Opinion
DOCKET NO. A-2625-13T4
06-17-2015
PEE WEE MOLDING CORP., a corporation of the State of New Jersey, Plaintiff-Appellant, v. STANLEY GRASHOW and MIRIAM VALENTIN, Defendants-Respondents.
Abraham Neuhaus argued the cause for appellant (Neuhaus & Yacoob, LLC, attorneys; Joseph Zelmanovitz (Stahl & Zelmanovitz) of the New York bar, admitted pro hac vice, and Mr. Neuhaus, on the brief). Steven Siegler argued the cause for respondents (Siegler & Traub, LLC, attorneys; Mr. Siegler, on the brief).
NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION Before Judges Sabatino, Simonelli, and Gilson. On appeal from the Superior Court of New Jersey, Law Division, Middlesex County, Docket No. L-7751-11. Abraham Neuhaus argued the cause for appellant (Neuhaus & Yacoob, LLC, attorneys; Joseph Zelmanovitz (Stahl & Zelmanovitz) of the New York bar, admitted pro hac vice, and Mr. Neuhaus, on the brief). Steven Siegler argued the cause for respondents (Siegler & Traub, LLC, attorneys; Mr. Siegler, on the brief). PER CURIAM
This case arises out of the sale of a business from defendant Stanley Grashow to plaintiff Pee Wee Molding Corporation ("Pee Wee"). Plaintiff appeals two separate rulings of the trial court: (1) an October 16, 2013 order granting summary judgment to co-defendant Miriam Valentin, and (2) a January 6, 2014 order granting Grashow involuntary dismissal of plaintiff's remaining claims at trial. For the reasons that follow, we affirm both orders.
I.
We derive from the record the following facts and procedural history pertinent to our analysis. Plaintiff Pee Wee, a company with its principal place of business in New Jersey, is the maker of custom plastic injection moldings. The chief executive officer of Pee Wee is Feivel Reifman.
One of Pee Wee's customers was Quick Mount Manufacturing Company, Inc. ("Quick Mount"), another business that had been based for many years in Brooklyn, New York. Quick Mount made antennae for cars and trucks.
Quick Mount was a family business owned by Grashow. He operated the company along with his sister's husband, Melvin Berg. Grashow generally handled Quick Mount's production and sales, while Berg generally focused on certain financial aspects of the business. Valentin, Grashow's wife at the time, also worked for Quick Mount, handling the billing and accounts payable. She and Grashow divorced in 2006, two years after Grashow sold Quick Mount to Pee Wee.
Prior to 2004, Reifman and Grashow, who was contemplating retirement, engaged in discussions that led to Pee Wee's acquisition of Quick Mount. Reifman proceeded with the purchase without the advice of an attorney, but after consulting an accountant who had examined Quick Mount's financial records. The financial records showed that Quick Mount's gross sales and profitability had been declining since 1999. Reifman was also aware that Quick Mount had one major customer, Pana-Pacific, a California firm that accounted for about ninety percent of Quick Mount's sales. Pee Wee purchased Quick Mount anyway, as Reifman believed that Pee Wee could boost Quick Mount's profitability by eliminating certain expenses. Plans eventually were made to relocate Quick Mount from Brooklyn to New Jersey, where its operations might be cheaper and Quick Mount could take advantage of synergies with Pee Wee.
The operative sales agreement was executed in June 2004. Neither the buyer nor the seller retained transactional counsel, although Grashow had the assistance in the negotiations of his brother-in-law, Berg, who had obtained a law degree and was admitted to the New York bar in the 1950s. The acquisition was structured as a "no-money[-]down" transaction. As part of the deal, Grashow would continue to work for Quick Mount as a consultant for a weekly salary of $2000. The parties also agreed in their written agreement, as later amended, that Grashow would receive sixteen percent commissions on Quick Mount's gross sales for five years, which the parties anticipated would result in total commissions of about $1 million.
During his direct examination, Reifman repeatedly testified that it was his understanding that he could rescind Pee Wee's purchase of Quick Mount and require the seller to "take it [the business] back." Defendants did not dispute that understanding, although the sale contract did not clearly specify such a right of rescission on the part of the purchaser.
Under the terms of the written agreement, Pee Wee yielded to Grashow certain rights that became significant in this litigation. In particular, the parties agreed that Quick Mount's prices could not be raised without Grashow's written consent while he was still working for the company as a consultant. The agreement also prohibited the buyer from contacting certain individuals at Pana-Pacific, Quick Mount's primary customer, for a period of one year, without Grashow's written consent.
