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DOCKET NO. A-5198-08T2


















November 17, 2010


Submitted May 25, 2010 - Decided


Before Judges Skillman and Gilroy.


On appeal from the Superior Court of New Jersey, Chancery Division, General Equity Part, Ocean County, Docket No. C-195-05.


Eckert Seamans Cherin & Mellott, LLC, attorneys for appellant (Daniel B. Markind, on the brief).


Respondents have not filed a brief.



In this dissenting shareholder action, plaintiff Arlene Markind filed a complaint seeking a determination of the fair value of her interest in Holiday Medical Center, Inc. (HMC), pursuant to N.J.S.A. 14A:11-7(2). We previously reversed the trial court's July 16, 2007 order that determined Markind's interest at $80,000 and remanded for the court to address four issues. Holiday Medical Center, Inc. v. Weisman, No. A-0078-07 (App. Div. July 10, 2008). On remand, the trial court entered an order on June 1, 2009, supported by a written decision that increased the value of Markind's interest in HMC to $97,441.10, but otherwise reaffirmed its prior determinations. It is from this order that Markind appeals. We affirm and remand for further proceedings consistent with this opinion.

Because the procedural history and statement of facts leading to the remand were discussed at length in our prior opinion, it is unnecessary for us to detail them here. Rather, the following summary will place this opinion in context.


HMC owned and operated a nursing home facility under the name of "Medicenter Nursing and Rehabilitative Care Center" (Medicenter). Markind owned a 5% interest in HMC. HMC's shareholders elected to be taxed under Subchapter S of the Internal Revenue Code. In 2004, because of significant operational losses, HMC's directors determined that it would be in the best interest of the corporation's shareholders to sell Medicenter "while the assets retained some value." On November 30, 2004, HMC's directors notified Markind that HMC had entered into a tentative contract to sell Medicenter to a non-profit, private school. The notice advised that HMC anticipated netting $2,000,000 from the sale after paying off the existing mortgage and making a charitable contribution to the school.

On January 7, 2005, HMC's directors sent notice to all shareholders advising that there would be a shareholders' meeting on January 31, 2005, to vote for approval of the contract to sell Medicenter's property to the school for $8,000,000. The notice further provided that:

In addition to the purchase price, the Buyer has agreed to pay the prepayment premium associated with the payment of the mortgage (in the approximate amount of $200,000) and all closing costs. The corporation has agreed to donate any cash proceeds from the purchase price in excess of $2,000,000 to the Buyer as a charitable contribution.


On March 1, 2005, HMC sold Medicenter to the school pursuant to the contract of sale. In accordance with the contract, $3,275,464.87 was deducted from the purchase price to pay off the existing mortgage, and $2,895,060.45 was donated back to the school as a charitable contribution. HMC netted $2,000,000 from the sale. Absent her dissent, Markind was to receive approximately $100,000 from the sale proceeds.

On March 23, 2005, Markind dissented from the sale and demanded payment of the fair value of her shares from HMC. N.J.S.A. 14A:11-2(3). On August 4, 2005, not having received an offer from HMC for the value of her shares, Markind filed a complaint pursuant to N.J.S.A. 14A:11-7(2) naming HMC as an indispensable party plaintiff, and naming HMC's majority shareholders, officers, and directors, together with other entities owned by those parties, as defendants.

On November 18, 2005, the trial court granted defendants' motion for partial summary judgment dismissing the complaint as to the individual defendants, but denied the motion to the extent it sought to insulate the directors from any claims of wrongdoing that might be asserted by HMC.1 Markind filed a motion seeking to enjoin HMC from distributing the sale proceeds without court approval. In opposition to the motion, HMC filed a certification from defendant Barton Weisman, a shareholder and member of the Board of Directors of HMC, dated December 29, 2005, in which he certified that HMC had "distributed a substantial portion of the asset sale proceeds to the non-dissenting shareholders," and that HMC was holding approximately $550,000 in an escrow fund that "will be solely . . . used to pay Arlene Markind for the fair value of her shares in Medicenter, to pay for the cost of the litigation related to Markind's demand for a valuation proceeding, and when necessary, for any ordinary operating expenses incurred by Medicenter." At the hearing on January 6, 2006, after learning that distribution had already been made to all other shareholders of HMC, the trial court suggested, and defendants agreed, that they would make distribution to Markind on the same pro rata basis as HMC had made to the other shareholders. On January 13, 2006, HMC paid Markind $80,000, or 80% of her anticipated share of the sale proceeds.

