Court Opinion

ID: 9912929
Source: CourtListenerOpinion
Date Created: 2023-12-26 15:05:49.484713+00
Date Added: 2024-06-11T13:06:21.622349
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NOT FOR PUBLICATION WITHOUT THE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-3996-21

JAIME G. WILLIAMSBERG,
f/k/a JAIME G. WEINBERG,

          Plaintiff-Respondent/
          Cross-Appellant,

v.

APARRI, LLC and JAN R.
WEINBERG,

     Defendants-Appellants/
     Cross-Respondents.
_________________________

                   Argued November 6, 2023 – Decided December 26, 2023

                   Before Judges Sabatino and Marczyk.

                   On appeal from the Superior Court of New Jersey, Law
                   Division, Mercer County, Docket No. L-0457-17.

                   Jonathan M. Preziosi argued the cause for defendants-
                   appellants/cross-respondents (Lewis Brisbois Bisgaard
                   & Smith, LLP, attorneys; Jonathan M. Preziosi, Brian
                   Deeney and Colman Preziosi, of counsel and on the
                   briefs).

                   Deirdre T. Cooney argued the cause for plaintiff-
                   respondent/cross-appellant (Walsh Pizzi O'Reilly
             Falanga, LLP, attorneys; Marc Denis Haefner, of
             counsel and on the briefs; Deirdre T. Cooney, on the
             briefs).

PER CURIAM

      This litigation concerns an intrafamily dispute over a limited liability

company that owns a mixed-use real estate parcel in Princeton. For the reasons

that follow, we affirm the trial court's determinations and reject both the appeal

and cross-appeal.

                                         I.

      The property in question has been owned by a New Jersey limited liability

company, defendant Aparri, LLC ("the LLC"), formed in June 2001. Originally

the LLC had three members with equal one-third shares: defendant Jan R.

Weinberg ("Jan"), his then-wife Joy T. Weinberg ("Joy"), and their son, plaintiff

Jaime G. Weinberg, now known as Jaime G. Williamsberg ("Jaime").1 Part of

the premises has been rented to residential tenants and another portion utilized

for the family's real estate business.

      In 2006, Jan and Joy divorced. In 2013, Joy failed to make a capital

contribution requested by Jan, which resulted in her being expelled from the

1
   To avoid confusion, we use first names for these individuals with common
surnames, as do the briefs and the trial court decisions. No disrespect is
intended.
                                                                            A-3996-21
                                         2
LLC. Her ownership interest in the LLC was then equally divided between Jan

and Jaime, leaving them each with 50% ownership.

      Then, in 2015, Jaime notified Jan he was withdrawing from the LLC and

demanded to be paid the fair market value of his 50% interest, pursuant to the

terms of the operating agreement the members signed the day the LLC was

formed.

      Jan rejected Jaime's payment demand, asserting that Jaime was due

nothing on his withdrawal. Jan contended the buyout provision in the original

operating agreement was included by mistake by the attorney who drafted it in

2001. Jan alleged that a revised operating agreement, which did not contain a

buyout provision, was prepared by an attorney and executed by the three

members the week after the original was signed. However, Jan was unable to

produce a signed copy of the alleged amended version. Nor was the attorney

able to find a signed copy of the amended agreement in her files, having only a

signed copy of the original version.

      Under Jan's protest, the parties retained an appraiser. Jaime agreed to that

appraiser's valuation of the LLC and requested payment of half the amount. Jan

continued to decline payment and asserted that the amended agreement entitled

Jaime to nothing.

                                                                            A-3996-21
                                        3
        Consequently, Jaime filed this lawsuit against Jan and the LLC in the Law

Division to collect payment for his interest in the company. After the trial court

bifurcated the case, the trial court held two successive bench trials, the first to

establish which of two alleged LLC operating agreements is enforceable, and

the second to value Jaime's interest in the LLC.

