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Trimarco v. Trimarco

396 N.J. Super. 207, 933 A.2d 621 (App. Div. 2007)

CORPORATIONS; DERIVATIVE ACTIONS; ATTORNEY’S FEES — Where a shareholder files a derivative action and also includes claims of a personal nature, such as for wrongful termination, only the attorney’s fees attributable to that part of the derivative action seeking to bring a benefit to the shareholders, as a group, are reimburseable to the shareholder who brought the derivative action.

A closely-held corporation owned and operated a shopping center comprising two buildings and a parking lot. The corporation was held in one-sixth shares by six cousins. One cousin died and his widow then shared management responsibilities with her sister-in-law. The widow worked under an employment contract for six months, at which time she was fired for alleged misconduct. The widow claimed that she was fired because she discovered evidence of misconduct and improper use of corporate funds by her sister-in-law and two of the other shareholders. The widow sued the corporation for wrongful termination and also alleged derivative claims on behalf of the other shareholders for improper use of corporate funds, mismanagement, and usurping corporate opportunities. During the course of the litigation, the old board was ousted. The widow was elected president. When she attempted to pay her legal bills with corporate funds, on the theory that the fees were incurred for the benefit of the corporation and the other shareholders, the corporation opposed the expenditure and filed an order to show cause. The lower court found that reimbursement was premature, but was possible in the future since the suit was filed for the benefit of the corporation and its shareholders. While the case was proceeding, the widow discovered that her sister-in-law had acquired a parcel of land contiguous to the shopping center in her own name and planned to move the shopping center’s anchor tenant to that parcel. The case was eventually settled and the sister-in-law was required to transfer title to that parcel to the corporation. The widow then applied for reimbursement. The lower court determined that she was entitled to reimbursement of attorneys’ fees under Rule 4:42-9(a)(2) because her actions created, preserved or increased property to the benefit of a class in which she was a member. As a result of her suit, a new board of directors was elected, the anchor tenant was not lost, and the contiguous parcel was conveyed to the corporation. The settlement resulted in benefits to the corporation and its shareholders, not just to the widow. However, the lower court ruled that a portion of the legal fees was attributable to her wrongful termination suit which did not confer a benefit to the other shareholders. Therefore, it reduced the amount of the reimbursement.

The sister-in-law appealed, but the Appellate Division affirmed. The Court found that the corporation received tangible benefits as a result of the litigation, including new officers and directors, title to a parcel of land that would generate an income stream, and the retention of its anchor tenant. The Court determined that, under those circumstances, the lower court did not abuse its discretion in allowing reimbursement of attorneys’ fees. The Court rejected the sister-in-law’s argument that the widow was not entitled to reimbursement because of her unclean hands. It held that allegations of misconduct against the widow were never proved and were in fact dismissed as part of the settlement. The Court also noted that, during settlement discussions, the sister-in-law knew that the widow intended to pursue reimbursement of her attorneys’ fees, but the sister-in-law did not preserve the right to contest that reimbursement when agreeing to the settlement.

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