on the verdict sheet, that defendant John Scheffey's "action

or lack of action" demonstrated "an intent to ratify" his forged signature on a

personal guarantee for a commercial lease. The jury nonetheless found he did

not owe $179,981.63 in unpaid rent because his "conduct or silence" did not

benefit him or harm Whitesell. We vacate the jury's verdict, as we find Scheffey

should have been granted summary judgment dismissing him from the case and,

for the same reasons, a directed verdict. The question of his liability should

have never reached the jury.

      Before the jury trial, Whitesell filed three amended complaints, finally

amending the third amended complaint to add Scheffey as a defendant after he

was dismissed from the first complaint by way of a motion in lieu of answer.

See R. 4:6-2. Whitesell's cause of action against Scheffey was amended to

allege that even if he did not personally sign the lease guarantee, he either

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authorized another to sign on his behalf or failed to repudiate his signature—

thus "by his inaction, and/or by his acceptance of the benefits of [the lessee 's]

occupancy and use of the leased premises . . . ratified or adopted his signature

on the guarantee."

      We have no copy of the transcript or documents regarding the motion to

dismiss in lieu of answer, granted on May 8, 2015. Nor do we have copies of

the moving papers or a transcript regarding the trial judge's decision to allow

the amendment to the third party complaint.1 All we know is that the amendment

anchored the cause of action against Scheffey on the theory of ratification "by

inaction" and "acceptance of the benefits."

      Turning to Scheffey's summary judgment motion, the statement of

material facts included the undisputed fact that when the lease was negotiated

he was only an investor with the company and was never involved in the day-

to-day operations. Scheffey knew nothing about the terms of the lease, or the

lease negotiations, and his signature was forged on the personal guarantee. He

did know the company was moving to a new location.             We assume from

1
  The order allowing the amendment to the third complaint was not provided in
the record, so we do not know the exact date Whitesell's motion was granted.
Whitesell filed the amendment on November 7, 2016.
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references in the record the motion in lieu of answer was granted because

Scheffey's signature was forged.

      The person who acknowledged the signature, defendant Jonathan

Shevelew, did not witness Scheffey signing the document. Shevelew acted first

as a consultant for the tenant, Solular, eventually becoming Chief Executive

Officer in June 2011. He stated in an affidavit submitted with the motion for

summary judgment: "it is entirely possible that [Shevelew] signed as a witness

to the lease guarantee without seeing [Scheffey] actually sign in person."

Shevelew also stated that at the time he mistakenly believed Scheffey was a

"partner" in Solular, a limited liability company, the named tenant on the

commercial lease.

      Scheffey did not acquire an ownership interest in the company, a 20.2

percent share of 100 units, until approximately six months after the lease was

signed. Even then, he did not review the lease terms.

      When the lease was signed, Kenneth Long, 2 also a named defendant in

this lawsuit, was Solular's president and ran the business. Kenneth also owned

2
  We refer to Kenneth Long and Kathleen Long by their first names to avoid
confusion. No lack of respect is intended by the usage.
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a 20.2 percent interest in the company.       In a letter to Whitesell's counsel

regarding rent arrears, dated October 3, 2014, Kenneth said:

                   . . . Scheffey and Kathleen . . . did not sign the
            personal guarantees in the lease for the facility. I
            realize they were owners and knew of the unit being
            leased by Solular, but they were not apprised of their
            having to personally sign on this lease. One of our
            other partners signed for them. They are engaging
            counsel to defend this so this will present another legal
            front for you to address. I have nothing to do with their
            actions as they are not owners of the firm any longer.

                   ....

                 I am pretty sure the responsibility of attending to
            paying Whitesell will fall to me since I am the only one
            remaining who actually did sign the personal guarantee.

      In the selection from Kenneth's depositions attached to Scheffey's

statement of material facts, Kenneth explains the letter as meaning that he never

saw Scheffey sign the lease and knew no one who had. Kenneth understood that

he was the only one personally responsible for the lease and denied that the letter

was an admission that he forged Scheffey's signature.          Kenneth filed for

bankruptcy before the trial, but the court did not discharge his obligation to

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Whitesell, presumably because of the falsification of signatures, and the

unauthorized submission of documents to the landlord.3

      The lease was signed in December 2010. Scheffey acquired his ownership

interest in Solular in May 2011.      By then he had invested approximately

$300,000, including guaranteeing a company credit line. As required during the

credit line application process, Scheffey provided Solular with a copy of his

2009 tax return. The tax return would later be given to Whitesell without

Scheffey's knowledge or consent. It was included with the documents submitted

by Solular in the lease negotiation process.

