Robert Sipko v. Koger, Inc. (085022) (Bergen County & Statewide)

SYLLABUS
This syllabus is not part of the Court’s opinion. It has been prepared by the Office
of the Clerk for the convenience of the reader. It has been neither reviewed nor
approved by the Court and may not summarize all portions of the opinion.
Robert Sipko v. Koger, Inc. (A-74-20) (085022)
Argued January 3, 2022 -- Decided June 23, 2022
PIERRE-LOUIS, J., writing for a unanimous Court.
In this case, the Court considers whether a marketability discount should be
applied to the valuation of Robert Sipko’s interests in Koger Distributed Solutions,
Inc. (KDS) and Koger Professional Services, Inc. (KPS).
This matter, now before the Court for the second time, concerns a family
embroiled in a litigation that commenced 15 years ago. The Court provided an
extensive and detailed history of the underlying facts in this case in Sipko v. Koger,
Inc., 214 N.J. 364 (2013). In summary, George Sipko formed Koger, Inc., and later
gifted 1.5 percent of the company’s stock to his twin sons, Robert Sipko and
Rastislav Sipko (Ras) -- both of whom were actively involved with the company.
George formed KDS and KPS in 2002 and 2004, respectively, with both Robert and
Ras each owning 50 percent of each company’s shares.
A family disagreement arose over a woman whom Robert began dating and
eventually married. As a result of the family divide, Robert resigned from Koger on
March 10, 2006. Prior to his resignation, Robert signed two documents
memorializing the transfer of his 50 percent interest in both KDS and KPS. The
document involving the transfer of KDS stock bears the date “02/03/2006.” The
document that memorialized the transfer of KPS stock, however, was dated
“12/31/04.” Robert filed suit against George, Ras, and Koger on November 13,
2007, alleging that he was an oppressed shareholder and presenting an expert
valuation of the companies. After a bench trial, the court ruled in January 2009 that
KDS and KPS had no independent value as distinct companies from Koger and that
Robert recognized “that his interests in KDS and KPS had no value, [and]
voluntarily surrendered those interests.” Id. at 373.
The Appellate Division reversed, reasoning that the transfers lacked
consideration and were therefore void. In 2013, the Court affirmed and remanded
“for consideration of what, if any, remedy is appropriate,” noting that “the trial court
has broad discretion to consider such statutory and equitable remedies as may be
appropriate to this setting.” Id. at 383-84.
1
Less than two weeks after the issuance of the Court’s 2013 opinion, the trial
judge, who had presided over this matter since its commencement in 2007,
conducted a hearing regarding the appropriate remedy to be fashioned to compensate
Robert for his interests in KDS and KPS. Robert advocated for a buyout of his
interests in the two companies as of the filing date of the complaint in November
2007. In the alternative, Robert asked for an accounting of all three companies --
Koger, KDS, and KPS -- and the appointment of a fiscal agent to protect the
remaining assets. Defendants argued that the only possible remedy was dissolution
of the companies, which at that point had absolutely no value.
The trial court found that an accounting of KDS and KPS was appropriate,
after which it would reconsider possible remedies. The accounting revealed plenty
about what transpired with KDS and KPS prior to and after Robert filed the
complaint in 2007. For example, several lucrative contracts were transferred to
Koger after the litigation commenced, and the trial court found that this was done to
shield the value of the independent entities from Robert. The trial court also found
that Ras backdated Robert’s stock transfer certificate for KPS from February 2006 to
December 2004 in an effort to deprive Robert of his interests in certain contracts he
negotiated in 2005 that “began to yield rich fruit in 2006.” The judge concluded that
the “only appropriate available remedy” was to impose a buyout obligation upon
George and Ras and order them to pay Robert the value of his 50 percent interests in
KDS and KPS as of the date Robert filed the complaint on November 13, 2007.
The trial court offered George and Ras the opportunity to call their own expert
to value the companies given that they had directed their trial expert -not
- to
independently value the companies. Defendants, however, declined to call an
expert. Based on “the coherent and convincing and unrebutted evidence of value” in
the companies put forth by Robert’s expert at trial, the trial court valued the
companies. It filed a judgment awarding Robert damages in the amount of
$24,697,571.14, jointly and severally, which included pre-judgment interest in the
amount of $6,437,311.14.
After the trial court entered its judgment in favor of Robert, defendants’
pattern of acts calculated to prevent Robert from obtaining compensation for his
interests in KDS and KPS continued. Post-judgment, for example, Ras offered to
post $3 million in cash and real property in Connecticut that he valued at $6.75
million, but he then named that property as a marital asset in his divorce
proceedings, resulting in further litigation. Most shockingly, the sworn accounting
revealed that George and Ras, while representing to the court for months that they
did not have money with which to post a bond, had transferred approximately $20
million in cash to overseas accounts in a series of transactions between July 28,
2016 (one day after the judge issued his decision awarding $18 million to Robert)
and August 11, 2016 (approximately one week before entry of the judgment).
2
Meanwhile, George and Ras appealed. The Appellate Division affirmed the
buyout remedy but agreed with defendants that the trial court improperly accepted
Robert’s expert’s opinion, which it had implicitly rejected at trial in 2008, without
any explanation for the acceptance on remand; in the appellate court’s view, the trial
court simply failed to reach “a reasoned, just and factually supported conclusion.”
The Appellate Division also took issue with the trial court’s failure to determine the
application of a marketability discount to the value of KDS and KPS.
The Court granted certification, limited to Robert’s challenge of the remand
for the reconsideration of the valuation of KDS and KPS. 247 N.J. 413 (2021).
HELD: In light of all the defendants’ conduct regarding KDS and KPS to strip
Robert of his rightful interests, equity cannot abide imposing a marketability
discount to the benefit of defendants. The trial court’s acceptance of Robert’s
expert’s valuation of the company fell within its broad discretion and was fully
supported by the record. Defendants were given the opportunity to present an expert
valuation of the companies on remand but made the strategic decision not to do so.
The Court declines to provide defendants with another bite of this thoroughly
chewed apple and reinstates the judgment of the trial court.
