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Rotenberg Meril Solomon Bertiger & Guttilla, P.C. v. KRS Certified Public Accountants, LLC

2005 WL 1252541 (N.J. Super. Ch. Div. 2005) (Unpublished)

CORPORATIONS; SHAREHOLDERS; CAPITAL ACCOUNTS—Under N.J.S.A. 14A:17-13, a court may order the return of the shareholder capital accounts either: 1) within three hundred and seventy-five days following the death of a shareholder; or 2) within ninety days following a shareholder’s disqualification to own shares in the corporation.

Three certified accountants worked for a public accounting firm and were also shareholders in the firm. They became dissatisfied with their employment and decided to open up their own accounting firm. Each resigned at the same time and they opened up their own firm shortly thereafter. Their prior employer sued them alleging various causes of action, including breach of the implied covenant of loyalty and fiduciary duty, fraudulent concealment by a fiduciary, illegal and unfair competition, and tortuous interference with contractual relationships. The former employer alleged that prior to the accountants’ departure, they had solicited existing clients to terminate their business relationship and transfer their business to their new accounting firm. The former employer also alleged that the accountants had engaged in employee pirating by soliciting its employees to leave and join their new firm, causing several of the employees to violate non-compete agreements. In addition, the former employer contended that, prior to leaving, the three accountants used company time to plan their new accounting firm and as a result, deprived it of revenue. The three accountants filed a counterclaim seeking payment of their capital accounts. They contended that they were entitled to receive payments from the capital accounts within ninety days after their resignation. They also sought damages for defamation based on slander per se, claiming that, after their departure, the firm made disparaging remarks about them. The employer moved to dismiss the counterclaim on the basis that the three accountants failed to state claims upon which relief may be granted.

The Court disagreed that the capital accounts had to be returned, but wouldn’t grant relief to the former employee with respect to the defamation action. It discussed the provision of N.J.S.A. 14A:17-13 which grants a court the power to direct the return of capital accounts under certain circumstances. That statute provides that a court may order the return of the accounts either: 1) within 375 days following the death of a shareholder; or 2) within 90 days following a shareholder’s disqualification to own shares in the corporation. The Court held that, under the statute, it had no power to direct the return of the accounts because neither death or disqualification of the accountants had occurred. As a result, it granted summary judgment to the employer with respect to this issue. As to the accountants’ claim for defamation, the Court found that only four types of slander qualify as slander per se: 1) accusing another of having committed a criminal offense; 2) accusing another of having a loathsome disease; 3) accusing another of engaging in conduct, or having a condition or trait, incompatible with his or her business; and 4) accusing another of having engaged in serious sexual misconduct. In support of the defamation claim, the three accountants had alleged that the employer had conversations with clients in which they made malicious statements about the accountants’ new firm, such as it had no clients, resources or staff. The Court found that these statements did raise an issue of material fact with respect to the third category of slander per se. For that reason it wouldn’t grant summary judgment in favor of the former employer with respect to the counterclaim for defamation.

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