On October 16, 2006, the court entered an order appointing CBIZ Valuation Group, LLC, (CBIZ) to conduct an independent appraisal of Medicenter. CBIZ issued a report determining the value of the corporation in the alternative: 1) a going concern value of $5,540,000; and 2) a liquidation value of $7,000,000. Following receipt of CBIZ's report, Markind filed a motion for partial summary judgment seeking to have the court accept CBIZ's liquidation value as the value for the real estate, and to appoint an appraiser to determine the value of the nursing home license. HMC filed a cross-motion seeking to have the court adopt CBIZ's going concern value as the fair value of HMC. Both parties also sought awards of counsel fees and costs.

On July 16, 2007, the trial court entered an order supported by an oral decision of June 22, 2007, determining that the proper method of valuing HMC was to value it as a "going concern." Based on the going concern method of valuation, the court concluded that Markind was not entitled to any additional compensation for the fair value of her interests in HMC. The court also denied the parties' cross-motions for counsel fees and costs.

Markind appealed, arguing that the trial court erred in determining that HMC's payment of $80,000 represented the fair value of her interest in the corporation, and in denying her request for counsel fees and costs. Holiday Med. Center, supra, (slip op. at 17). Markind contended, among other things, that the court erroneously based its decision as to the fair value of HMC by accepting CBIZ's going concern valuation of $5,540,000, rather than CBIZ's higher liquidation value of $7,000,000. Id. at 17-18.

We concluded that the trial court did not err in using the going concern method of valuation to determine the fair value of the corporation. Id. at 25. We noted, however, that the court had not accepted CBIZ's going concern valuation, but rather had concluded that the proper value was that which was determined in the marketplace by the arms-length sales transaction negotiated in good faith between the school as a willing buyer and HMC as a willing seller. Ibid. That sale price, after allowing for the charitable deduction, resulted in a value of $5,104,939.55. After allowing for payoff of the existing mortgage and other minor costs, HMC netted $2,000,000, of which Markind's 5% interest represented her fair share. Id. at 27. The trial court only used CBIZ's going concern valuation for the purpose of corroborating the contract sale price. Id. at 25. Because we held that the court was not obligated to accept either of CBIZ's appraisals, we found no error by the court using the sale transaction as a means of determining the fair value of HMC. Id. at 28. Nevertheless, we reversed and remanded, concluding that the court had failed to adequately explain its conclusions pursuant to Rule 1:7-4(a). Id. at 28-29.

We directed on remand that the trial court: 1) explain why it used the contract sale price, after allowing for the charitable contribution, rather than CBIZ's going concern valuation in determining the fair value of the corporation when using CBIZ's valuation of $5,540,000 would have increased the value of the corporation by $435,060.45; 2) determine whether the allowance of the charitable contribution to the school resulted in a depressed value of Markind's interest in HMC as compared to the majority shareholders; 3) determine whether Markind was entitled to additional compensation if, on remand, the court reconsidered and accepted CBIZ's going concern value of HMC, or if Markind received a lesser percentage of the sale proceeds than other shareholders; and 4) reconsider Markind's request for counsel fees and costs pursuant to N.J.S.A. 14A:11-10. Id. at 28-32.


Following remand, the parties conducted limited discovery. On June 1, 2009, the trial court issued a written decision that affirmed its previous determinations but modified its initial decision as to the first remand issue, concluding that plaintiff was entitled to $97,441.10 as fair value of her interest in HMC. In addressing the first and second remand issues, the court reasoned in part:

In the context of the positions taken by these parties with respect to fair share valuations, the court invoked the business judgment rule and determined there was no evidence of bad faith or self dealing and that the ultimate sale at $8,000,000 bears out a finding that the ultimate business decision of HMC was reasonable and is consistent with good business practices. . . . The business judgment rule is a rebuttable presumption. It places an initial burden on the person who challenges a corporate decision to demonstrate the decision-makers['] self-dealing or other disabling factor. The court saw no basis to second guess the $8,000,000 sale of a marginally feasible facility which would satisfy a mortgage indebtedness and obligated the buyer to pay the mortgage prepayment penalty and closing costs. Moreover, the sales agreement and its charitable deduction was structured with a willing seller and buyer.