1. The Court leaves intact its finding in 2013 that Robert did not demonstrate
himself to be an oppressed shareholder but notes that, even if the minority
shareholder is not deemed to be oppressed, “[i]llegality and fraud may also frustrate
a shareholder’s reasonable expectations for a company.” The Oppressed
Shareholder Statute affords a range of individualized remedies in the presence of
appropriate proofs, including ordering the buyout of shares at “their fair value as of
the date of the commencement of the action” or another “date deemed equitable by
the court.” N.J.S.A. 14A:12-7(8). Whether the corporation’s fair value should be
reduced by a marketability discount is part and parcel of the fair value
determination. Marketability discounts reflect the decreased worth of shares of
stock in a closely held corporation, for which there is no readily available market .
The very nature of the term “fair value” suggests that courts must take fairness and
equity into account in deciding whether to apply a discount to the value of the
dissenting shareholders’ stock. In fact, N.J.S.A. 14A:12-7(8) expressly authorizes a
court to judicially order a sale of the corporation’s stock held by any shareholder
who is party to the litigation if the court determines that “would be fair and equitable
to all parties under all of the circumstances of the case.” (pp. 23-27)
2. Depending on the facts, fairness and equity can compel the decision to apply a
marketability discount, or not. The Court reviews its decisions In Balsamides v.
Protameen Chemicals, Inc., 160 N.J. 352 (1999), where equity compelled the
application of a marketability discount, and Lawson Mardon Wheaton, Inc. v. Smith,
160 N.J. 383 (1999), where equitable principles prevented the application of a
3
discount. Balsamides and Lawson underscore the importance of determining the
“fair value” of a corporation on a case-by-case basis. The guiding principle in such
cases is that a marketability discount cannot be used unfairly by the parties whose
misconduct and bad faith caused the corporate split to benefit themselves to the
detriment of the injured parties. (pp. 27-30)
3. With fairness and equity in mind, the Court finds it cannot ignore the many
instances in which defendants took deliberate steps to prevent Robert from
recovering any value through actions that laid bare their understanding of just how
valuable the companies were. Even without defendants’ post-judgment misfeasance,
blatant misrepresentations to the trial court, lack of transparency regarding their
financials and financial transactions, and, in George’s case, fleeing the country to
escape enforcement of the court’s order, defendants engaged in enough pre-
judgment misconduct between the filing of the complaint and the Court’s 2013
opinion to justify not applying the discount when considering the equities, such as
backdating the stock transfer certification and diverting valuable contracts from KPS
to Koger. Defendants now ask the Court, after acting unfairly at almost every turn,
to apply a doctrine rooted in fairness to relieve them of their responsibility to buyout
Robert for the amount determined by the trial court. The Court declines to do so.
(pp. 30-34)
4. Further, the trial court’s acceptance of Robert’s expert’s valuation was fully
supported by the record. The court’s finding in 2009 that the companies had no
value does not undermine its acceptance of Robert’s expert’s valuation on remand.
The reality of the appellate process is that courts must often proceed on remand in a
manner that is the complete opposite of the court’s previous position. There are
several reasons why the trial court logically did not consider on remand the 2008
testimony from George and Ras’s expert that KDS and KPS had no value. And the
court gave defendants an opportunity on remand to call an expert to present their
position on the valuation of the companies. They declined, making the strategic
decision to refuse to abandon their argument that the companies had no value.
Defendants took a risk and it did not pay off. They now want another bite at the
apple. Given all that has transpired in this case and all of defendants’ misconduct,
however, the Court declines to allow that. (pp. 34-40)
REVERSED. REMANDED to the trial court for REINSTATEMENT of
judgment.
CHIEF JUSTICE RABNER; JUSTICES ALBIN and SOLOMON; and JUDGE
FUENTES (temporarily assigned) join in JUSTICE PIERRE-LOUIS’s opinion.
JUSTICE PATTERSON did not participate.
4
SUPREME COURT OF NEW JERSEY
A-74 September Term 2020
085022
Robert Sipko,
Plaintiff-Appellant,
v.
Koger, Inc., Koger Distributed Solutions, Inc.,
Koger Professional Services, Inc.,
Koger Limited (Dublin), and
Rastislav Sipko,
Defendants-Respondents,
and
George Sipko,
Defendant.
_______________________________________________
Robert Sipko,
Plaintiff,
v.
Rastislav Sipko,
Defendant,
and
Koger, Inc., Koger Distributed
Solutions, Inc., Koger Professional
1
Services, Inc., Koger Limited (Dublin),
and George Sipko,
Defendants.
On certification to the Superior Court,
Appellate Division.
Argued Decided
January 3, 2022 June 23, 2022
Michael S. Stein argued the cause for appellant (Pashman
Stein Walder Hayden, attorneys; Michael S. Stein, of
counsel and on the briefs, and Erik M. Corlett and
Timothy P. Malone, on the briefs).
Scott E. Reiser argued the cause for respondents Koger,
Inc., Koger Distributed Solutions, Inc., Koger
Professional Services, Inc., and Koger Limited (Dublin)
(Lum, Drasco & Positan, attorneys; Scott E. Reiser and
Paul A. Sandars, III, of counsel and on the briefs).
Joseph P. LaSala argued the cause for respondent
Rastislav Sipko (McElroy, Deutsch, Mulvaney &
Carpenter, attorneys; Joseph P. LaSala, of counsel and on
the brief).
JUSTICE PIERRE-LOUIS delivered the opinion of the Court.
This matter, now before this Court for the second time, concerns a
family embroiled in a litigation that commenced 15 years ago. In this case, we
must determine whether the trial court’s finding as to the valuation of Robert
Sipko’s interests in Koger Distributed Solutions, Inc. (KDS) and Koger
2
Professional Services, Inc. (KPS) should be upheld, or if there should be a
determination of whether a marketability discount should be applied to that
value, as the Appellate Division held in remanding the case.