        In the first trial, the court ruled the original executed operating

agreement—and not the unsigned amended version asserted by Jan—contained

an enforceable buyout provision entitling LLC members, who voluntarily

withdraw, to payment of the fair market value of their interests. The court

applied a clear-and-convincing evidentiary standard to Jan's proof of the

allegedly lost document, rather than a preponderance-of-the-evidence standard

that Jan had advocated.

        In the second trial, presided over by a different judge,2 the court heard

competing testimony by experts for both sides. Jaime's experts advocated an

asset-based approach which valued the LLC at $594,000, and defendants' expert

advocated an income-based "going concern" approach that valued the LLC at

$221,500. The judge adopted the method of Jaime's experts, which valued

2
    The first and second judges are both now retired.
                                                                             A-3996-21
                                         4
Jaime's one-half interest as $297,000.       However, the judge denied Jaime's

request for a discretionary award of prejudgment interest.

      The LLC and Jan have appealed, arguing the trial court erred in rejecting

the amended operating agreement and in its valuation of Jaime's interest. Jaime

cross-appeals the denial of prejudgment interest.

                                       II.

      The scope of our review of the trial court's decisions that followed these

two non-jury trials is guided by well-settled principles. "Findings by the trial

judge are considered binding on appeal when supported by adequate, substantial

and credible evidence." Rova Farms Resort, Inc. v. Invs. Ins. Co., 65 N.J. 474,

484 (1974) (considering the scope of appellate review in a civil non-jury case).

"Deference is especially appropriate when the evidence is largely testimonial

and involves questions of credibility." Cesare v. Cesare, 154 N.J. 394, 412

(1998).   However, "[a] trial court's interpretation of the law and the legal

consequences that flow from established facts are not entitled to any special

deference." Manalapan Realty, L.P. v. Twp. Comm. of Manalapan, 140 N.J.

366, 378 (1995).

                                                                          A-3996-21
                                       5
                                        A.

      The first issue we address is Jan's appeal of the trial court's determination

that the original operating agreement, rather than the alleged amended

agreement, controls the disposition of Jaime's interest. For context, we briefly

describe pertinent aspects of the LLC statutory scheme.

      LLCs may operate by the default rules of the Revised Uniform Limited

Liability Company Act, N.J.S.A. 42:2C-1 to -94 (the "RULLCA"), or by a

custom agreement, called an operating agreement, that must incorporate some

default rules but may rewrite others. N.J.S.A. 42:2C-11(b). Relevant here,

operating agreements may customize the process and rights of member

withdrawal.3 See N.J.S.A. 42:2C-11.

      The RULLCA "is to be liberally construed to give the maximum effect to

the principle of freedom of contract and to the enforceability of operating

agreements."    N.J.S.A. 42:2C-11(i).        "The statute thus encouraged LLC

members to collectively devise an individualized governance and management

plan that best advanced the goals of their business." IE Test, LLC v. Carroll,

3
  By default, members may "dissociate" from an LLC when "[t]he company has
notice of the person's express will to withdraw as a member." N.J.S.A. 42:2C-
46. "When a person is dissociated . . . any transferable interest owned by the
person immediately before dissociation in the person's capacity as a member is
owned by the person solely as a transferee." N.J.S.A. 42:2C-47(a).
                                                                             A-3996-21
                                        6
226 N.J. 166, 177-78 (2016) (commenting on the LLCA, the precursor statute to

the RULLCA, albeit both have identical purpose statements).

      "[A] draft operating agreement does not become the operating agreement

of an LLC unless it is 'the agreement . . . of all the members of' the LLC, N.J.S.A.

42:2C-2, . . . ." Premier Physician Network, LLC v. Maro, 468 N.J. Super. 182,

194 (App. Div. 2021). "The Act does not specify how the members must

indicate their agreement to a draft operating agreement in order to render it

effective." Id. at 195. The Act "does not require their agreement to be bound

by an operating agreement be in writing or that it be executed by them. In fact,

the operating agreement itself need not be written and may be oral. N.J.S.A.