. . . .


On remand, this court reaffirms its opinion that the sale of HMC was one that was free from bad faith, self-dealing or fraud and represented an arms-length transaction with business judgment exercised by the corporate officers and Board of Directors. The court took into consideration the appraisal of CBIZ as a going concern as well as the other hypothetical sales analyses set forth in the charts of the summary judgment motion papers originally filed on behalf of HMC. However, this court modifies its decision only to the extent that it finds that the fair-share value of Markind's 5% interest of $2,000,000 is $97,441.10 which is consistent with distributions made to other 5% shareholders following the sale after deductions for on-going corporate expenses and litigation costs.


Second, the Appellate Division determined that the trial court, in its ruling, did not address plaintiff's challenge to HMC taking the charitable deduction before determining the fair share value of the corporation. The Appellate Division reasoned that because the charitable deduction issue was neither fully explored nor addressed by the trial court, it could not discern whether allowing a charitable deduction resulted in a depressed value to plaintiff's shares as compared to the majority shareholders. Accordingly, the issue was remanded to the trial court to address the appropriateness of allowing the deductions before determining the value of the corporation against which value plaintiff['s] shares are then assessed.


Needless to say, a dissolution or sale of a corporation with several shareholders will necessarily have different tax consequences upon those shareholders given their particular circumstances. The court is not aware of any precedent or case requiring the court to engage in an analysis into the individual tax consequences of each and every shareholder when determining fair value. Regarding this issue, the defendants have maintained that the tax benefit was there for the plaintiff to use if the plaintiff chose to use it.


The Appellate Division in its decision noted that Markind contended that she did not receive any benefits from the charitable deduction as did the majority shareholders. Thus, the Appellate Court could not discern whether the charitable deduction resulted in a depressed value of Markind's shares as compared to the majority shareholders. On remand, the attorneys for HMC attached an e-mail from plaintiff's counsel to defendants' counsel dated November 12, 2008 which, in pertinent part, stated that Markind was put in a position differently from the other shareholders who could offset ordinary income tax at 39% when the best Markind could do was offset a capital gain taxed at [15%] by the deduction.


The court found that [the school] and HMC entered into an arms[-]length transaction that factored into the agreement a charitable deduction. Notwithstanding how the use of the charitable deduction may have affected various shareholders individually, the critical issue is whether, in this case, plaintiff received her fair value [of] her share of the corporation. . . . A board's actions must be evaluated in light of relevant circumstances to determine if they were undertaken with due diligence and in good faith. If no breach of duty is found, the board's actions are entitled to the protection of the business judgment rule.


. . . This court cannot find that the structuring and allowance of a charitable deduction in connection with the subject transaction resulted in a depressed value of Markind's shares as compared to the majority shareholders. The court finds Markind received fair value now modified to [$97,441.10], with a charitable deduction available to a shareholder elected to utilize same.


[(internal quotations and citations omitted).]


In addressing the third remand issue, whether Markind received a pro rata share equivalent to other similarly situated shareholders, the court referenced a chart submitted by HMC, which indicated that other 5% shareholders received $97,441.10. Accordingly, it held Markind was entitled to the same amount, referencing this court's conclusion that "[t]he on-going corporate expenses and litigation costs should be borne equally by all shareholders, and Markind should receive the same percentage that all other shareholders received." Id. at 31. Thus, the court found Markind was entitled to an additional payment of $17,441.10.

In addressing the fourth remand issue, whether Markind was entitled to an award of reasonable counsel fees and costs, the trial court considered supplemental materials that each party had submitted regarding settlement negotiations during the pendency of the action. The court, after providing a summary of the negotiations, determined that HMC exercised its business judgment and made a fair offer to Markind, but that Markind was unreasonable in her settlement demands throughout the litigation. Thus, the court reaffirmed its prior decision that the parties should bear their own expenses.