After the sale was consummated in 2004, the antennae production business was moved to New Jersey. Grashow continued to work for Quick Mount until the fall of 2009. During that five-year time frame, Grashow was paid over $1.1 million in total commissions, in addition to his consultant salary. Grashow notified Pana-Pacific that he was leaving the company, and thereafter Pana-Pacific advised Pee Wee that it was discontinuing its purchases.
Valentin continued working with the company for over two years after the sale, until 2007. She had no written employment agreement and was paid an annual salary of $39,000, or $750 per week. Valentin did not have an ownership interest in the business. She and Grashow divorced in 2006.
It is undisputed that Quick Mount did not turn a profit in four of the first five years after Pee Wee's purchase. Pee Wee contends that Quick Mount's prices were set too low. Although the parties' arguments about this issue are somewhat at variance with the actual record, the testimony shows that while Grashow was still at the company, Pee Wee raised its prices twice. After Grashow left, Pee Wee raised its prices a third time and began to reap profits. However, at the time of trial, its business with Pana-Pacific was winding down, as Pana-Pacific had indicated that it was taking its business elsewhere.
We were advised at oral argument that Quick Mount is no longer in business.
After he left the company, Grashow filed a lawsuit in New York state court, apparently seeking unpaid commissions. Thereafter, Pee Wee filed this New Jersey action against Grashow and Valentin in the Law Division. In its complaint, Pee Wee claimed breach of contract, breach of the duty of loyalty and fiduciary duty, violation of the implied covenant of good faith and fair dealing, and negligence.
According to the appendix, the New York case is docketed in Kings County under Index No. 3003/2010. We were advised by counsel on the appeal that the New York litigation is still pending. The appendices do not contain the pleadings in the New York case.
In essence, Pee Wee contends that defendants knew that Quick Mount was not making a profit, but deliberately kept prices low so that Grashow's revenue-based commissions would continue to be paid. Pee Wee also complained that Grashow failed to perform a satisfactory cost analysis, which would have revealed the extent to which Quick Mount's goods were underpriced. In addition, Pee Wee claimed that Grashow refused to train a successor to his functions designated by Reifman, and that Grashow also approved inappropriate bonuses for several employees while Quick Mount was losing money.
Grashow denied that he violated any of his contractual obligations. He explained that he always ran the business, which he had taken over from his father upon the latter's retirement, in a relatively informal, practical manner without doing formal cost analyses. Grashow contended that Pee Wee did not provide him with appropriate staff to create cost estimates. He provided no evidence that Quick Mount was profitable at the time of the 2004 sale, but it was anticipated that the company would perform better after the sale and certain operations or expenses were consolidated. Grashow also denied refusing to train a successor, or engaging in any other wrongful conduct to harm the business.
Relying upon an analysis performed by an accountant it retained as an expert in the litigation, Pee Wee contended that it sustained nearly two million dollars in damages as the result of defendants' actions and inactions. The accountant opined that Quick Mount lost $713,000 in the five years after the 2004 sale, and that, based upon his assumptions, the company instead should have earned $1.1 million, representing a "swing" of about $1.8 million.
After the close of discovery, Valentin moved for summary judgment, contending that she violated no legal duties to Pee Wee and was not personally responsible in any way for Quick Mount's lack of profitability after the sale. After considering Pee Wee's opposition, Judge Heidi W. Currier granted the motion in a detailed oral opinion she issued from the bench on October 16, 2013.
Valentin was represented by separate counsel in the trial court, but is represented by common defense counsel for both respondents on this appeal.
The matter proceeded to a non-jury trial solely against defendant Grashow in December 2013, neither party having demanded a jury. The trial was presided over by a successor on the case, Judge Joseph L. Rea.
Pee Wee presented testimony from its chief executive officer Reifman, its accounting expert, Reifman's niece who worked at the company, and a Pee Wee manager. Pee Wee also called in its case-in-chief Grashow and Valentin as adverse witnesses pursuant to N.J.R.E. 611(c). Both counsel read into the record excerpts of the deposition of Berg, who was allegedly in New York and who was not subpoenaed to appear at trial. Before Valentin arrived at the courthouse for her testimony, defense counsel recalled Grashow to the stand to present additional testimony.
Although Berg was formerly a co-owner of Quick Mount with Grashow, Pee Wee did not name him in its complaint as a co-defendant.
After having already indicated to the court that he did not plan on calling any more witnesses, defense counsel moved for involuntary dismissal of the complaint pursuant to Rule 4:37-2. Plaintiff's counsel argued in opposition to the motion. Neither counsel sought leave to file any additional briefs or written submissions.
Defense counsel explicitly advised the court, before Valentin arrived to complete the proofs in plaintiff's case, "I'm resting after they rest."
Defense counsel initially moved orally for a directed verdict under Rule 4:40-1, but accepted the court's reaction that the motion more properly should be considered a motion for involuntary dismissal under Rule 4:37-2.