42:2C-2." Ibid. Jan and the LLC contend the revised operating agreement was,

in fact, signed by all three LLC members, even though Jan has been unable to

locate an executed copy.       Their argument implicates the so-called "lost

document" doctrine of commercial law.

      For decades, New Jersey generally has required that, to prove the terms of

a lost document claimed to be an enforceable agreement, the proponent of the

missing agreement must prove its existence with clear and convincing evidence.

See, e.g., Zuckermandel v. Zuckermandel, 135 N.J. Eq. 598, 598-99 (Ch. 1944)

(finding insufficient evidence to prove by "clear" and "convincing" evidence

                                                                              A-3996-21
                                         7
that a lost instrument conveyed a business interest between spouses); Farber v.

Plainfield Tr. Co., 136 N.J. Eq. 183, 185 (Ch. 1945) (requiring the proponent of

a lost agreement with a railroad company granting the proponent access to

railroad tracks to prove the lost agreement's existence with "clear and

convincing" evidence).

      Defendants contend the trial court should have applied to this issue the

lesser evidentiary standard of a preponderance of the evidence. In that vein,

they cite to an older Chancery case, Maddock v. Connolly, 82 N.J. Eq. 533 (Ch.

1913), for the proposition that the standard is "reasonably certain" and "cogent"

evidence. However, that case actually states the standard is "clear and cogent,"

which we view is the same as clear and convincing.          82 N.J. Eq. at 534.

Defendants assert this test is effectively the same as a preponderance standard.

Additionally, defendants rely on this court's opinion in Borough of Sayreville v.

Bellefonte Insurance Co., 320 N.J. Super. 598, 603 (App. Div. 1998), which

allowed the existence of an insurance contract to be proven by only a

preponderance of the evidence.

      We agree with the trial court that a clear and convincing burden of proof

applied to defendants' assertion of an enforceable "lost" LLC operating

agreement. We concur with the court that defendants' reliance on Borough of

                                                                           A-3996-21
                                       8
Sayreville is misplaced. In that opinion, we acknowledged that the court in

Zuckermandel had "referred approvingly to other courts which, in establishing

missing 'instruments' by parol proofs, and applied standards of proofs described

as 'clear,' 'cogent,' 'reasonably certain' and 'convincing'". Id. at 603. Adopting

the reasoning of a Delaware federal district court in Remington Arms Co. v.

Liberty Mutual Insurance Co., 810 F.Supp. 1420, 1426 (D.C. Del. 1992), we

chose in Borough of Sayreville to depart—in that insurance policy context—

from those "usual standard[s] in civil matters," because a "typical insurance

dispute" is "unlike those civil cases where the exceptional standard of clear and

convincing evidence was applied." Ibid. We therefore applied a preponderance

standard to the missing insurance policies, "[i]n the absence of any claim of

fraud." Id. at 604.

      In the present case, the trial court reasonably distinguished insurance

policies, as form contracts unlikely to be fabricated, from LLC operating

agreements, which are often non-form documents tailored to the express

intentions of LLC members and which are more susceptible to fraud or

fabrication.   We also are unpersuaded that Maddock v. Connolly, which

preceded the later Chancery opinions in Zuckermandel and Farber, warrants a

lesser burden of proof.

                                                                            A-3996-21
                                        9
      The clear and convincing standard was appropriately applied. Even if,

hypothetically, a preponderance standard applied, we are satisfied the evidence

of a revised agreement presented to the trial court fell short of that mark as well.

      Defendants argue it is implausible to conclude that the parties acted

quickly to pay an attorney to correct the agreement but then did not sign the

amended version. They contend the existence and content of the amended

agreement was proven by: (1) a fax from the attorney who drafted the agreement

attaching corrected pages; (2) a complete but unsigned amended agreement; and

(3) the testimony of the attorney, who authenticated those documents and

testified to making changes at Jan and Jamie's request.            The trial court

nonetheless reasonably concluded that defendants' narrative was not shown to

be as credible as plaintiff's version.