On appeal, Markind first argues that the trial court erroneously failed to use the $8,000,000 gross contract sale price as the value of HMC in determining the fair value of her interest in the corporation. Markind contends that the court improperly valued HMC by first deducting the charitable contribution to the school. We disagree.

"The scope of appellate review of a trial court's fact-finding function is limited. The general rule is that findings by the trial court are binding on appeal when supported by adequate, substantial, credible evidence." Cesare v. Cesare, 154 N.J. 394, 411-12 (1998). "A trial court's interpretation of the law and the legal consequences that flow from established facts are not entitled to any special deference." Manalapan Realty, L.P. v. Twp. Comm. of Manalapan, 140 N.J. 366, 378 (1995). Because a trial court's determination of fair value is "essentially factual in nature," Casey v. Brennan, 344 N.J. Super. 83, 111 (App. Div. 2001), aff d, 173 N.J. 177 (2002), on appeal, we give great deference to that determination. Id. at 110-11.

The trial court correctly rejected Markind's request that it use the $8,000,000 gross sales price as the fair value of the corporation. In our prior decision, we concluded that the trial court did not err in using the going concern method of valuation in determining the fair value of HMC. Holiday Med. Center, supra, at 25. In making its decision, the trial court found that the going concern value was that which was determined in the marketplace by the arms-length transaction negotiated in good faith between the school as a willing buyer and HMC as a willing seller; and that HMC's directors exercised reasonable judgment in accepting the $8,000,000 offer to purchase while the assets of the corporation retained some value. The court found that the $8,000,000 sale price was a negotiated amount based on the school paying the $200,000 mortgage prepayment penalty and HMC's closing costs, in return for HMC donating back to the school $2,895,060.45 as a charitable contribution. One can reasonably assume that the contract would have been structured much differently if HMC had not agreed to make the charitable contribution. Because we conclude the trial court's factual determination that the contract was negotiated between the school and HMC in good faith is adequately supported in the record, we find no error in the court denying Markind's request to use the $8,000,000 gross contract sale price as the fair value of the corporation.2

Markind contends that the trial court failed to decide whether its allowance of the charitable contribution before determining the fair value of HMC resulted in a depressed value of her interest in the corporation. Although the trial court could have more clearly expressed itself on this issue, we discern from a review of its decision that the court considered the issue and concluded that Markind's interest was not depressed as compared to other shareholders by allowing for the charitable deduction in determining the fair value of HMC.

The trial court determined that there is no legal precedent requiring it to engage in an analysis of the individual tax consequences of each and every shareholder when determining fair value. With that said, the court, however, did consider Markind's argument that although some HMC shareholders received a tax benefit from the charitable contribution, she did not. The court rejected the argument, accepting Markind's counsel's statement contained in his November 12, 2008 e-mail that while Markind may not have received as great a tax benefit as other shareholders, the charitable contribution did permit her to offset a capital gain "taxed at 15%." We find no reason to disturb the trial court's finding. See Cesare, supra, 154 N.J. at 411-12.

Markind further asserts that the trial court erred in reaching its decision as to fair value by improperly relying upon provisions of the 1976 shareholder restrictive stock purchase agreement. Not so. While the court may have referenced the stock purchase agreement, we conclude that it did not rely upon the agreement in reaching its decision as to the fair value of HMC. Rather, the court only observed that "[a] shareholder [a]greement is not binding with respect to fair value, but the court can use it to make adjustments to reflect the equities of the case." The court's observation was made amidst a variety of considerations in explaining why the court relied upon the contract sale price.

Markind argues next that the trial court erred in failing to award her attorneys' fees and costs in prosecuting the action, contending that she filed the lawsuit because HMC had failed to follow its obligations as required by N.J.S.A. 14A:11-7 to -11, and that she incurred significant expenses as a result of these failures.