The issues underlying this matter and the relevant parties are not foreign
to this Court. In 2013, we affirmed the Appellate Division’s holding that KDS
and KPS had value as independent entities rather than being solely dependent
on their parent company, Koger Inc. (Koger). We also held that Robert’s 1
relinquishment of his 50 percent interests in KDS and KPS in 2006 was void
for lack of consideration. Accordingly, we remanded the matter to the trial
court to determine what, if any, remedy was appropriate to compensate Robert
for his interests in KDS and KPS -- companies that were rendered valueless by
the time the matter reached this Court.
This appeal centers around what has transpired since we remanded this
case. In 2016, the trial court held that the appropriate remedy was a buyout of
Robert’s interests in the companies given the court’s finding that George and
Rastislav Sipko deliberately stripped the companies of value for the specific
purpose of putting the money beyond Robert’s reach. The trial court accepted
Robert’s expert’s valuation of the companies and found that KDS and KPS, at
1
Given that the family members have the same last name, we use their first
names to avoid confusion. We intend no disrespect by this informality.
3
the time Robert filed the complaint in 2007, were worth approximately $1.5
million and $34.9 million, respectively. Accordingly, Robert’s 50 percent
ownership in both companies totaled over $18 million, plus interest.
On appeal, the Appellate Division agreed that a buyout was the
appropriate remedy given the record. The court, however, remanded the
matter for the trial court to determine whether a marketability discount should
be applied.
For the reasons set forth below, we reverse the judgment of the
Appellate Division and reinstate the trial court’s judgment in Robert’s favor.
I.
This Court provided an extensive and detailed history of the underlying
facts in this case of a fractured family and broken family businesses in our
2013 opinion. Sipko v. Koger, Inc., 214 N.J. 364 (2013).
In summary, George Sipko, an experienced processor programmer from
Slovakia, formed Koger in 1994. Thereafter, George gifted 1.5 percent of the
company’s stock to his twin sons, Robert Sipko and Rastislav Sipko (Ras) --
both of whom were actively involved with the company. George formed KDS
and KPS in 2002 and 2004, respectively, with both Robert and Ras each
owning 50 percent of each company’s shares.
4
The underlying dispute in this case arose from a family disagreement
over a woman whom Robert began dating and eventually married. The dispute
divided both the family and the family businesses. As a result of the family
divide, Robert resigned from Koger on March 10, 2006. Prior to his
resignation, Robert signed two documents memorializing the transfer of his 50
percent interest in both KDS and KPS. The document involving the transfer of
KDS stock bears the date “02/03/2006.” The document that memorialized the
transfer of KPS stock, however, was dated “12/31/04.” At a Koger board
meeting later that year, George recalled the 1.5 percent of Koger stock that he
had given to Robert in 2000.
Robert filed suit against George, Ras, and Koger on November 13, 2007,
alleging that he was an oppressed shareholder. Robert claimed that he signed
the documents transferring his stock in KDS and KPS under duress, but
George and Ras argued that Robert voluntarily relinquished his shares.
After a bench trial, the court ruled in January 2009 that George’s gift of
1.5 percent of Koger stock to Robert was unconditional and thereby effective.
However, the trial court held that KDS and KPS had no independent value as
distinct companies from Koger and that Robert recognized “that his interests in
KDS and KPS had no value, [and] voluntarily surrendered those interests.”
See 214 N.J. at 373.
5
In May 2011, the Appellate Division reversed the trial court and found
that George’s gift of the 1.5 percent of stock to Robert was conditioned on
Robert’s continued employment with the company. The court also reversed
the trial court’s decision regarding Robert’s surrender of his stock interests in
KDS and KPS, reasoning that the transfers lacked consideration and were
therefore void.
We reversed in part and affirmed in part. Id. at 378, 381. We reversed
the Appellate Division’s finding that George’s gift to Robert of Koger stock
was conditional and reinstated the trial court’s holding that the gift was
unconditional, so Robert was entitled to his 1.5 percent interest in Koger. Id.
at 378.
Relevant to the present appeal, we affirmed the Appellate Division’s
reversal of the trial court’s finding that KDS and KPS lacked any independent
value and that Robert voluntarily surrendered his interests in those companies.
Id. at 379. Based on the expert testimony presented by Hubert Klein, Robert’s
expert at trial in 2008, KDS was valued at $1,547,278 and KPS at
$34,973,236. Ibid. At trial, Ras and George “instructed their valuation expert
not to separately calculate the value of the two companies.” Ibid. We found
that “Robert’s interests in KDS and KPS clearly had value” and that “the trial
6
court’s conclusion that [both companies] were devoid of value [could not] be
sustained.” Id. at 379-80.
We further found that Robert did not relinquish his interests in KDS or
KPS, concurring with the Appellate Division’s conclusion that Robert’s
transfer of KDS and KPS stock via the two signed documents was void for
lack of consideration. Id. at 381. We observed that determining the
appropriate remedy for Robert was “complicated by the procedural posture of
this case” because the trial court had treated the three companies of Koger,
KDS, and KPS as a single entity. Ibid. We therefore remanded the matter and
“require[d] the trial court to reinstate all of Robert’s enumerated claims as they
relate[d] to KDS and KPS, and to consider those claims on their merits.” Id. at
382. Although we expressly left intact the trial court’s determination that
Robert failed to demonstrate shareholder oppression, we held that “a minority
shareholder’s failure to demonstrate conduct that rises to the level of
oppression does not necessarily deprive him of a remedy” because N.J.S.A.
14A:12-7(1)(c) “does not limit the equitable power of the courts to fashion
remedies appropriate to an individual case.” Id. at 382-83.
Accordingly, we remanded “for consideration of what, if any, remedy is
appropriate,” noting that “the trial court has broad discretion to consider such
statutory and equitable remedies as may be appropriate to this setting,
7
including but not limited to an accounting of the income and expenditures of
KDS and KPS.” Id. at 383-84.
II.
A.
Our remand for a determination of a potential remedy for Robert’s
interests in KDS and KPS forms the backdrop of this current appeal.
Less than two weeks after the issuance of this Court’s 2013 opinion, the
trial judge, who had presided over this matter since its commencement in
2007, conducted a hearing regarding the appropriate remedy to be fashioned to
compensate Robert for his interests in KDS and KPS. Robert advocated for a
buyout of his interests in the two companies as of the filing date of the
complaint in November 2007. In the alternative, Robert asked for an
accounting of all three companies -- Koger, KDS, and KPS -- and the
appointment of a fiscal agent to protect the remaining assets. Defendants
argued that the only possible remedy was dissolution of the companies, which
at that point had absolutely no value.
