MICHAEL D. KIEFFER, ETC. VS. CHARLES A. BUDD(C-0006-12, GLOUCESTER COUNTY AND STATEWIDE) ( 2017 )

NOT FOR PUBLICATION WITHOUT THE
APPROVAL OF THE APPELLATE DIVISION
This opinion shall not "constitute precedent or be binding upon any court."
Although it is posted on the internet, this opinion is binding only on the
parties in the case and its use in other cases is limited. R.1:36-3.
SUPERIOR COURT OF NEW JERSEY
APPELLATE DIVISION
DOCKET NO. A-2030-15T4
MICHAEL D. KIEFFER, Individually
and Derivatively on behalf of
DIGITAL PRODUCTION, INC.,
Plaintiff-Respondent,
v.
CHARLES A. BUDD and
DIGITAL PRODUCTION, INC.,
Defendants-Appellants.
_________________________________
Submitted March 8, 2017 – Decided August 24, 2017
Before Judges Fuentes, Simonelli and Gooden
Brown.
On appeal from the Superior Court of New
Jersey, Chancery Division, Gloucester County,
Docket No. C-0006-12.
Hagner & Zohlman, LLC, attorneys for
appellants (Thomas J. Hagner, of counsel and
on the briefs).
Fox Rothschild LLP, attorneys for respondent
(R. James Kravitz, of counsel and on the
brief).
PER CURIAM
In this minority shareholder oppression and breach of
contract matter, defendants Charles A. Budd and Digital
Production, Inc. (DPI),1 appeal from the September 16, 2015
Chancery Division order for judgment entered in favor of plaintiff
Michael D. Kieffer. Defendants also appeal from the December 31,
2015 order denying their motion for a new trial, and from the
December 31, 2015 final judgment. We affirm.
We derive the following facts from the evidence presented at
the two-day bench trial before Judge Anne McDonnell. DPI is a
closely held family business engaged in providing graphic
solutions to retailers and manufacturers. Budd is DPI's founder
and president and was its sole shareholder until October 22, 2010.
On June 4, 2010, DPI and plaintiff executed an employment
agreement whereby DPI would employ plaintiff as vice-president
once he became a shareholder and owned at least twelve shares of
DPI's common stock, and pay him an annual salary of $100,000,
"payable in accordance with [DPI's] normal payroll practices for
its employees." Once plaintiff purchased the shares, DPI would
pay him "an annual salary in the amount corresponding with the
level of [DPI's] gross sales achieved by [DPI] during its fiscal
1
We shall sometimes refer to Budd and DPI collectively as
defendants.
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year (as reported on [DPI's] compiled financial statements based
on the accrual method of accounting)[.]" Specifically, DPI would
pay plaintiff an annual salary of $110,000 if its gross sales were
between $1.5 million and $2,999,999 during its fiscal year. DPI
could change plaintiff's salary upon prior notice. The employment
agreement also required DPI to pay plaintiff a $7500 signing bonus,
payable in three installments of $2500 on the first day of July,
August, and September 2010.
After signing the employment agreement, plaintiff received
the following payments from DPI:
June 15, 2010: $3076
June 24, 2010: $3100
July 10, 2010: $2500
August 13, 2010 $1506
August 18, 2010 $2,866.84
September 19, 2010: $727.38
October 22, 2010 $5000
DPI's general ledger contained separate entries for net payroll.
The general ledger did not list any of the above payments as
payroll or salary payments, and there are no payroll records for
the period June 4, 2010 to October 22, 2010. In addition, the
payments do not reflect any pay period, and are not consistent
with a $100,000 annual salary. Notably, DPI's 2010 federal tax
return for the fiscal year beginning April 2, 2010 and ending
March 31, 2011, did not list plaintiff as an officer or shareholder
of DPI. Plaintiff testified that the above payments were for
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independent contracting work he performed for DPI prior to
purchasing the shares and commencing employment as DPI's vice-
president on October 22, 2010.
Also on June 4, 2010, DPI, Budd, and plaintiff executed a
stock purchase agreement, whereby Budd agreed to sell twelve of
his 100 shares of DPI's common stock to plaintiff for $13,016 per
share for a total of $156,192. On October 22, 2010, plaintiff
purchased the twelve shares for that amount, deriving the money
from a mortgage on his home. That same day, DPI, Budd, and
plaintiff executed a stock restriction agreement, and DPI's Board
of Directors (Board) issued a resolution electing plaintiff to the
Board and appointing him DPI's vice-president effective that day.