A trial court's grant or denial of attorneys' fees will not be reversed absent a clear abuse of discretion. Packard-Bamberger & Co. v. Collier, 167 N.J. 427, 443-44 (2001). "New Jersey has a strong policy disfavoring shifting of attorneys' fees." N. Bergen Rex Transp., Inc. v. Trailer Leasing Co., 158 N.J. 561, 569 (1999). That public policy is premised upon a determination that "'sound judicial administration is best advanced if litigants bear their own counsel fees.'" Ibid. (quoting Dep't of Envtl. Prot. v. Ventron Corp., 94 N.J. 473, 504 (1983)). Nevertheless, N.J.S.A. 14A:11-10 provides, in relevant part that:

if the court finds that the offer of payment made by the corporation under section 14A:11-6 was not made in good faith, or if no such offer was made, the court in its discretion may award to any dissenting shareholder who is a party to the action reasonable fees and expenses of his counsel and of any experts employed by the dissenting shareholder.


[(Emphasis added).]


In its June 1, 2009 opinion, the trial court recounted the procedural history of the case, and found that Markind's settlement demands throughout the action were unreasonable. In so doing, the court stated:

HMC exercised its business judgment and . . . the offer of $100,000 representing Markind's fair share at 5% from the net proceeds of $2,000,000 was reasonable. Moreover, HMC defended its position in good faith throughout the litigation and even, at one point made a reasonable offer of $130,000 to settle. The same degree of reasonableness cannot be ascribed to the demands of Markind made throughout the litigation whose approach to the fair value as a dissenting shareholder did not prevail.


Although Markind argues that she only filed the action after HMC failed to make an offer to purchase her interest in the corporation and failed to file the valuation action pursuant to statute, such failures do not mandate the award of attorney fees. Rather, the award of attorney fees remains within the court's discretion. N.J.S.A. 14A:11-10. We find no abuse of discretion in the court's decision in light of the court's finding of Markind's unreasonable settlement demands during the course of the litigation.

Lastly, Markind argues that she is entitled to seek recoupment of the money she is owed as part of her pro rata share of the sale proceeds from the individual defendants, characterizing herself as a creditor of the corporation. We agree.

"[E]quity will not suffer a wrong without a remedy." Crane v. Bielski, 15 N.J. 342, 349 (1954). "The maxim is explained to mean that where there is civil wrong, there ought to be a remedy; if the law provides none, equity may take jurisdiction in order to correct the injustice." William A. Dreier & Paul A. Rowe, Guidebook to Chancery Practice in New Jersey 2 (4th ed. 1997). "There is in fact no limit to [equitable remedies] in application; the court of equity has the power of devising its remedy and shaping it as to fit the changing circumstances of every case and the complex relations of all the parties." Ibid. One such remedy is that of imposing a constructive trust.

"[A] constructive trust will be impressed in any case where to fail to do so will result in an unjust enrichment. Generally all that is required to impose a constructive trust is a finding that there was some wrongful act, usually, but not limited to, fraud, mistake, undue influence, or breach of a confidential relationship, which has resulted in a transfer of property." D'Ippolito v. Castoro, 51 N.J. 584, 588-89 (1968) (internal citations omitted). "A constructive trust may arise, however, even though the acquisition of the property was not wrongful. It arises where the retention of the property would result in the unjust enrichment of the person retaining it." Id. at 589 (quoting Scott on Trusts, 462.2, p. 3417 (3d ed. 1967)).

Pursuant to N.J.S.A. 14A:11-3(2), a "dissenting shareholder shall cease to have any of the rights of a shareholder except the right to be paid the fair value of his shares and any of the rights of a dissenting shareholder under [N.J.S.A. 14A:11-1 to -11.]" Because New Jersey courts have not specifically spoken to the issue of how to characterize a dissenting shareholder who has perfected his or her appraisal rights, we consider Delaware law instructive. See Balsamides v. Protameen Chems., Inc., 160 N.J. 352, 372 (1999). Delaware courts have held that such a dissenting shareholder "assumes the role of a quasi-creditor with a purely monetary claim against the corporation." Alabama By-Products Corp. v. Cede & Co., 657 A.2d 254, 266 (Del. 1995); see also Kaye v. Pantone, Inc., 395 A.2d 369, 375 (Del. Ch. 1978).