The trial court issued a written decision in July 2014 finding that an
accounting of KDS and KPS was appropriate, after which it would reconsider
possible remedies. The accounting was to include “all revenues and
distributions, assets and liabilities of both KDS and KPS, [from] January[]
8
2006 to the present, and including an accounting of the use and disposition of
all assets, including contracts, for that time period.” The trial court noted that
“the accounting may reveal a justification for further remedies in this case . . .
for money damages, constructive trusts and/or buy-outs, depending upon what
is revealed.”
Suffice it to say, the accounting revealed plenty about what transpired
with KDS and KPS prior to and after Robert filed the complaint in 2007. The
accounting showed that by the end of 2005, KDS and KPS had entered into
numerous substantial contracts with automatic renewal provisions after five
years. The accounting further noted, however, that four out of seven KPS
contracts were, for some reason, transferred to Koger either during trial or
after the Appellate Division’s 2011 opinion finding Robert’s surrender of his
50 percent interest in both companies void for lack of consideration. As for
KDS, one particularly valuable contract was transferred to Koger in September
2007. 2
Ras claimed that the contracts were “outsourced” to Koger because he
could no longer operate the companies without Robert, but the trial court
2
Although the complaint was filed in November 2007, defendants were aware
of the pending litigation months prior. In fact, in August 2007 letters to
Robert’s counsel, defense counsel for Koger disclaimed Robert’s interests in
most of the family companies and properties.
9
found that “the obvious, purposeful effect of draining these independent
entities of value [was] for the specific purpose of shielding value from
Robert.” The trial court further noted that “the valuable contracts transferred
or surrendered or assigned by KDS and KPS (i.e. by Ras) to Koger, Inc. was
part and parcel of a strategy to render Robert’s interests in KDS and KPS
zero.” The trial court concluded that the companies were, at that point in
2016, “valueless because they ha[d] been stripped of their value by Ras and
George.”
The trial court also found that Ras backdated Robert’s stock transfer
certificate for KPS, the more valuable of the two companies, from February
2006 to December 2004. Based on the record before the trial court, the court
found that it was evident that the certificate was backdated in an effort to
deprive Robert of his interests in certain contracts he negotiated in 2005 that
“began to yield rich fruit in 2006.”
Because KDS and KPS were worthless by the time of the completed
accounting in July 2016, the court determined that a third-party sale or forced
dissolution of the companies would be empty or insignificant remedies.
Therefore, the judge concluded that the “only appropriate available remedy”
was to impose a buyout obligation upon George and Ras and order them to pay
Robert the value of his 50 percent interests in KDS and KPS as of the date
10
Robert filed the complaint on November 13, 2007. The trial court offered
George and Ras the opportunity to call their own expert to value the companies
given that George and Ras had directed their trial expert not to independently
value the companies. Defendants, however, declined the trial court’s
invitation and did not call an expert. 3
Based on “the coherent and convincing and unrebutted evidence of
value” in the companies put forth by Robert’s expert Klein at trial, the trial
court found that, at the time the complaint was filed, KDS had a fair value of
$1,547,278 and KPS had a value of $34,973,236. In summary, the trial court
found that the mischief George and Ras engaged in regarding KDS and KPS
after the litigation commenced in this matter called for only one possible
resolution:
The undisclosed assignment of assets, the redirecting of
contract revenues, the backdating of the stock
certificate, the misrepresentation and nondisclosure of
assets in the KDS account at the time of the original
trial, properly require a remedy. And the only
appropriate available remedy is to compel a buyout.
Pursuant to Klein’s valuation, the judge determined that Robert’s 50
percent interest in KDS was worth $773,642 and his 50 percent interest in KPS
3
At oral argument, counsel for defendants admitted that not calling an expert
regarding the valuation determination on remand was a strategic decision. To
this day, defendants have never, during the entire 15-year pendency of this
litigation, put forth a valuation of KDS and KPS.
11
was worth $17,486,618, for a total amount of $18,260,257, excluding pre-
judgment interest. The court’s opinion, which detailed the findings against
defendants, was filed on July 27, 2016.
On August 19, 2016, the court filed a judgment awarding Robert
damages against George, Ras, and the corporate entities of Koger, KPS, and
KDS in the amount of $24,697,571.14, jointly and severally, which included
pre-judgment interest in the amount of $6,437,311.14. The court imposed a
constructive trust on Koger’s profits and enjoined George, Ras, and Koger
from transferring any assets until full satisfaction of the judgment or the
posting of an appropriate bond. Further, the judge denied George’s and Ras’s
motion for reconsideration and to post alternative security for a stay pending
appeal by an order dated September 26, 2016.
B.
After the trial court entered its judgment in favor of Robert, defendants’
pattern of acts calculated to prevent Robert from obtaining compensation for
his interests in KDS and KPS continued. Post-judgment, George and Ras
claimed, without documentary support, that they were unable to post a bond.
They filed an application to post alternative security, supported by their
certifications offering their combined 98.5 percent interest in Koger. Further,
12
Ras offered to post $3 million in cash and real property in Connecticut that he
valued at $6.75 million. 4
On September 30, 2016, the trial court entered an order granting the
posting of the alternative security, conditioned upon George and Ras providing
a sworn accounting of both foreign and domestic assets and liabilities. The
order provided that if the court found any material misrepresentation in the
sworn accounting, it would forfeit defendants’ posted cash, deed, and stock in
partial satisfaction of the judgment and vacate the stay of execution of the
judgment. The court also ordered George and Ras to provide “audited
4
Although Ras offered the Connecticut property as alternative security,
stating that he was “ready and willing to pledge [the] real property,” shortly
thereafter, without notice to the court, Ras obtained an attachment order in his
Connecticut divorce proceeding which made that property part of the assets to
be distributed in the divorce and, therefore, beyond the trial court’s reach.