      In the summer of 2011, Scheffey installed a mock-up in the Solular

warehouse at the leased premises of a bank interior Scheffey's separate business

was proposing to construct. He hoped not only to succeed in getting the building

contract, but that by using the Solular premises, the bank might become

interested in using Solular's services. Scheffey's project occupied the Solular

warehouse premises some three or four months. Whitesell's amendment to the

third amended complaint alleges in general terms that Scheffey gained the

3
  The record includes mention of the fact Kenneth's obligation under the lease
was not discharged in bankruptcy. The appendix does not include any pertinent
documentation.
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benefit of the leased premises—it is not clear if the benefit alleged referred to

this use or Solular's occupancy over the years.

         Without identifying the source of the information, Whitesell responded to

Scheffey's statement of material facts that he knew as of December 9, 2010, the

date the lease was signed, "that [Whitesell] was requiring the 'principals' of

Solular to personally guarantee the lease." It is undisputed that on December 6,

2010, a representative for Whitesell sent the proposed lease to Shevelew.

Shevelew forwarded this email to Kenneth and Kathleen, another Solular partner

whose signature was also forged, requesting that they meet to review the terms

of the lease. On December 7, Kathleen forwarded that email to Scheffey while

also discussing charitable contributions from Solular. Shevelew had also sent a

December 6, 2010 email calling a meeting of owners to review the terms of the

lease.

         Scheffey ignored the proposed unsigned lease attached to the second email

because he was not an owner, had no involvement in day-to-day operations, and

had not been approached about it by anyone. He assumed since he was an

investor that he was merely being kept informed of important developments, like

with the information regarding charitable donations.          Scheffey's records

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established he was actually traveling out-of-state the month the lease was

signed.

      In March 2014, Scheffey learned about the forgery when Kenneth sent

him a copy of the fully executed lease, warning him that Solular had been unable

to pay the rent. Scheffey immediately recognized that his signature had been

forged and immediately told Kenneth. Kenneth responded that perhaps the

witness to the signature, Shevelew, had signed it.

      In July 2014, Whitesell informed Kenneth, as the business manager, that

the lease was in default. In August, Whitesell sent letters to all the guarantors,

including Scheffey, advising them of their obligations under the lease. In

September, they were further advised by Whitesell's attorneys that the payments

were being accelerated, and that Solular and the personal guarantors were in

default. In response, Scheffey retained counsel. When asked at trial for the

reason he did not inform Whitesell in August of the forgery, Scheffey testified

that Kenneth assured him he was negotiating with Whitesell to sublease the

property to another company, so the rent would be paid.

      In his deposition, Shevelew acknowledged no one signed the lease

guarantees in his presence, despite "witnessing" all the signatures on the

document. Shevelew remembered telling Scheffey when the lease was signed

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                                        8
that all the Solular "partners" had to personally guarantee payment. Shevelew

at the time believed that Scheffey was a partner, and thus assumed Scheffey

knew about the obligation. Scheffey did not recall any such conversation, but

because he was not a partner, even if it had occurred, he testified he would not

have thought anything of it because at the time he had no ownership interest in

the company.

      On July 6, 2017, the trial judge denied the motion for summary judgment.

The following is her decision on the subject, which we reproduce in its entirety:

            Nonetheless, I think that there are issues of material
            fact in this case [and] that this needs to be resolved by
            a jury. It can go either way. But for the purposes of
            summary judgment, and the activity of Mr. Scheffey at
            the outset, his interest in the corporation, the notice that
            he was supposed to be a guarantor, no indication -- it
            doesn't appear to be any resistance to that when the
            lease was being prepared. In addition, he occupied
            some of the premises for a portion of the time.

                   He didn't disavow it immediately once he came
            to the conclusion that it was forged. In addition, the
            jurors can look at the signature and determine if it's
            forged. He can have his testimony and the jury can
            decide. But there's many issues of fact that preclude
            the Court from granting the motion for summary
            judgment. It doesn't mean he might not succeed in trial,
            but the Court cannot grant summary judgment as to that
            issue.

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     The trial court denied Scheffey's motion for a directed verdict. See R.