Under N.J.S.A. 14A:6-12(1)(c), corporate directors who distribute assets to a corporation's shareholders without making adequate provision for corporate debts, obligations, and liabilities "shall be jointly and severally liable to the corporation for the benefit of its creditors or its shareholders, to the extent of any injury suffered by such persons, respectively, as a result of any such action." Indeed, corporate officers must distribute corporate assets ratably among the corporation's creditors, before making any payments to shareholders. Kiernan v. Kahn Davis, 132 N.J. Eq. 245, 247 (Ch. 1942); N.J.S.A. 14A:12-16 (providing that upon dissolution, assets remaining after claims against the corporation have been satisfied will be distributed ratably among the shareholders according to their respective interests).

During the pendency of the action, the trial court dismissed Markind's claims against the individual director defendants, except to the extent the directors sought to insulate themselves from any claims of wrongdoing that might be asserted against them by HMC.

In January 2006, after defendants informed the trial court that it had made distribution of the sale proceeds to all other shareholders but Markind, the court questioned the defendants' responsibility to pay Markind her pro rata share: "Notwithstanding defense counsel's suggestion that the corporation could not seek recompense for a precipitous distribution to shareholders, the [c]ourt finds that there is -- there would be such a potential and the [c]ourt finds that provides an adequate remedy at law." In reply to the court's concern, defendants informed the court that they had established an escrow fund containing approximately $550,000, one of three purposes of which was to pay Markind her pro rata share of the sale proceeds of Medicenter. On urging from the court, defendants agreed to pay Markind her pro rata share from the sale proceeds as it had paid the other shareholders. On January 13, 2006, HMC paid Markind $80,000 of her estimated $100,000 full share, or 80%.

In April 2009, HMC submitted to the court an accounting spreadsheet disclosing that whereas Markind had received an 80% distribution of the sale proceeds, all other shareholders received a distribution of between 97.1% and 97.5% of the sale proceeds. In addition, the record contains an accounting disclosing that as of December 31, 2006, HMC directors disbursed the escrow fund, save $9,616.98. In October 2008, defendants' counsel filed a motion to withdraw as attorney of record for defendants, contending in relevant part that HMC was then insolvent.

We determine that the individual defendant directors consent to payment of 97% of all shareholders' pro rata interests in the sale proceeds of Medicenter, while only paying Markind 80% of her interest, may have breached the individual defendants' representations to the trial court and violated their obligations under N.J.S.A. 14A:6-12(1)(c). We conclude Markind is entitled to pursue a constructive trust against the monies the individual defendant directors received from the sale of the Medicenter to recoup the balance of her interest as previously determined by the trial court. Failure to make that means of legal redress available to Markind would leave her with having suffered a civil wrong without a remedy. Crane, supra, 15 N.J. at 349.

Pursuant to the trial court's June 1, 2009 order, HMC owes Markind an additional $17,441.10 for her 5% fair share interest in the corporation. Markind sought on remand an order compelling the individual defendant directors to pay the balance of the monies owed her, but the court did not address that issue in its June 1, 2009 decision. We remand to determine whether Markind is entitled to a constructive trust against the monies the individual defendant directors received from HMC for their failure to comply with their statutory obligations to satisfy Markind as a creditor of the corporation before distributing assets of the corporation to themselves and other shareholders at a greater percentage than that paid to Markind. Markind's application to impose a constructive trust shall be by motion on reasonable notice to all named individual defendant directors.


ffirmed and remanded for further proceedings consistent with this opinion. We do not retain jurisdiction.

1 A copy of an order memorializing the trial court's oral decision was not included in the appendix.

2 In our prior opinion, we requested the trial court on remand to explain why it had used the contract sale price after allowing for the charitable deduction, or $5,104,939.55, rather than accepting CBIZ's going concern valuation of $5,540,000 as the fair value of HMC, because using CBIZ's value would have increased the value of the corporation by $435,060.45. Id. at 33-34. A further review of the record, however, discloses that the difference is not that great. As part of the negotiated contract transaction, the school paid the $200,000 mortgage prepayment penalty and $94,275 in realty transfer fees, which costs are normally borne by sellers of real property.