After several years of proceedings, a Connecticut court has ordered the sale of
the property, with 65 percent of the sale price to be disbursed to satisfy any
unpaid balance of the judgment in favor of Robert.
13
financial statements within 100 days,” and enjoined them from encumbering,
secreting, or transferring any assets outside the ordinary course of business. 5
On November 7, 2016, the court granted Robert’s request to appoint a
special fiscal agent (SFA) to oversee Koger. The judge also ordered and
required George and Ras to file, within thirty days, a sworn accounting of
transactions by Koger that exceeded $50,000, and of any transactions by
George or Ras that exceeded $10,000, from September 30, 2015 to November
30, 2016.
The accounting of transactions filed with the SFA on January 13, 2017
was telling. It revealed that Ras “drew down $2.5 million on his credit line,
exhausting the line, days after the post-remand decision.” Defendants also
revealed, apparently for the first time in December 2016, that they owned real
estate in Slovakia that their appraiser valued at approximately $23 million.
Robert asserted that he was completely unaware of the three newly disclosed
5
On October 28, 2016, George and Ras submitted unaudited financial
statements. The trial court found that the accounting firm neither asked nor
verified the accuracy or completeness of the information provided by
defendants; both defendants “elected to omit substantially all the disclosures
ordinarily included in the statement of financial condition prepared in
accordance [with] generally accepted accounting principles.” The financial
disclosures did not contain corroborating documentation to support their
veracity. The disclosures did note that George had a total net worth of
$44,051,100 and Ras had a net worth of $21,729,700.
14
properties and that his appraisers in Slovakia valued the land as worth a total
of approximately $3.1 to $4.3 million.
Most shockingly, the sworn accounting revealed that George and Ras,
while representing to the court for months that they did not have money with
which to post a bond, had transferred approximately $20 million in cash to
overseas accounts in a series of transactions between July 28, 2016 (one day
after the judge issued his decision awarding $18 million to Robert) and August
11, 2016 (approximately one week before entry of the judgment).
At a hearing, George and Ras claimed that they sent the money overseas
to pay off a debt to a relative who supposedly had lent them $17 million to
purchase several properties in Slovakia -- the same properties that defendants
first disclosed to the court and Robert in December 2016. 6 According to
defendants, the loan became due in August 2016 and it was entirely
coincidental that they needed to begin paying off the debt and transferring
millions of dollars to Slovakia the day after the trial court’s ruling in favor of
6
These were not the only properties defendants failed to mention. Despite the
trial court’s directives for candor regarding defendants’ assets and liabilities,
George never once mentioned in his disclosures to the court that he also held
interests in 22 parcels of land in Slovakia, purportedly consisting of four acres
according to defendants. George claimed these were ancestral farmlands of
little value gifted to him upon his father’s death. The trial court found that the
failure to disclose the properties did not impact the discussion of defendants’
ability to post a bond due to the apparent low value.
15
Robert. The trial court found that the transfers totaling approximately $20
million in supposed repayment of the loan were not made to the alleged holder
of the note, but rather were sent to George’s sister and nephew, and to the wife
or daughter of George’s brother-in-law. Although they claimed they owed a
significant amount of money on the loan, defendants provided no evidence to
the court of any loan documents or evidence of the money they spent to
acquire the properties and no evidence whatsoever of the claimed significant
financial transactions related to the $20 million.
The court concluded that defendants’ claim of a loan payoff was a
fabrication, “simply a made up story to camouflage a desperate effort to
secrete assets overseas to family members to shield those monies from Robert
and his lawyers.” 7 The court further found that “the reason $20M [in] U.S.
7
The trial court noted the odd scenario in which defendants would disclose,
for the first time post-judgment, interests in overseas properties with “wildly
inflated values” of approximately $23 million, almost the exact amount of the
judgment against them. The trial court noted that “one would expect it would
be in Defendants’ best interests to advance a low ball number for the assets.”
The trial court concluded that the
reason Defendants would attribute a $23 million value
to the three (3) until recently undisclosed foreign
properties, is to explain why $20 million was wired
overseas to purportedly save them from foreclosure.
An equivalence of value to pay-off would support
Defendants’ claim that the undisclosed payoffs of the
undisclosed liens on the undisclosed properties was
bona fide, not contrived.
16
dollars fled this country for Slovakia, secretly distributed to these overseas
relatives, was because George and Ras panicked in the face of the $18M award
in favor of Robert against them, and were desperate to get the money out of the
country and beyond his reach.”
In an order dated July 3, 2018, the trial court held that George and Ras
were in violation of litigant’s rights and directed defendants to return $18
million by July 16, 2018. If the defendants failed to return the money by that
date, they were to appear in court on July 19 to be remanded to the Bergen
County jail to serve each weekend until the money was returned. As of July
19, 2018, the money was not returned. Ras appeared to commence his
commitment, but George absconded the country. The trial court issued a
warrant for George’s arrest, but he continues, as of the filing of this opinion, to
be a fugitive from the court.
C.
Defendants appealed the trial court’s orders on several grounds.
Relevant to this appeal, defendants challenged the buyout remedy and the
valuation of KDS and KPS. The Appellate Division was also tasked with
17
reviewing three consolidated appeals, but the valuation of the companies is the
only issue germane to the present matter. 8
In an unpublished opinion, the Appellate Division affirmed the buyout
remedy but agreed with defendants regarding the valuation of the companies.
The Appellate Division held that the trial court improperly accepted Robert’s
expert’s opinion, which it had implicitly rejected at trial in 2008, without any
explanation for the acceptance on remand; in the appellate court’s view, the
trial court simply failed to reach “a reasoned, just and factually supported
conclusion.” The Appellate Division noted that such a deficient analysis was
problematic in light of the trial testimony of George’s and Ras’s expert, Martin
Schmidt, in 2008. At trial, although defendants instructed Schmidt not to
independently value KDS and KPS, Schmidt asserted that Robert’s expert,
Klein, failed to account for the impact that Koger -- its support, infrastructure,
and goodwill -- had on the value of KDS and KPS. In his criticism of Klein,
Schmidt further noted that Klein lacked knowledge regarding the licensing
agreements between Koger, KDS, and KPS.
