ALLIED MANAGEMENT, INC. v. SCOTT MAYBAUM

 

NOT FOR PUBLICATION WITHOUT THE

APPROVAL OF THE APPELLATE DIVISION

SUPERIOR COURT OF NEW JERSEY

APPELLATE DIVISION

DOCKET NO. A-4056-04T24056-04T2

ALLIED MANAGEMENT, INC., a

Corporation of the State of

New Jersey,

Plaintiff-Appellant,

v.

SCOTT MAYBAUM,

Defendant-Respondent.

________________________________

 

Argued: January 10, 2006 - Decided March 7, 2006

Before Judges Axelrad, Payne and Sabatino.

On appeal from the Superior Court of New Jersey, Law Division, Morris County, L-1139-03.

Richard E. Brennan argued the cause for appellant (Drinker, Biddle & Reath, attorneys; Mr. Brennan, on the brief).

Robert A. Smith argued the cause for respondent (Smith & Doran, attorneys; Mr. Smith, on the brief).

PER CURIAM

Plaintiff Allied Management, Inc. appeals from a judgment in favor of defendant, Scott Maybaum, on its claim of diversion of a corporate opportunity following a bench trial. During the trial it was established that Allied, a property management company, was 100% owned and controlled by Kenneth Friedman. Allied and its affiliated single-purpose companies owned and operated, directly and indirectly, several franchises in North Jersey, including Bottle King liquor stores and Dunkin Donuts.

In 1986, upon graduation from college and marriage to Friedman's daughter Lauren, Maybaum became employed by Friedman and was given the title of Vice President of Allied. Maybaum performed bookkeeping and office work for Allied and was provided with a company car, a gas card and an American Express card. Maybaum worked mostly out of Allied's office, where he had a desk next to Friedman's, and through 1996 he and his father-in-law had a very close personal and business relationship. During that time Maybaum's responsibilities grew, and Friedman eventually allowed him to operate two liquor stores and assist him in locating suitable investment and retail properties for acquisition.

In mid to late 1996, Maybaum and his wife began having marital problems, which impacted on his business relationship with his father-in-law. By March 1997, the relationship had reached the point where Friedman had made it clear that Maybaum was no longer welcome at Allied. Friedman told the employees and suppliers to no longer report to Maybaum, stripped him of all job duties, severely cut his salary, cancelled his company credit card, changed the locks at some of the business premises, disconnected his computer, and assigned someone else to work at his desk. In a letter dated May 19, 1997, Maybaum recounted these facts to Friedman and, for all intents and purposes, Maybaum tendered his resignation from Allied.

Maybaum's college friend Jeremy Isaacs was a real estate broker for Schuckman Realty, which dealt mainly with commercial properties on Long Island. Around the time Maybaum wrote his formal letter of resignation, he contacted Isaacs seeking retail space on Long Island for a potential liquor store lease. The court found that Maybaum met with Isaacs and first viewed a Petsmart building on Hempstead Turnpike in Levittown (Long Island), New York on May 27, 1997. Maybaum and Isaacs planned to purchase the building as partners, with Maybaum operating a liquor store in approximately 10,000 square feet and Isaacs leasing out the remaining 8,000 square feet. On that date, Isaacs made an offer to the seller, Norman Weinstein, on behalf of himself and "Scott Maybaum of Allied Management," which was accepted.

A contract of sale was executed between Weinstein and LT Purchase, LLC, the entity formed by Maybaum and Isaacs, around October 24, 1997. The contract made no mention of Allied and no financial documents of Allied were requested or relied upon by Weinstein in negotiating the deal. Following closing in November 1997, Isaacs placed a "for lease" sign in the window of the building, prompting a lease-purchase offer for the entire premises to be made by the adjacent Ford dealership, which the partnership accepted. Thus, the partnership was able to "flip" the property, and Maybaum and Isaacs each received a profit of $664,000 cash and $2,500 a month in rental payments.

Friedman became aware of Maybaum's financial gain from the Long Island property in connection with Lauren's divorce action. Friedman filed this action, asserting that as vice-president of Allied, Maybaum had diverted a business opportunity to which it was entitled, and sought as damages the profits Maybaum had received from the sale of the Long Island property.

Following trial, the court articulated its findings of fact and credibility assessments, analyzed in the context of the corporate opportunity doctrine set forth in Valle v. North Jersey Auto Club, 141 N.J. Super. 568 (App. Div. 1976). Valle requires a plaintiff to prove each of the following elements:

(1) that there is presented to a corporate officer a business opportunity;

(2) that the corporation is financially able to undertake that opportunity;

(3) that the opportunity is, by its nature, in the line of the corporation's business and is of practical advantage to it;

(4) that the opportunity is one in which the corporation has an interest or a reasonable expectancy; and

(5) that by embracing the opportunity, the self-interests of the officer will be brought into conflict with the interests of the corporation.

[Id. at 573.]

Having found plaintiff satisfied only the second element, i.e., financial ability to avail itself of the opportunity, the court concluded that Maybaum did not breach a fiduciary duty to Allied. Accordingly, the court entered judgment on Maybaum's behalf.