Termination of plaintiff's employment with DPI was one of the
events that triggered the application of the stock restriction
agreement. If plaintiff's employment was terminated other than
for cause during the first twelve months of his employment, DPI
had to purchase, and plaintiff had to sell, all of his shares of
stock at $13,016 per share for a total of $156,192, payable in one
lump sum no later than sixty days after termination. If
termination occurred after the first twelve months, the purchase
price would be the stock's fair market value.
DPI's payroll records reveal that on November 12, 2010,
plaintiff received his first paycheck in the gross amount of
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$3,846.16 (amounting to $100,000 annually) for the bi-weekly pay
period beginning October 23, 2010, and ending November 5, 2010.
Plaintiff continued receiving $3,846.16 bi-weekly until April 11,
2011, when the Board issued a resolution, which plaintiff signed,
reducing his and Budd's salaries to $1000 bi-weekly, and
authorizing the treasurer to make loans to them so they could pay
their personal expenses until business improved.
Plaintiff testified that Budd said the salary reduction was
temporary and necessary to induce the bank to purchase DPI's
receivables. Budd testified that DPI had a $250,000 loss as of
March 31, 2011, sales were not good, and plaintiff's salary
reduction, as well as the layoff of two employees (his son Brian
and girlfriend Julie Pfeiffer) was necessary to reduce payroll
because DPI lacked a sufficient cash flow. Budd also testified
it would not have been responsible to allow DPI to continue to pay
plaintiff's original salary.
In addition to his $1000 bi-weekly salary, plaintiff received
five checks in the amount of $1500 each, for a total of $7500.
Four of the checks bore the notation "Loan," while one bore the
notation "Employee Advance." According to plaintiff, there was
no loan agreement and he considered these payments to be salary,
not loans. Budd testified the payments were loans.
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Plaintiff testified that Budd eventually told him the bank
was not purchasing DPI's receivables and DPI lacked funds to
reinstate plaintiff's salary. Plaintiff thereafter discovered
that Budd had been defalcating corporate funds during the time he
claimed DPI lacked funds to pay plaintiff's salary. Specifically,
Budd used DPI's funds to finance a business known as Born to Wrap
Graphics, LLC (BTWG), which Brian managed, and pay for trips to
Cancun, Las Vegas, and Boca Raton and Pfeiffer's gym membership
fees and automobile insurance. Budd also used DPI's funds to pay
for his grandchild's childcare costs, carpeting in his home, coffee
at Starbucks, Broadway theatre tickets, and purchases at Barnes
and Noble. Defendants produced no documents evidencing a business
purpose for any of these expenditures. Plaintiff also learned
that Brian's girlfriend, who was the mother of Budd's grandchild,
was on DPI's payroll.
On August 11, 2011, plaintiff resigned after an argument with
Budd about his salary. Brian replaced plaintiff at a salary of
$2000 bi-weekly beginning September 16, 2011, which increased to
$2500 bi-weekly beginning November 25, 2011.
Plaintiff, as a minority shareholder, demanded copies of
certain DPI financial records. In response, Budd demanded
redemption of plaintiff's shares of stock for $50,000, payable
over five years. Plaintiff rejected the offer and filed a
6 A-2030-15T4
complaint, alleging minority shareholder oppression and breach of
contract, among other things. Defendants counterclaimed, alleging
breach of contract, specific performance of the stock restriction
agreement, breach of the employment agreement, and fraud, among
other things.
An issue at trial was the commencement date of plaintiff's
employment, which effected the purchase price for his shares of
stock. Plaintiff asserted his employment with DPI commenced on
October 22, 2010, when he purchased the shares and was appointed
DPI's vice-president. Plaintiff averred that because his
employment terminated on August 11, 2011, less than twelve months
after it commenced, he was entitled to $13,016 per share for a
total of $156,192. Defendants asserted that plaintiff's
employment commenced on June 4, 2010, the day he signed the
employment agreement, and ended more than twelve months later,
thus entitling him to only the fair market value of his shares.
As evidence of the commencement date, defendants pointed to the
payments plaintiff received from DPI after plaintiff signed the
employment agreement.