4:37-2(b). Her opinion included a discussion of relevant cases as well as the

following:

             They -- let me say this, a jury could infer that at the
             point in time in March when . . . Scheffey learned about
             it, it was to his benefit to have Solular continue to
             operate. And if they didn't have the lease or if they were
             evicted at that point in time, there was no benefit to
             Solular continuing to operate and perhaps pay him
             back. That is quite clearly an obvious possibility, and
             the jury can conclude that.

             In addition, Mr. -- and maybe the jury will accept that
             . . . Scheffey was willing or preparing to negotiate
             favorable terms to extricate himself from this. And had
             they notified Whitesell and gotten evicted there would
             be less opportunity for him to get any benefit from this
             LLC, which he was trying to get out of. In addition it
             came out during cross, Mr. Grace should know, did Mr.
             Field tell you that part of that agreement that you
             wanted to come in came -- basically the gist of that
             agreement came in on cross of . . . Scheffey. And it
             became relevant at that point in time because . . .
             Scheffey made certain statements.

             So that's -- in addition, it's hard to conceive that . . .
             Scheffey -- he is a businessman, a very successful
             businessman. It's inconceivable to the Court, and
             maybe to the jury -- the jury -- maybe the jury will
             accept this, that the partners -- and it's interesting that
             the partners – . . . Shevelew referred to . . . Scheffey as
             a partner, and I guess the partnership agreement came
             after the fact. But, nonetheless, . . . Shevelew knew or
             considered . . . Scheffey a partner and therefore there

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                                        10
            was knowledge that a guarantee would be required. So
            that's an issue that the jury can consider in addition.

                  So . . . Scheffey is partner in Solular LLC. They
            are operating out of this warehouse. They -- he benefits
            from the mock-up. He's benefitting from the lease.

                                        I.

      Both Whitesell and Scheffey raise a number of points on appeal and cross-

appeal related to the law of agency and ratification, based on alleged errors in

the jury instruction and the verdict sheet. We address only two points raised in

Scheffey's cross-appeal, that the court should have granted summary judgment

and a directed verdict.

      The familiar standard as to summary judgment requires us to apply the

same analysis as did the trial court. Bhagat v. Bhagat, 217 N.J. 22, 38 (2014).

If the moving party demonstrates there are no genuine issues of material fact,

then we address whether the moving party is entitled to judgment as a matt er of

law. Ibid. All legitimate factual inferences are drawn in favor of the non-

moving party. R. 4:46-2(c).

      Addressing just the first portion of the test, and even drawing all favorable

factual inferences in Whitesell's favor, it is undisputed that Scheffey's signature

was forged. He flatly alleges in his certification that he did not even know his

name was on the document until years after the lease was signed. Whitesell

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                                       11
produced no one who saw him sign his name, or any person who contradicted

his ignorance of the lease terms. Whitesell's focus in opposition to summary

judgment was Scheffey's purported ratification of his signature by his months-

long silence after learning of the forgery. That Scheffey was silent for several

months over the spring and summer is also an undisputed fact.

      But as a matter of law, in order for Whitesell to establish that Scheffey's

silence constituted ratification, Whitesell would first have to prove that he had

made some other person his agent to act for him within the company, thus

triggering the possibility that the ratification doctrine would apply. Whitesell

did not present any such proof when summary judgment was denied, or at any

time thereafter for that matter.

      At the time the lease was signed, Scheffey had invested some $300,000 in

the company, but that was the extent of his involvement. He was not legally

liable for the rent. He had no ownership interest when the lease was signed,

played no role in the management of the company or its day-to-day operations,

and was not paid a salary. Solular's limited liability organizational structure was

designed to protect owners, and should have done so here.4

4
  N.J.S.A. 42:2C-30 states that the "debts, obligations, or other liabilities" of a
limited liability company are solely those of the company. They do not become

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                                       12
      Scheffey's limited use of Solular's warehouse, his only personal use of the

premises, does not expose him to liability for the unpaid rent. His use was a

convenience to an investor who had sunk substantial sums in the business

without yet seeing a return. Absent from the record is any suggestion that

Scheffey vested or authorized anyone to legally bind him to company

obligations.

      The cases cited by both parties on appeal, and the trial judge, relating to

ratification, all assume an agency relationship between principal and agent. In

Chetwood v. Berrian, 39 N.J. Eq. 203, 209 (Ch. 1884), the first reported opinion

in New Jersey regarding the ratification doctrine, the agent had been granted

broad powers, in writing, as attorney-in-fact for his principal while the latter

was abroad. The ratification by silence doctrine was applied because the agent

engaged in unauthorized and damaging transactions which the principal did not

repudiate. Id. at 210.