8
Based on the fugitive disentitlement doctrine, Robert moved to dismiss
George’s appeal, citing the trial court’s conclusion that George fled the
jurisdiction after secretly diverting assets overseas to frustrate Robert’s ability
to collect on the judgment and the court’s threat of imprisonment unless the
assets were returned. See Matsumoto v. Matsumoto, 171 N.J. 110, 119 (2002).
The Appellate Division granted Robert’s motion, so George is not a party to
this appeal.
18
The Appellate Division also took issue with the trial court’s failure to
determine the application of a marketability discount to the value of KDS and
KPS, noting that Schmidt “justified application of a marketability discount” to
the value of the companies. The court observed that pursuant to Balsamides v.
Protameen Chemicals, Inc., 160 N.J. 352, 377 (1999), trial courts must decide
whether to apply such a discount and “must take into account what is fair and
equitable[]” in determining the value of shares in a closely held corporation.
For those reasons, the Appellate Division “reluctantly remand[ed] the
matter to the trial court for the reconsideration of the valuation of KDS and
KPS, and, in turn, the value of Robert’s 50 percent interest in each corporation
as of the valuation date.” On remand, the Appellate Division instructed the
trial court to “consider all sources of information that affect the fairness and
equity of Klein’s suggested buyout price, including Schmidt’s criticisms.”
D.
We granted Robert’s petition for certification, limited to the propriety of
the remand for the reconsideration of the valuation of KDS and KPS. 247 N.J.
413 (2021). We denied Ras’s and Koger’s petitions for certification
challenging, in part, the buyout remedy and the trial court’s factual findings.
247 N.J. 407 (2021); 247 N.J. 409 (2021).
19
III.
A.
Robert argues that the Appellate Division erred in remanding the matter
to the trial court for reconsideration of the valuation of KDS and KPS. Robert
contends that another remand will effectively give defendants “a new bite at
the apple” because they strategically declined the trial court’s invitation to
present an alternative valuation of KDS and KPS. Robert emphasizes that a
marketability discount, pursuant to Balsamides and Lawson Mardon Wheaton,
Inc. v. Smith, 160 N.J. 383, 398 (1999), should not be applied to benefit
defendants who have acted inequitably throughout the entire course of
litigation. Robert further submits that the Appellate Division incorrectly found
that a discount could be applicable based on Schmidt’s 2008 trial testimony
because his testimony regarding application of a marketability discount was
stricken for lacking foundation. Robert also asserts that the appellate court’s
decision defies the broad equitable discretion afforded to the remand judge
who presided over the case for a decade and determined that such a discount
ought not apply.
20
B.
Ras and the corporate entities of Koger, KDS, KPS, and Koger Limited
(Dublin) 9 are represented by different counsel, but we consider their arguments
together because they are substantially similar. Defendants urge this Court to
affirm the Appellate Division’s finding that a remand was appropriate for the
reconsideration of the valuation of KDS and KPS. Defendants assert that a
marketability discount is applicable based on the idiosyncratic corporate
structure and relationship between Koger, KDS, and KPS. According to
defendants, failure to apply such a discount would award Robert a windfall and
thereby eviscerate the judiciary’s role in determining the fair value of closely
held corporations. Defendants maintain that the trial court was not required to
accept Klein’s valuation simply because it was “unrebutted.” The corporate
entities of Koger, KDS, KPS, and Koger Limited further argue that the alleged
post-judgment conduct of George and Ras does not bear upon the value of
KDS and KPS because the entities operated in good faith ever since the filing
of Robert’s complaint in 2007 and the alleged post-judgment misfeasance of
George and Ras has nothing to do with the entities.
9
Koger Limited (Dublin) was formed to facilitate operations in Ireland.
21
IV.
A.
Our standard of review for valuation disputes is deferential because the
valuation of closely held corporations is “inherently fact-based[,]” not based in
“exact science,” and “frequently become[s] battles between experts.”
Balsamides, 160 N.J. at 368. Factual findings by a trial judge are significant
as “[o]nly the trial court has the opportunity to see, hear, and question such
expert witnesses.” Ibid. Accordingly, we must not disturb a factual finding of
the trial court “unless it is clearly erroneous or shows an abuse of discretion.”
Ibid. (quoting Madeline Marzano-Lesnevich and Francine Del Vescovo, The
Minority Discount, 18 N.J. Fam. L. 338, 339 (1998)).
However, “we need not give deference to the trial judge’s determinations
of what discounts or premiums the determination of fair value may include, or
must exclude, since they are questions of law.” Casey v. Brennan, 344 N.J.
Super. 83, 110 (App. Div. 2001), aff’d, 173 N.J. 177 (2002). “[T]he
determination of whether a ‘marketability discount’ is applicable implicates a
question of law” and is therefore reviewed de novo. Balsamides, 160 N.J. at
373.
22
B.
1.
In our 2013 opinion in this matter, we held that Robert did not meet the
standard of an oppressed shareholder pursuant to N.J.S.A. 14A:12-7. Sipko,
214 N.J. at 382. We nevertheless held that “a minority shareholder’s failure to
demonstrate conduct that rises to the level of oppression does not necessarily
deprive him of a remedy” because N.J.S.A. 14A:12-7(1)(c) “does not limit the
equitable power of the courts to fashion remedies appropriate to an individual
case.” Id. at 382-83. We further noted that the trial court’s equitable powers
enabled it to fashion a remedy. Id. at 383-84.
Much of our jurisprudence has considered the application of a
marketability discount in a corporate buyout in the context of matters
involving shareholder oppression. See, e.g., Balsamides, 160 N.J. at 372;
Lawson, 160 N.J. at 407-08. Although we leave intact our previous finding
that Robert did not demonstrate himself to be an oppressed shareholder, we
nevertheless look to N.J.S.A. 14A:12-7(1)(c) and our jurisprudence regarding
the formulation of remedies for oppressed minority shareholders to inform our
analysis of whether the Appellate Division properly remanded this matter for a
determination of whether a marketability discount is applicable.