Also at issue was the amount of plaintiff's salary. Plaintiff
asserted that because DPI's gross sales exceeded $1.5 million
during the fiscal year ending March 31, 2011, his salary should
have been $110,000. A court-appointed expert rendered a report
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and testified that DPI had gross sales of approximately $1.7
million for the fiscal year ending March 31, 2011. The expert
concluded that plaintiff was entitled to an annual salary of
$110,000, and DPI's financial statements should have listed a
liability in the amount of $10,000 for deferred salary, as
plaintiff was not paid in accordance with the employment agreement.
Defendants did not challenge the expert's report or testimony, or
produce evidence that DPI's revenues were less than $1.5 million
for the fiscal year ending March 31, 2011.
In a comprehensive written opinion, dated September 16, 2015,
Judge McDonnell found credible plaintiff's testimony that Budd
said plaintiff's salary reduction was necessary to induce the bank
to purchase DPI's receivable. The judge emphasized that "if [Budd]
had told [plaintiff] the truth, i.e. that it was not in the
interest of DPI to pay [plaintiff's] salary, [plaintiff] would not
have stayed an additional four months."
Judge McDonnell determined that during the time of
plaintiff's salary reduction, Budd used large amounts of DPI's
funds to finance BTWG, pay his grandchild's daycare expenses,
Pfeiffer's gym membership, and Budd's trips, and Brian's
girlfriend, who was on DPI's payroll in a clerical position. The
judge found that Budd did not tell plaintiff DPI was paying these
expenses.
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Judge McDonnell found that plaintiff was an oppressed
shareholder. She determined that "DPI, at Budd's direction and
without [p]laintiff's knowledge, spent substantial sums to support
Brian and his family. This depleted DPI's funds that would
otherwise have been available to fund activities to increase
DPI['s] sales and productivity in the print and newly-established
digital POP display market." The judge concluded as follows:
Here, the lack of transparency in payments
made by DPI to and on behalf of Brian and his
family and BTWG, the total amount of money
diverted from DPI, and the simultaneous [two-
third] reduction of [p]laintiff's salary are
persuasive in determining that [Budd's]
conduct was oppressive.
. . . .
Plaintiff has proved [he] was affected by the
diversion of money from DPI to [Budd's]
family. He lost his substantial salary at the
same time money was flowing out of DPI for day
care and BTWG expenses. Plaintiff had no
voice in the amount or to whom DPI's funds
were being paid. . . . Plaintiff has proved
that DPI payments to [Budd's] family members
affected DPI's ability to pay his salary.
Judge McDonnell found that defendants breached the stock
restriction agreement. She acknowledged the parties had signed
the employment agreement on June 4, 2010, but found there were no
documents for the year 2010 confirming when plaintiff began
receiving his $100,000 salary. The judge determined that
plaintiff's employment officially commenced on October 22, 2010,
9 A-2030-15T4
when he purchased the shares, and his pre-employment services to
DPI were as an independent contractor. The judge also determined
that the reduction of plaintiff's salary in April 2011 constituted
a constructive termination. Thus, the judge concluded that
plaintiff was entitled to $156,192 for his shares. The judge gave
plaintiff the option of selling his shares for $47,000, which the
court-appointed expert had determined was the stock's fair market
value as of March 31, 2012, or compelling DPI to purchase them for
$156,192. Plaintiff chose the latter remedy.
Judge McDonnell found that defendants had breached the
employment agreement by failing to pay plaintiff $110,000 in
salary. The judge determined that plaintiff was entitled to a
salary of $110,000, effective April 1, 2011, and awarded him
$29,461.44 for unpaid salary from April 1, 2011 through August 5,
2011. The judge reduced this amount by the amount of loans made
to plaintiff, and awarded him a net of $22,141.44 for unpaid
salary. The judge dismissed defendants' counterclaim with
prejudice.
Judge McDonnell memorialized her decision in a September 16,
2015 order for judgment. Defendants subsequently filed a motion
for a new trial, and plaintiff filed a cross-motion to enter
judgment. In a December 31, 2015 order, the judge denied
defendants' motion for a new trial for the reasons expressed in
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her September 16, 2015 written opinion. In a December 31, 2015
final judgment, the judge entered judgment in plaintiff's favor
in the amount of $178,333.44 plus pre-judgment interest.2
On appeal, defendants contend the record does not support
Judge McDonnell's finding that plaintiff's employment commenced
on October 22, 2010, and he was constructively terminated in April
2011. Defendants also contend that even if plaintiff was
constructively terminated, it was no sooner than mid-August 2011.