      In Thermo Contracting Corp. v. Bank of New Jersey, 69 N.J. 352 (1976),

a more complex relationship existed between principal and agent—however, the

a personal obligation of a member of an LLC "solely by reason of the member
acting as a member . . . ." Ibid. Even when an LLC does not observe particular
formalities relating to the exercise of its management powers, personal liability
cannot be imposed on members. Ibid.
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                                      13
complexity substituted for a specific designation of agency. Thermo, a general

contractor, brought suit against a bank for its wrongful deposit of checks payable

to Thermo on the forged signature of Kashulines, a subcontractor working for

Thermo. Id. at 356. After discovering the wrongful deposit, Thermo continued

to do business with Kashulines for months on various unrelated jobs, and

continued to be paid a twenty-five percent management fee, despite the fact

Kashulines was not making good on his promises to repay Thermo for the

misappropriated checks. Id. at 357-59. Kashulines had been given physical

access to checks issued to Thermo on prior occasions. Id. at 356. It behooved

Thermo to continue to do business with Kashulines because, not only did it

believe Kashulines would reimburse the checks, it knew that if Kashulines was

pressed, he would stop working on Thermo jobs, and the company needed him

to do so in order to be paid. Id. at 359. The intertwined business relationship

was the basis for the Court's application of the ratification by silence doctrine in

finding the bank was not liable for its deposit of checks bearing Kashulines 's

forged endorsement. Id. at 362.

      Thermo is also factually distinguishable. Scheffey was a passive investor,

and a passive owner, who had no involvement or engagement with the company

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                                        14
other than the expectation his investment would eventually be returned with

interest. He made no ongoing income from Solular's business activities.

      In Citizens First National Bank of New Jersey v. Bluh, 281 N.J. Super. 86

(App. Div. 1995), another case cited by both parties, a real estate investment

partnership was formed between several individuals, including an attorney. The

attorney was designated by the partnership to act in its behalf, and in fact the

attorney was named as the trustee of the partnership. Id. at 89-90. The deed to

certain partnership real property was placed in his name as trustee, which he

used for personal gain. Id. at 90. While the partnership agreement limited his

authority to act on behalf of the partnership, he clearly acted with apparent

authority as an agent of the partnership. Id. at 90-91.

      In In re Dweck, No. 7-11757, 2010 W.L. 2196417 (Bankr. D.N.J. June 1,

2010),5 a husband and wife gave their nephew millions of dollars to invest for

them and in their names.      They continued to invest with him even after

discovering he had committed a fraud involving a mortgage and note that they

5
   We recognize that this court generally does not cite to unpublished opinions.
R. 1:36-3; see also Glukowsky v. Equity One, Inc., 360 N.J. Super. 1, 28 (App.
Div. 2003), rev'd on other grounds, 180 N.J. 49 (2004). However, a brief
discussion is warranted because both parties relied on the case and it was
discussed extensively by the trial court. It does not constitute precedent nor is
it binding upon this court. We discuss it for sake of completeness.
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                                       15
had not authorized. Again, in that case, unlike this, the principals gave their

agents apparent or actual authority, which the agents later abused.

      Whether the doctrine of ratification is characterized as equitable or arising

out of contract law, as argued by the parties, is irrelevant here. The doctrine is

premised on an agent/principal relationship. Whitesell had no fact or law from

which to argue that Scheffey's silence over a few months effectively created an

agency relationship where none previously existed.             A principal/agent

relationship requires conduct that would have given the third party reason to

believe the agent had the authority to act on behalf of the principal . Whitesell

at that juncture assumed Scheffey had personally signed the lease.

      The Restatement of Agency defines agency as "the fiduciary relationship

that arises when one person . . . manifests assent to another person . . . that the

agent shall act on the principal's behalf and subject to the principal's control,

and the agent manifests assent or otherwise consents so to act." Restatement

(Third) of Agency § 1.01 (Am. Law Inst. 2006).              Clearly no fiduciary

relationship between Scheffey and whomever forged his signature existed.

Scheffey never manifested assent for an agent to sign the lease on his behalf.

He never read the lease, did not know of its terms, and was not even in the state

at the time the lease was signed. There was no foundational agency relationship

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to justify the trial court's imposition of the ratification by silence doctrine. See

id. at § 4.01.