      Among other things, we note that although Jan contended that four copies

of the amended agreement were allegedly signed, he admitted that his own copy

was missing. Despite his decades of business experience, Jan stated he signed

the original agreement without first reading it to confirm it was drafted as he

had requested, and only read it for the first time hours after its execution.

      Jan chose not to ask his ex-wife Joy for her copy ostensibly because of

their divorce, and apparently no third-party deposition notice or subpoena to

                                                                                A-3996-21
                                         10
obtain it was ever served on her. The attorney who drafted the agreements

denied ever receiving a signed copy of an amended version and could find none

in her file.

       Meanwhile, in his own testimony, Jaime denied ever signing or receiving

an amended agreement. Defendants failed to persuade the trial court why, if

Jaime were lying and actually believed the amended agreement existed, he

would logically withdraw from the LLC knowing that agreement would entitle

him to nothing in return for the substantial capital he had invested in it.

       Further, the trial testimony and the LLC tax returns reasonably supported

Jaime's contention that the members adhered to the original agreement by acting

in accordance with Section 4.01(b) of that document in reapportioning Joy's

interest evenly between Jan and Jaime upon her failure to participate in the call

for a capital contribution. Section 10.04(b) of that original agreement prescribed

that the removed member's interest "will be transferred to the remaining

[m]embers pro rata . . . ." (emphasis added). By contrast, the alleged amended

agreement provided in Section 10.04(b) that "[a] Member may be removed with

the unanimous vote of all the other Members, in which event the removed

Membership interest will be transferred [entirely] to Jan R. Weinberg."

(emphasis added). The LLC's tax returns for 2013 through 2015 (the years

                                                                              A-3996-21
                                       11
immediately following Joy's removal in 2013), listed Jan and Jaime as 50%

owners of the LLC, not as 66.6% and 33.3% owners.

      We recognize Jan did assert at trial that "[w]hen Joy [] was no longer a

partner of Aparri LLC her interest should have reverted to me solely, not split

50/50 . . . [per] the revised operating agreement." Nevertheless, the evidence

reasonably shows that the parties—in practice—followed the original, not the

supposedly amended agreement, in removing Joy and in dividing her interest

equally rather than transferring it completely to Jan.

      Applying, as we must, the deference we owe to a trial court's factual and

credibility findings in a non-jury case, Rova Farms, 65 N.J. at 506, we conclude

there is "adequate, substantial, and credible evidence" to support the trial court's

determination that the original operating agreement governed the parties'

relationship when Jaime withdrew and asked to be bought out.

                                        B.

      The second set of issues we address concern defendants' arguments that

the trial court miscalculated Jaime's rightful share after the valuation phase of

the case. Among other things, defendants maintain the trial court erroneously

adopted the net asset valuation method of plaintiff's expert by treating the LLC

akin to a real estate holding company. In addition, defendants argue the trial

                                                                              A-3996-21
                                        12
court incorrectly omitted a property management fee of $80,333.08 allegedly

owed to Weinberg Management Company ("WMC"), an entity controlled by

Jan, and also erred by omitting transaction costs associated with any

hypothetical sale.

      "Our standard of review for valuation disputes is deferential because the

valuation of closely[-]held corporations is 'inherently fact-based[,]' not based in

'exact science,' and 'frequently become[s] battles between experts." Sipko v.

Koger, Inc., 251 N.J. 162, 179 (2022) (alterations in original). "In a bench trial,

the acceptance or rejection of an expert's opinion as to valuation of a

corporation, and the expert's methodology, are matters peculiarly within the

province of the trial court." Denike v. Cupo, 394 N.J. Super. 357, 381-82 (App.

Div. 2007) (reversed on other grounds, 196 N.J. 502 (2008)). "The judge's

findings are thus entitled to great deference and will be reversed only if the trial

judge abused his discretion." Ibid.

      A trial court's valuation should be affirmed if "there is sufficient credible

evidence to support both the method of computation and the quantum of value

determined by the court." Middlesex Cnty. v. Clearwater Vill., Inc., 163 N.J.