23
In Brenner v. Berkowitz, we rejected the defendants’ argument that
fraudulent and illegal acts do not violate N.J.S.A. 14A:12-7(1)(c) “unless the
plaintiff also can show that such acts oppress the minority shareholder.” 134
N.J. 488, 506 (1993). Even if the minority shareholder is not deemed to be
oppressed, we held that such conduct may be actionable under the statute
because “[i]llegality and fraud may also frustrate a shareholder’s reasonable
expectations for a company but nonetheless not qualify as oppression.” Id. at
506-07. We noted that the statute affords to such shareholders a range of
individualized remedies in the presence of appropriate proofs:
[I]n addition to demonstrating fraudulent or illegal
conduct, mismanagement, or abuse of authority, or
oppressive or unfair conduct, a plaintiff must also
demonstrate a nexus between that misconduct and the
minority shareholder or her interest in the corporation.
The remedies that a court will apply will logically
depend on the harm to the minority shareholder or her
interest in the corporation.
[Id. at 508.]
We emphasized that N.J.S.A. 14A:12-7(1)(c) does not limit or preempt
the courts’ equitable power in fashioning appropriate remedies to a business
dispute, specifically observing “that the enactment of N.J.S.A. 14A:12-7 was
not intended to supersede the inherent common law power of the Chancery
Division to achieve equity.” Id. at 512. We also enumerated a broad range of
24
judicial remedies that courts can utilize in adjudicating disputes over closely
held corporations, including ordering an accounting and appointing a special
fiscal agent to oversee the corporation. Id. at 513-15.
The Oppressed Shareholder Statute contains a buyout section, N.J.S.A.
14A:12-7(8)(a), which provides in part, that
[u]pon motion of the corporation or any shareholder
who is a party to the proceeding, the court may order
the sale of all shares of the corporation’s stock held by
any other shareholder who is a party to the proceeding
to either the corporation or the moving shareholder or
shareholders, whichever is specified in the motion, if
the court determines in its discretion that such an order
would be fair and equitable to all parties under all of
the circumstances of the case.
(a) The purchase price of any shares so sold shall
be their fair value as of the date of the
commencement of the action or such earlier or
later date deemed equitable by the court, plus or
minus any adjustments deemed equitable by the
court if the action was brought in whole or in part
under paragraph 14A:12-7(1)(c).
[(emphases added).]
As we stated in Balsamides, the buyout section not only “recognize[d] that the
most sensible remedy to resolve problems of deadlock, dissension, or
oppression often will be to ‘effect a corporate divorce,’” but it also considered
that “a purchase and sale of shares at a fair price may be more desirable to all
25
parties than a dissolution.” 160 N.J. at 372 (quoting 2 John R. MacKay II,
New Jersey Business Corporations, § 14-6(d)(2)(a) (2d ed. 1996)).
2.
The determination of fair value does not involve a rigid application of an
inflexible test because “[n]o general formula may be given that is applicable to
the many different valuation situations.” Bowen v. Bowen, 96 N.J. 36, 44
(quoting Rev. Rul. 59-60, 1959-1 C.B. 237). The “assessment of fair value
requires consideration of ‘proof of value by any techniques or methods which
are generally acceptable in the financial community and otherwise admissible
in court.’” Lawson, 160 N.J. at 397 (quoting 1 John R. MacKay II, New
Jersey Business Corporations, § 9-10(c)(1) (2nd ed. 1996)).
Whether the corporation’s fair value should be reduced by a
marketability discount or any other discount is part and parcel of the fair value
determination. See Balsamides, 160 N.J. at 375 (“In calculating the ‘fair
value’ of [the oppressor’s] stock, the main question to be resolved is whether
the corporation’s value should be reduced by a marketability or other
discount.”). Although adversaries agree with the flexible approach in
determining fair value, they often disagree on whether the fair value to be paid
to an oppressed shareholder should reflect a marketability discount. Lawson,
160 N.J. at 397-98.
26
Marketability discounts “reflect the decreased worth of shares of stock in
a closely held corporation, for which there is no readily available market.”
Balsamides, 160 N.J. at 375. Such a discount “adjusts for a lack of liquidity in
one’s interest in an entity, on the theory that there is a limited supply of
potential buyers for stock in a closely held corporation.” Lawson, 160 N.J. at
398-99. “Some commentators observe that a marketability discount is not a
discount at all,” but rather “a price adjustment reflecting factors typical of
close corporations,” which “include dependence on key employees or key
customers, and go beyond the ready salability or liquidity of the firm.
Balsamides, 160 N.J. at 379.
As we stated in Lawson, “[t]he very nature of the term ‘fair value’
suggests that courts must take fairness and equity into account in deciding
whether to apply a discount to the value of the dissenting shareholders’ stock.”
160 N.J. at 400. In fact, N.J.S.A. 14A:12-7(8) expressly authorizes a court,
“[u]pon motion of the corporation or any shareholder who is a party to the
proceeding,” to judicially order a sale of the corporation’s stock held by any
shareholder who is party to the litigation if the court determines that “would be
fair and equitable to all parties under all of the circumstances of the case.”
Depending on the facts, we have held that fairness and equity can
compel the decision to apply such a discount, or not. Stated differently,
27
“[a]pplication of the equities . . . [can] dictate[] opposite results.” Balsamides,
160 N.J. at 382.
In Balsamides, we held that the application of a 35 percent marketability
discount was appropriate, reasoning that the Oppressed Shareholder Statute
does not permit the oppressor to harm his partner and then be rewarded with
the right to be bought out by the oppressed partner at an undiscounted value.
Id. at 382-83. There, the plaintiff requested judicial dissolution of a closely
held corporation following numerous spiteful actions by the defendant. Id. at
354, 358. The trial court ordered the buyout and applied a 35 percent
marketability discount. Id. at 359. In upholding the trial court’s application of
the marketability discount, we emphasized that “where the oppressing
shareholder instigates the problems, . . . fairness dictates that the oppressing
shareholder should not benefit at the expense of the oppressed.” Id. at 382.