Defendants further contend the judge erred in finding DPI breached
the employment agreement by not paying plaintiff $110,000 in
salary; finding that plaintiff was an oppressed shareholder within
the meaning of N.J.S.A. 14A:12-7; dismissing the counterclaim for
fraud; not granting defendants' motion for a new trial; and not
awarding defendants fees and costs pursuant to N.J.S.A. 14A:12-
7(10).
Our review of a trial court's fact-finding in a non-jury case
is limited. Seidman v. Clifton Sav. Bank, S.L.A., 205 N.J. 150,
169 (2011). "The general rule is that findings by the trial court
are binding on appeal when supported by adequate, substantial,
credible evidence. Deference is especially appropriate when the
2
In a March 18, 2016 order, the judge corrected the final judgment
to omit the award of pre-judgment interest and grant plaintiff
post-judgment interest pursuant to Rule 4:42-11 as of October 15,
2015.
11 A-2030-15T4
evidence is largely testimonial and involves questions of
credibility." Ibid. (quoting Cesare v. Cesare, 154 N.J. 394, 411-
12 (1998)). We "should not disturb the factual findings and legal
conclusions of the trial judge unless [we are] convinced that they
are so manifestly unsupported by or inconsistent with the
competent, relevant and reasonably credible evidence as to offend
the interests of justice." Ibid. (quoting Cesare, supra, 154 N.J.
at 411-12). However, we owe no deference to a trial court's
interpretation of the law, and review issues of law de novo. State
v. Parker, 212 N.J. 269, 278 (2012); Mountain Hill, L.L.C. v. Twp.
Comm. of Middletown, 403 N.J. Super. 146, 193 (App. Div. 2008),
certif. denied, 199 N.J. 129 (2009).
"[G]ranting or denying a motion for a new trial rests with
the sound discretion of the trial court and should only be granted
if, having given due regard to the opportunity of the [factfinder]
to pass upon the credibility of the witnesses, it clearly and
convincingly appears that there was a miscarriage of justice under
the law." Borough of Saddle River v. 66 E. Allendale, LLC, 424
N.J. Super. 516, 526 (App. Div.) (citations omitted), certif.
granted, 211 N.J. 274 (2012). We will not reverse a trial court's
decision to deny a motion for a new trial "unless it clearly
appears that there was a miscarriage of justice under the law."
R. 2:10-1.
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We have considered defendants' contentions in light of the
record and applicable legal principles and conclude they are
without sufficient merit to warrant discussion in a written
opinion. R. 2:11-3(e)(1)(E). We affirm substantially for the
reasons Judge McDonnell expressed in her written opinion. However,
we make the following brief comments.
The record amply supports Judge McDonnell's finding that
plaintiff's employment with DPI commenced on October 22, 2010.
There is no evidence that the payments DPI made to plaintiff prior
to October 22, 2010 were for the salary he was to be paid pursuant
to the employment agreement. Rather, DPI's payroll records confirm
that plaintiff began receiving his salary in accordance with the
employment agreement as of October 23, 2010. Thus, even if
plaintiff's seventy-percent salary reduction in April 2011 did not
constitute a constructive termination, the termination of his
employment in August 2011 occurred less than twelve-months after
his employment commenced, entitling him to $156,192 for his shares
pursuant to the stock restriction agreement. Defendants' failure
to pay plaintiff that amount constituted a breach of the stock
restriction agreement.
The record also amply supports Judge McDonnell's finding that
plaintiff was entitled to a salary of $110,000 as of April 1,
2011, pursuant to the employment agreement. The unchallenged
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expert evidence confirmed that DPI had gross sales over $1.5
million in the fiscal year ending March 31, 2011, and plaintiff
was entitled to be paid $110,000. Defendants produced no evidence
to establish that DPI had accrual-based revenue of less than $1.5
million, and do not contend that revenues were less than that
amount. Defendants' failure to pay plaintiff a salary of $110,000
as of April 1, 2011 constituted a breach of the employment
agreement.
Affirmed.
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