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Cotter v. Devino

A-3372-98T5 (N.J. Super. App. Div. 2000) (Unpublished)

CORPORATIONS; SHAREHOLDERS; AGREEMENTS—In the absence of a governing written agreement, just because one shareholder appears to have “disappeared” from the scene when the need for capital contributions became apparent, doesn’t mean that the “missing” shareholder is not entitled to its share of the corporation’s assets and profits.

Two individuals entered into an oral agreement to form a partnership to redevelop a 44-acre industrial property. One of them provided his background as a contractor-builder (Contractor), while the other provided his experience in real estate management (Manager). Part of the agreement was that the Manager would process the paperwork while the Contractor would pay the necessary fees. Both, however, “would be equal partners sharing in the liabilities and profits.” There was no writing memorializing this agreement. Several months later, the individuals formed a corporation to replace their partnership. Both were listed as directors on the certificate of incorporation. Paperwork filed with a local redevelopment authority (Authority) showed that each individual held a 50 percent stake in the corporation. By resolution, the corporation was designated as the redeveloper of the property; however, 1-1/2 years later, the Authority rescinded the designation because there was no communication between the redeveloper and the Authority. Several years later, the corporation and the Authority entered into a settlement which provided, in part, for reinstatement of the corporation’s development rights. During the period between the initial meeting of the individuals and the settlement with the Authority, the Manager spent significant time attempting to regain the development rights, but spent relatively little money. During the same period, however, the Contractor had spent up to $40,000 on legal fees and over $300,000 on site work. Several years later, the corporation closed title to the site and paid ten percent down on the $1.3 million purchase price. The Contractor subsequently began paying monthly payments on the mortgage. The Contractor believed that the Manager “disappeared from the scene after the settlement.” Because of the lack of communication between the Contractor and the Manager and the belief by the Manager that the Contractor was trying to defraud him, the Manager sued alleging corporate oppression, corporate deadlock, breach of fiduciary duty, and conversion, and sought the appointment of a special fiscal agent, an accounting, sale of stock, fifty percent of the profits of the corporation, damages, and attorney fees. The lower court granted the Contractor’s motion for summary judgment on these claims and the Manager appealed. The Appellate Division recognized that a hallmark of summary judgment is that “all reasonable doubts as to the presence of genuine issues of fact are to be resolved against the movant.” It reversed and remanded because “a doubt [was] created by the limited state of the record.” It held that “the polestar for construing an agreement, whether oral or in writing, is to discover the intention of the parties.” Here, “the undisputed agreement between the parties was not in writing, [and therefore] we cannot know the full measure of what the parties actually agreed to, or what their actual intent was when they consented to become partners and undertook to act in furtherance of their agreement.” “[I]t is unclear whether [the Contractor] could reasonably have expected [the Manager] to contribute to the substantial acquisition and development costs being expended for the evolving project.” For this and other reasons, “plaintiff was entitled to all reasonable inferences from the evidence presented in support of his claim to a 50% interest in the corporation.”

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