On appeal, plaintiff contends the trial court committed reversible error in "erroneously overreading the requirements that a plaintiff must establish in a corporate opportunity case." More particularly, plaintiff claims the trial court erred by: (1) finding Maybaum was not a corporate officer of Allied; (2) holding the diverted opportunity must be "essential" to the complaining corporation's business; and (3) accepting Isaacs' explanation that his reference to Maybaum as being "of Allied Management" was a clerical error and concluding it was not important to Weinstein in the sale of the Long Island property. Plaintiff further contends the trial court erred in concluding that Maybaum "had the right to do what he did to further his own career path."

We are satisfied there is ample support in the record for the trial court's factual findings and credibility assessments, and we discern no misapplication of the law warranting reversal of the judgment. Rova Farms Resort, Inc. v. Investors Ins. Co., 65 N.J. 474, 484 (1974) (An appellate court should not second guess the factual findings and legal conclusions of the trial judge unless "they are so manifestly unsupported by or inconsistent with the competent, relevant and reasonably credible evidence so as to offend the interests of justice."). We affirm substantially for the reasons articulated by Judge Deanne Wilson on the record following the bench trial. We add the following comments.

As to the first prong of the corporate usurpation doctrine, although Maybaum was given the title of vice-president by his father-in-law, the court analogized his position, in the banking context, to a "manager of the tellers." The court found that Maybaum had virtually no decision-making capacity, as Friedman admittedly reserved all important management decisions of Allied for himself, and Maybaum's job responsibilities were more in the nature of an employee than of a corporate officer. Even if Maybaum had some degree of corporate responsibility during his tenure at Allied, by May 27, 1997, the date the court found Maybaum and Isaacs first looked at the Long Island property, Maybaum was not functioning as a vice-president of Allied or in any other capacity recognized by that company. Maybaum may have retained his corporate title as a formality and received a nominal salary from Allied through May 31, 1997, but he had no authority within the Allied organization. As a practical matter, by the time of his resignation, Maybaum was not even viewed as an employee of Allied; he had no day-to-day responsibilities and did not even have an office to report to or a desk from which he could work.

This finding is not inconsistent with the offer for the Long Island property being conveyed to Weinstein on behalf of Isaacs and "Scott Maybaum of Allied Management." Isaacs explained how he had inadvertently linked the names "Maybaum" and "Allied" in the offer document. According to Isaacs, several years prior, his assistant had inputted one of Maybaum's business cards into Isaac's rolodex computer program. When Isaacs asked his assistant to generate a letter to Weinstein offering to purchase the property on behalf of Maybaum and himself, the information from Maybaum's business card automatically came up and was inserted in the letter. Isaacs testified it was a mistake, he knew Maybaum was no longer with Allied and he had no intention whatsoever of misleading anyone. The court credited Isaacs' explanation, noting it was familiar with the Rolodex program, and concluded that the initial reference to Allied in the offer was not done in bad faith.

The court then analyzed Weinstein's testimony and concluded that although the seller may have initially placed some reliance upon the use of Allied's name, its creditworthiness played no role in the ultimate sale. Weinstein conducted no investigation of Allied other than to find out it was a family-owned business with a number of locations in New Jersey and used the Bottle King name. The court further noted that the October l997 contract made no mention of Allied, Weinstein had no conversations with anyone from Allied and there were no financial documents of Allied submitted or requested by Weinstein. Moreover, more than a month before the closing, Weinstein had the application to assume the existing mortgage, which had been signed by Maybaum and Isaacs on behalf of their partnership, and knew Allied was not involved in the financing or the purchase of the property. Maybaum and Isaacs testified they each had to come up with $100,000 in cash and each borrow $150,000 to fulfill their obligations to purchase the property. This record clearly supports the court's conclusion that Maybaum did not use the good name and creditworthiness of Allied in order to secure an advantage in the Long Island purchase transaction, nor did he exploit a corporate opportunity by utilization of any of Allied's funds.

As to the third prong, the court found that a liquor store in the state of New York was simply not, by its nature, in the line of Allied's business. It was undisputed that all of the enterprises managed or operated by Allied and its affiliates were located in northern New Jersey, and Allied had no established practice of investing outside of this state. Although Friedman had made some preliminary inquiries in Westchester, as of l997 Allied had never purchased property in New York and had no businesses or employees there; nor did it have any liquor licenses, or own, operate or manage any liquor establishments in New York. In fact, Allied's total absence from the State of New York was a primary reason Maybaum decided to look to Long Island for a business opportunity upon the breakup of his marriage and the termination of his relationship with Friedman and Allied. Accordingly, the business venture that Maybaum and Isaacs sought to pursue in Long Island was not within the established geographic scope of Allied's business.

In connection with this prong, the trial judge merely noted in passing, as "something that [c]ourts consider," that the opportunity offered to Maybaum to own a commercial piece of property and operate a liquor store in Long Island was not "essential" to the running of Allied's business. Both parties discuss at length whether a business opportunity must be "essential" to qualify under the usurpation doctrine. We need not address this issue, however, as it was not pertinent to the court's determination because the Long Island opportunity was so outside of the mainstream of Allied's business that no liability could attach, regardless of whether essentiality was required as a matter of law.

 
Affirmed.

In litigation before Judge Zucker-Zarett, Maybaum sued Allied for compensation from May l996 through May l997 and was awarded $28,027.96. Though the order states "to" May l997, all parties agree this was a clerical error; the order should have stated "through" May l997.

(continued)

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A-4056-04T2

March 7, 2006