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DeMarco v. DeMarco

A-6573-05T3 (N.J. Super. App. Div. 2007) (Unpublished)

CORPORATIONS; SHAREHOLDERS — Where shareholders have agreed not to sue each other for anything that may have taken place prior to their agreement, even seeking an accounting or damages years later may be barred by that agreement to the extent that such action, or any testimony in such action, might be based on alleged misconduct prior to the settlement.

A shareholder sued his brother and sister, alleging corporate misconduct in their family owned business. The three siblings each held a one-third share of the business. The following year, the shareholder’s wife brought a personal injury action against her brother-in-law for an alleged assault. The shareholder and his brother subsequently settled the two matters. The shareholder’s brother agreed to pay his brother’s wife forty thousand dollars each year for fourteen years. According to the settlement, the originally suing shareholder, or any beneficial owner of his shares, was to abstain from bringing any actions against the other two shareholders or their company. The settlement contained a discharge notice which released the shareholder’s brother from having to continue the payments to his sister-in-law if such an action were brought. Roughly eight years later, the shareholder again sued his brother, sister, and the corporation, seeking injunctive relief as well as an accounting and damages. In a subsequent action brought by the shareholder’s wife against her brother-in-law, the lower court found that the action commenced by the shareholder, who had since passed away, violated the settlement and that the obligation for the shareholder’s brother to continue making payments to his sister-in-law was no longer in effect. The lower court interpreted the agreement, in part, to preclude any actions or testimony against the shareholder’s brother based on any alleged misconduct that had occurred prior to the execution of the settlement and noted that the shareholder’s suit against his brother included such allegations

On appeal, the Court rejected the shareholder’s wife’s argument that her husband’s most recent dispute with his siblings was not technically an action or a lawsuit. The Court also rejected the shareholder’s wife’s argument that she did not possess the kind of interest in her deceased husband’s shares that was specified by the settlement. In doing so, the Court pointed to the deceased shareholder’s wife’s pre-trial stipulation in which she had acknowledged her interest in her husband’s shareholdings. The Court refused to consider her argument that the discharge clause was flawed because it was never raised at trial. The shareholder’s wife additionally argued that the settlement only applied to claims for damages, but not for injunctive relief. The Court rejected her argument and found that no such differentiation existed in the settlement. As a result, all of the lower court’s findings were affirmed.

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