Super. 166, 174 (App. Div. 1978). However, "'we need not give deference to

the trial judge's determinations of what discounts or premiums the determination

                                                                              A-3996-21
                                        13
of fair value may include, or must exclude, since they are questions of law.'"

Sipko, 251 N.J. at 179 (quoting Casey v. Brennan, 344 N.J. Super. 83, 110 (App.

Div. 2001)).

      The LLC's governing operating agreement in Section 10.04(a) entitles a

withdrawing member to the sum "determined by multiplying the Member's

Percentage Interest hereto by the fair market value of the Company as of the

close of the month preceding the month in which the Member’s interest is

terminated." (emphasis added). Jaime withdrew from the LLC by letter dated

July 21, 2015, and stated the effective date of his withdrawal was January 21,

2016. Therefore, December 31, 2015 is the undisputed date to value the LLC.

      The operating agreement prescribes that "fair market value shall be

established by a certified public accountant selected unanimously by all the

Members." However, despite the pre-lawsuit real estate appraisal that was

conducted, the parties ultimately could not agree on a valuation of the LLC and

submitted the question to the trial court, which duly considered testimony from

competing experts.

      Fair market value is "'what a willing buyer and a willing seller would agree

to, neither being under any compulsion to act.'" Borough of Saddle River v. 66

East Allendale, LLC, 216 N.J. 115, 136 (2013) (quoting State v. Silver, 92 N.J.

                                                                            A-3996-21
                                      14
507, 513 (1983)).     We are satisfied the trial court reasonably adopted the

approach of plaintiff's expert, who construed the LLC's operations as having

characteristics of a real estate holding company under Section 5(b) of IRS

Revenue Ruling 59-60, and thus its fair market value should be valued by the

properties in its portfolio.

       Defendants cite to various decisions of the United States Tax Court that

expound upon the definition of a real estate holding company. See Est. of

Tanenblatt v. Comm'r, 106 T.C.M. (CCH) 579 (2013) (defining a real estate

holding company as "managed not for current income but, rather, for

appreciation in the value of its holdings"); Est. of Campbell v. Comm'r, 62

T.C.M. (CCH) 1514 (1991) (similarly defining the term as a company that owns

assets for value appreciation, not income). They maintain the definition of a

real estate holding company should be strictly confined to only businesses that

trade real estate for profit.   They argue the LLC's real property was not

purchased for capital appreciation and resale, noting that the LLC generates

income by renting the property to residential tenants and intends to continue

doing so. Hence, they submit the LLC is an operating company, not a holding

one.

       Although defendants' arguments in this regard are not without probative

                                                                         A-3996-21
                                      15
force, the trial court nevertheless had adequate grounds for choosing to adopt

the net asset method of plaintiff's experts. With regard to IRS Revenue Ruling

59-60's definition of a real estate holding company, the IRS recommends that

"'all available financial data, as well as all relevant factors affecting the fair

market value, should be considered.'" Bowen v. Bowen, 96 N.J. 36, 44 (1984)

(quoting Rev. Rul. 59-60 at § 4.01). "Generally, greater weight will be given to

earnings factors for those companies that sell products or services, and to asset

values for investment or holding companies." Ibid. "No formula can be devised

that will be generally applicable to the multitude of different valuation issues

arising in [the valuation of closely held companies]." Rev. Rul. 59-60 at § 3.01.

This IRS guidance encourages tailoring valuations to the particular structure of

the business to be valued, not to force the business into a predetermined

valuation framework.

      The trial court adopted such a business-specific valuation approach

encouraged by the IRS.      Plaintiff's valuation experts recognized the LLC's

income derived entirely from one asset, the Princeton property, whose value was

readily estimable from transactions of similar real estate. This comported with

the IRS's statement that "[t]he value of a closely held investment or real estate

holding company . . . is closely related to the value of the assets underlying the

                                                                            A-3996-21
                                       16
stock." Rev. Rul. 59-60 at § 5(b). An expert for plaintiff reasonably discounted

the real estate appraisal by 10% to consider the challenges associated with

marketing a closely-held business, and declined to make further adjustments

after reviewing the LLC's financial documents, deposition testimony from this

litigation, and industry research.

