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Northern Valley Packaging, Inc. v. Yahchouchi

A-1690-01T1 (N.J. Super. App. Div. 2004) (Unpublished)

CORPORATIONS; SHAREHOLDERS—A court can make a determination as to shareholdings in a corporation without each affected shareholder being a party to the lawsuit if each such non-party has notice of the litigation and an opportunity to be heard.

A verdict was entered against an owner of two corporations. The successful litigant brought suit to collect on the judgment and sought to compel the owner to turn over his stock certificates. It then filed a motion to determine the extent of the owner’s ownership in the corporations. In response, the owner provided the court with a series of documents showing that approximately six years earlier he had transferred forty-nine percent of his interests to his wife. He also produced Federal Income Tax Returns that showed that each owned fifty percent of the corporation. The judgment creditor argued that when it deposed the owner’s wife, she testified that she had no knowledge of the transfer.

The lower court held that the judgment debtor owned ninety-nine percent of one corporation, and one hundred percent of the other. It noted that in the years following the alleged transfer, the judgment debtor repeatedly told others that he owned ninety-nine percent of one corporation, and all of the other. For example, when the judgment debtor borrowed money from a lender, he signed an operating agreement that stated he owned ninety-nine percent of one company. In addition, he completed a borrower’s affidavit that stated that he held a ninety-nine percent ownership interest. He later completed a borrower questionnaire for the other corporation that stated he owned one hundred percent. Finally, one year prior to the trial, the judgment debtor testified during a deposition that he had a ninety-nine percent ownership interest in the first corporation. Although the owner claimed he was under incredible stress during the deposition, the lower court noted that this stress did not exist while he told lenders he was a ninety-nine percent and one hundred percent owner of the corporations, respectively.

The judgment debtor then argued that the court did not have authority to determine his interest because it would then be determining his wife’s interest. Thus, according to this theory, not all of the interested parties were before the court. The lower court disagreed. It held that the wife was well aware of the judgment. Furthermore, she was deposed concerning her interest in the corporations and made no effort to argue that she was one-half owner of either corporation.

On appeal, the owner claimed the lower court erred in entering an order without affording his wife notice and an opportunity to be heard. The Appellate Division affirmed the lower court’s decision, holding that all of the credible evidence, including the wife’s own deposition, demonstrated that she only had a one-percent interest in one corporation. Furthermore, she was well aware of the proceedings because she appeared for the deposition and was represented by an attorney who was familiar with the status of the other company’s efforts to collect on the judgment. Therefore, the Court held that the lower court’s decision should stand because the wife had notice and chose not to be heard.

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