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Judge Rea granted the motion for involuntary dismissal, in an extensive oral opinion he issued that same day. The judge expressly recognized that the law requires the trial court to deny such a dismissal motion if the evidence, together with the legitimate inferences therefrom, could sustain a judgment in the plaintiff's favor. See R. 4:37-2. Applying that standard, Judge Rea determined that Pee Wee's evidence was insufficient to carry its burden of proof by a preponderance of the evidence. Among other things, Judge Rea found that Pee Wee had failed to prove that Grashow had breached his post-sale obligations under either the contract provisions or otherwise under the applicable law. The judge further concluded that Pee Wee's claims of damages were speculative.
During the course of his oral opinion, Judge Rea underscored the fact that Pee Wee had specifically agreed in the purchase transaction to cede to Grashow the continued control of Quick Mount's pricing while he was still working with the company as a consultant. The judge further noted that if Reifman was concerned about the sufficiency of Quick Mount's prices, Reifman could have directed someone other than Grashow to perform a cost analysis. In addition, the judge noted that Pee Wee, despite Reifman's impression that he could rescind the purchase if he so wished, nevertheless allowed the continued losses to "perpetuate" for nearly five years without taking action.
Judge Rea also expressed skepticism about plaintiff's theory of damages and its expert accountant's assumption that Quick Mount could simply have raised prices to higher levels between 2004 and 2009 and that its customers would have paid those higher prices and continued to place orders. As the judge observed, during that same time period, "there was an economic downturn, one of the most serious economic downturns in recent history[,] that [the parties] had to weather through."
Pee Wee now appeals, respectively arguing that (1) Judge Currier erred in granting summary judgment to Valentin and (2) that Judge Rea erred in granting involuntary dismissal at trial to Grashow. We address these arguments, in turn.
II.
Our review of the trial court's grant of summary judgment to Valentin is guided by well-established principles. A motion for summary judgment should be granted if the evidentiary materials, considered in a light most favorable to the non-moving party, does not raise a genuine issue of material fact or if "there exists a single, unavoidable resolution of the alleged disputed issue of fact." Brill v. Guardian Life Ins. Co. of Am., 142 N.J. 520, 540 (1995); see also R. 4:46-2(c). Summary judgment should be denied when the evidential materials "permit a rational factfinder to resolve the alleged disputed issue in favor of the non-moving party." Id. at 523. "'Competent opposition [to summary judgment] requires competent evidential material beyond mere speculation and fanciful arguments.'" Cortez v. Gindhart, 435 N.J. Super. 589, 605 (App. Div. 2014) (quoting Hoffman v. Asseenontv.Com, Inc., 404 N.J. Super. 415, 426 (App. Div. 2009) (internal quotation marks omitted), certif. denied, 220 N.J. 269 (2015)). On appeal of a summary judgment order, we apply these same standards. W.J.A. v. D.A., 210 N.J. 229, 237-38 (2012).
A pivotal aspect of Pee Wee's claims against Valentin is its allegation that she functioned as a key participant in Quick Mount's sales and pricing activities. The record establishes, however, that Valentin's role with the company after the sale was not that of a principal, but rather as an at-will employee who worked in the office, largely performing bookkeeping functions.
Unlike Grashow, Valentin had no written employment agreement with Pee Wee. Her annual salary was modest. There is no competent evidence that Valentin had an oral agreement that gave her protection from discharge. Cf. Shebar v. Sanyo Bus. Sys. Corp., 111 N.J. 276, 285-87 (1988) (requiring that the contractual terms and "surrounding circumstances" of such an agreement clearly substantiate an employer's assurances of job security).
Pee Wee speculates that Valentin concealed information that Quick Mount underpriced certain products and that she intentionally failed to perform her job. Even if these assertions were deemed plausible, there is no corroborating evidence that Valentin actually engaged in such wrongful behavior. Indeed, it would have made little economic sense for Valentin to undermine the company's financial health or neglect her duties, when she was at risk of being discharged at any moment.
Plaintiff suggests that Valentin had a motive to assist her then-husband Grashow in keeping prices suppressed while he continued to earn commissions, but the record does not substantiate that she actually engaged in such a scheme. Reifman admitted in his deposition testimony that the company had no complaints about Valentin's job performance. In addition, once Valentin left the company in 2007, Pee Wee did not lose any customers and, according to Reifman, its "business went on as usual."
Because Valentin had no contract with Pee Wee, she cannot be claimed to have breached a covenant of good faith and fair dealing. Wade v. Kessler Inst., 172 N.J. 327, 345 (2002). Moreover, as an at-will employee, Valentin cannot be charged with breaching a duty of loyalty, absent proof of inherently wrongful actions such as operating a competing business or stealing the company's property or customer lists. See, e.g., Cameco, Inc. v. Gedicke, 157 N.J. 504, 516-17 (1999) (recognizing, in contrast to the proven facts in the present case, that "[a]ssisting an employer's competitor" or engaging in employee "self-dealing" may constitute such a breach).