      In her summary judgment decision, the judge glossed over the undisputed

forgery. She did not explain the legal basis upon which a jury might conclude

that Scheffey's silence amounted to ratification of the forged signature. If

Whitesell's claim rested on the doctrine of ratification, which requires an agency

relationship, the existence of the agency relationship needed to be at least raised.

It was not. Opposition to the motion skipped that step altogether.

      The judge should have granted Scheffey's motion, even viewing plaintiff's

facts in the most favorable light. Scheffey did not at any time designate anyone

to act as his agent. Based on the business structure of Solular, Scheffey had

every reason to believe he would be protected from personal liability for debts

of the business, should it fail. The forgery of his signature exposed his personal

assets to collection of a debt precisely along the lines of what the limited liability

statute was intended to prevent.

      Nor did the judge's decision denying the motion for summary judgment

explain the reason Scheffey's three- or four-month use of a warehouse—the only

use he made of the premises over several years—might be dispositive, or why

she otherwise found that there was any conflict of material fact. In reality, there

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                                         17
was no genuine issue of material fact and as a matter of law, Scheffey was

entitled to dismissal of the third amendment to the third complaint.

      In the absence of any proof of an agency relationship, or the appearance

of one, as a matter of law, the motion should have been granted.

                                        II.

      Scheffey contends for the same reasons his motion for directed verdict

should have been granted. We apply the same standard as applicable to the trial

courts. Prioleau v. Kentucky Fried Chicken, Inc., 434 N.J. Super. 558, 569

(App. Div. 2014). "Under Rule 4:37-2(b), a motion for a directed verdict is

granted only if, accepting the plaintiff's facts and considering the applicable law,

'no rational jury could draw from the evidence presented' that the plaintiff is

entitled to relief." Ibid. (quoting Pitts v. Newark Bd. of Educ., 337 N.J. Super.

331, 340 (App. Div. 2001)).

      In light of the absence of any proof of an agency relationship as a matter

of law, no properly charged rational jury could have found in favor of Whitesell.

At the time the motion for directed verdict was made at the close of Whitesell's

case, additional facts had been developed which made denial of the directed

verdict motion even more problematic. For example, Kenneth's bankruptcy

proceedings did not discharge him for the debt to Whitesell. The bankruptcy

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                                        18
court determined at least that Scheffey's forged signature and reliance on

Scheffey's income tax return when negotiating with Whitesell over the lease

without Scheffey's knowledge or consent, did not allow for discharge of the

accelerated lease payments.

      Even if we were to conclude, which we do not, that an agency relationship

existed, Scheffey's silence could not, at the close of Whitesell's case, be

construed by a reasonable jury as ratification of the forged signature. His

silence, for as many months as the silence in the Thermo case, was contingent

upon his understanding that Kenneth was going to pay the debt. Such a payment

would have not changed Scheffey's status but would have benefitted Whitesell.

      In denying the motion for directed verdict, the judge appears to have said

that ratification was a contract principle. She reiterated the definition as being

the affirmance by a person of a prior act which did not bind him but which was

professedly done on his account so as to give third parties the impression it was

originally authorized by him. This definition should not apply to a forgery

where the forger never held himself out as the agent of the principal prior to the

wrongful act.

      The judge equated Scheffey's silence with the hope he could extricate

himself from a failed business on "favorable terms." The terms, however, would

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                                       19
have been favorable only to Whitesell while neutral to Scheffey, an owner

protected by the structure of the limited liability company. The judge also relied

on Shevelew, who did not actually witness any signatures and who claimed,

mistakenly, that he believed Scheffey was a partner when the lease was signed.

She also mentioned Scheffey's use of Solular's warehouse and said that it

bordered on the "inconceivable" that he would not have known he was on the

lease. When counsel reminded the judge that no one alleged Scheffey had

knowledge of the lease terms, she did not directly address counsel's correction,

only stating that she was "not satisfied that there's no benefit to . . . Scheffey."

      Essentially, the judge's decision appears to have been grounded on her

mistaken belief that Scheffey knew about the personal guarantee language in the

lease. This error of fact, and her enumeration of other possibilities, was not the

analysis the directed verdict rule requires. Furthermore, as a matter of law, she

assumed an agency relationship when none existed. She should have granted

Scheffey's motion.

      Accordingly, we reverse on the cross-appeal and do not reach Whitesell's

points on appeal. The motion for summary judgment should have been granted,

as should the motion for directed verdict.

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      We vacate the jury's verdict, reverse denial of the summary judgment and

directed verdict motions, and dismiss the complaint as to Scheffey.

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