      On the other hand, the trial court reasonably rejected the opinion of

defendants' valuation expert as "def[ying] logic" by suggesting the value of the

LLC is $221,500. As the court observed, no "willing seller" would realistically

accept less for its business than the seller could obtain by selling its only asset,

here the Princeton property. This reasoning is sensible and we decline to

overturn it.

      In addition, we are unpersuaded by defendants' contention that the court

was required under Musto v. Vidas, 333 N.J. Super. 52 (App. Div. 2000), to

adopt a going-concern valuation method to determine this particular LLC's fair

market value. We qualified our discussion in Musto by saying that "[g]enerally"

in valuation cases a closely-held corporation "must be valued as a going

concern." Id. at 63. We did not rule out in Musto possible exceptions to that

general principle. Defendants cite to no other published New Jersey cases

applying Musto, and the out-of-state cases they rely upon are not binding.

                                                                              A-3996-21
                                        17
      As our first opinion in that case noted, Musto involved a multi-state

engineering firm with two divisions and offices located in six states and the

District of Columbia. 281 N.J. Super. 548, 551 (App. Div. 1995). The enterprise

employed as many as 500 people with annual revenue of up to $25 million. Id.

at 553. The present matter, involving a single parcel in Princeton and a family-

owned-and-operated LLC with no apparent additional employees, is not a

comparable "going concern." Although we need not here delineate all of the

possible applications of and exceptions to Musto, we simply conclude that the

trial court did not manifestly err in adopting the net asset valuation approach in

this particular case.

      Further, the trial court reasonably declined to adjust the LLC's value by

subtracting transactional costs attendant to a hypothetical sale of the property

contemplated by the valuation analysis. Testimony by plaintiff's expert, as

relied on by the trial court, sufficiently established why such costs need not be

subtracted from the valuation of the property.

      Nor was the trial court obligated to reduce the LLC's value by a sum

allegedly owed to WMC for deferred property management fees. At trial, Jan

was unable to produce written consent from the other LLC members authorizing

him to borrow funds on behalf of the LLC, as required by the operating

                                                                            A-3996-21
                                       18
agreement. The trial court reasonably found Jan's testimony about the unpaid

fees was not persuasive, and the spreadsheet reflecting this alleged debt was

insufficient to establish the debt's existence.

                                         C.

      Turning briefly to plaintiff's cross-appeal, we are unconvinced the trial

court misapplied its wide discretion in declining to award prejudgment interest

in this commercial litigation. "New Jersey case law distinguishes between pre-

judgment interest as a discretionary allowance, and post-judgment interest to

which a litigant is entitled as of right." Interchange State Bank v. Rinaldi, 303

N.J. Super. 239, 260 (App. Div. 1997). "The allowance of prejudgment interest

in a contract action is largely dependent upon the application of principles of

equity." Manning Eng'r, Inc. v. Hudson Cnty. Park Comm'n, 71 N.J. 145, 159

(1976).

      Here, having heard the testimony of the parties in this non-jury

commercial case, the trial court had the opportunity to consider the various

equities at stake and chose to not enhance the judgment for plaintiff with an

award of prejudgment interest.        Moreover, as the trial court noted, the

"Operating Agreement states that Members are not entitled to interest on

                                                                           A-3996-21
                                        19
payments for the value of Membership. Therefore, [Jaime] is not entitled to

interest on payments for the value of [his] membership."

      To the extent we have not discussed them, we have considered all of the

remaining arguments in the parties' briefs and deem them without sufficient

merit to warrant discussion. R. 2:11-3(e)(1)(E).

      Affirmed.

                                                                       A-3996-21
                                     20