Plaintiff relies on Lamorte Burns & Co. v. Walters, 167 N.J. 285 (2001), for the proposition that an employee may be liable for breach of a duty of loyalty to an employer, but that case is not on point. In Lamorte, employees preparing to launch a new venture that would directly compete with their current employer had taken information about the company's customers and other confidential information. Id. at 290-97. No such nefarious activity by Valentin was proven here. There is also no proof to support Pee Wee's allegation that Valentin deliberately refused to train another employee to take over her job functions in order to harm the business.
For these many reasons, we affirm summary judgment in Valentin's favor, substantially for the cogent reasons expressed in Judge Currier's October 16, 2013 oral opinion.
III.
We turn to Judge Rea's order granting defendant Grashow involuntary dismissal on the third day of trial, after plaintiff had rested and defense counsel had announced that he likewise had no more witnesses. As Judge Rea recognized, the motion was governed by Rule 4:37-2(b), which directs the court to deny the motion "if the evidence, together with the legitimate inferences therefrom, could sustain a judgment in plaintiff's favor." R. 4:37-2(b); see also Hitesman v. Bridgeway, Inc., 218 N.J. 8, 25-26 (2014); Pitts v. Newark Bd. of Educ., 337 N.J. Super. 331, 340 (App. Div. 2001). On appeal, we apply the same standard as the trial court. Hitesman, supra, 218 N.J. at 26.
Judge Rea, who notably had already heard all of the evidence that was going to be adduced in this non-jury trial, concluded that plaintiff's trial proofs fell short of the mark, with respect to both the alleged liability of Grashow and also as to damages. We agree.
Although Grashow had certain carryover functions as a consultant after the business was sold, his contract with Pee Wee significantly did not require him to assure the company's ongoing profitability. Viewing the record objectively, it appeared to Judge Rea, as it does to us, that Grashow continued to operate Quick Mount essentially in the same informal, "seat-of-the-pants" style as he did before the sale. The terms of his contract did not require him to perform a cost analysis of the firm's pricing. As Judge Rea rightly pointed out, if the company's new owner wanted to have such an analysis performed, the owner could have made other arrangements to have it undertaken. Moreover, Pee Wee failed to take appropriate action for nearly five years while the company was losing money and allowed the situation to "perpetuate," despite Reifman's ongoing concerns about Quick Mount's financial health.
In sum, we agree with Judge Rea that Pee Wee failed to substantiate its claims of breach with sufficient competent evidence to support its presumptions about Grashow's illicit and self-interested conduct. The evidence of such wrongdoing is simply lacking, even if the record is viewed in a light most favorable to Pee Wee.
We also concur with Judge Rea that Pee Wee's damages were speculative, at best. Pee Wee's expert accountant opined that most manufacturing businesses should reap a profit of ten percent or more annually. Nevertheless, he admitted on cross-examination that such an alleged expectation is not always attained. The expert also admitted that he did not have experience working specifically with antennae companies.
The expert's projection of a shortfall of nearly $2 million between 2005 and 2009 unreasonably presumed that Quick Mount's customers would have continued to place the same number of orders if it raised prices even higher, even though the nation was in a deep recession. The trial judge was entitled to take judicial notice of that recession under N.J.R.E. 201, in analyzing Pee Wee's damages theory. The fact that Pee Wee was able to raise prices further and turn a profit after Grashow left in 2009, after the recession had subsided, does not at all prove that greater price hikes at an earlier time would have been tolerated by Quick Mount's customer base.
Damages must be proven with reasonable certainty. V.A.L. Floors, Inc. v. Westminster Cmtys., Inc., 355 N.J. Super. 416, 426 (App. Div. 2002); see also Model Jury Charge (Civil), 8.45, "Breach of Contract" (2014). Judge Rea aptly enforced that principle in finding Pee Wee's case deficient.
We therefore affirm the involuntary dismissal, substantially for the reasons articulated by Judge Rea in his oral opinion of December 12, 2013. We see no basis to disturb the judge's rulings, particularly given his special vantage point as the trier of fact who had the first-hand opportunity to evaluate the witnesses, the proofs, and the parties' contentions.
We have carefully considered all of the other points raised by Pee Wee on appeal and conclude that they lack sufficient merit to warrant discussion. R. 2:11-3(e)(1)(E).
Affirmed. I hereby certify that the foregoing is a true copy of the original on file in my office.
CLERK OF THE APPELLATE DIVISION