Stated simply, the basic principles of equity could not require that the
oppressed party pay an undiscounted price for the oppressor’s stock because
doing so would penalize the oppressed and reward the oppressor. Ibid. We
noted that we did not want to afford a shareholder any incentive to oppress
other shareholders for personal gain. Id. at 382-83.
In Lawson, decided the same day as Balsamides, we held that in
calculating the “fair value” of the dissenters’ shares, it would be inequitable to
28
apply a 25 percent marketability discount. Lawson, 160 N.J. at 407-08.
There, the corporation approved a plan to restructure the corporation in an
attempt to restrict future public sales of the company’s stock; the approval
triggered the dissenting shareholders’ rights to demand payment of the “fair
value” of their shares under the Appraisal Statute, N.J.S.A. 14A:11-1 to -11.
Id. at 389. The corporation ultimately offered the dissenting shareholders
$41.50 per share, after applying a 25 percent marketability discount from a fair
value range of $52.65 to $56.70 per share. Id. at 389-90.
We reasoned that to allow the majority shareholders to buy out the
minority dissenters at the price of $41.50 would penalize the minority for
exercising their statutory rights; encourage the majority to remove and buy out
shareholders to their benefit and potentially “reap a windfall from the appraisal
process by cashing out a dissenting shareholder”; and create an incentive for
the majority to engage in activities designed to sow dissent and “encourage
corporate squeeze-outs.” Id. at 402. Application of the marketability discount,
in that case, would have frustrated the purposes of the Appraisal Statute, and
such results would be “clearly undesirable.” Ibid. Hence, we reversed and
remanded for the recalculation of the “fair value” of the dissenters’ shares
without application of the marketability discount. Id. at 408.
29
Balsamides and Lawson underscore the importance of determining the
“fair value” of a corporation on a case-by-case basis. Balsamides, 160 N.J. at
381 (noting that “[a]lthough it would be helpful to pronounce a consistent rule
regarding the determination of ‘fair value’ and the applicability of discounts
under various circumstances, we cannot do so” because “[e]ach decision
depends not only on the specific facts of the case, but also should reflect the
purpose served by the law in that context” (quotations omitted)). The guiding
principle in such cases is that a marketability discount cannot be used unfairly
by the parties whose misconduct and bad faith caused the corporate split to
benefit themselves to the detriment of the injured parties. Id. at 383.
V.
A.
The sole issue before this Court is whether the Appellate Division erred
in remanding this case to the trial court for a determination of whether a
marketability discount must be applied to the values of KDS and KPS. As
noted in our jurisprudence, “courts must take fairness and equity into account
in deciding whether to apply a discount to the value” of a company in a
buyout. Lawson, 160 N.J. at 400. With fairness and equity in mind, we
certainly cannot ignore the many instances in which defendants took deliberate
30
steps to prevent Robert from recovering any value he might achieve
throughout the course of litigation.
Defendants continue to argue that KDS and KPS had no independent
value, despite this Court’s 2013 finding that the companies did have value.
Quite frankly, there is no better indicator of how valuable the companies were
than defendants’ own transparent actions to swiftly and methodically gut the
entities of any worth during the pendency of the litigation to ensure that Robert
would never see any of that value they continue to claim is non-existent.
Defendants knew how valuable the companies were. That is why, as the trial
court noted, “the bones have been picked,” and defendants completely stripped
away all value when the possibility of having to turn some of it over to Robert
arose.
Defendants assert that post-judgment and post-remand conduct should
not be considered in determining whether equity requires the application of a
marketability discount. Even without defendants’ misfeasance, blatant
misrepresentations to the trial court, lack of transparency regarding their
financials and financial transactions, and, in George’s case, fleeing the country
to escape enforcement of the court’s order, actions which are all contemptible,
defendants engaged in enough pre-judgment misconduct between the filing of
31
the complaint and this Court’s 2013 opinion to justify not applying the
discount when considering the equities.
In one instance, Ras backdated the KPS stock transfer certification from
February 2006, the date on which Robert acknowledged his surrender of shares
in both KDS and KPS, to December 2004. Based on the evidence before the
trial court, the trial judge concluded that Ras either personally backdated the
document or caused someone to do so with the intention to deprive Robert of
his interest in KPS attributable to certain contracts Robert negotiated in 2005
which resulted in substantial profits for the company beginning in 2006. By
falsifying evidence of Robert’s relinquishment of his interest in KPS, Ras, as
found by the trial court, “was attempting to depress the value Robert could
hope to achieve” and disrupt Robert’s true potential to capture value for his
interests. Once again, defendants’ own actions lay bare their understanding of
just how valuable the companies were. Although Robert signed away his
interests in both companies in February 2006, it is telling that only the KPS
transfer certificate was falsely backdated. Given that KPS was over 10 times
more valuable than KDS, it is quite clear why the target of the fraudulent
backdating was KPS.
Additionally, the comprehensive accounting of both KDS and KPS
ordered by the trial court illuminated defendants’ deliberate and dubious
32
actions undertaken for the sole purpose of rendering KDS and KPS completely
valueless. According to the accounting, by the end of 2005, KDS and KPS had
entered into very valuable five-year contracts with automatic renewal
provisions. As for KPS, it generated $5,149,575 in revenue in 2006,
$8,994,899 in 2007, and $8,086,147 in 2008. However, in 2009, KPS earned
less than $200,000, and less than $100,000 in 2010. That dramatic decline in
revenue coincided with the litigation in this matter. The trial court found that
George and Ras began to redirect revenue from KPS to Koger beginning in
2008, just after the complaint was filed. Four out of seven KPS contracts were
transferred to Koger either during litigation or after the Appellate Division
held in 2011 that Robert’s surrender of his interest in the two companies was
void. Just as it defies logic to believe defendants suddenly had to make an
overseas payment of $20 million cash one day after the trial court informed
them that they owed Robert approximately the same amount of money, it is no
coincidence that KPS became a shell of an entity just as Robert was asserting
his interests through the court system. As for KDS, defendants assigned one
lucrative contract to Koger in September 2007, and the others held by the
company essentially lapsed without renewal.
Just as the trial court noted, we cannot “ignore the reality that steps were
knowingly taken to deplete the value of assets Robert was asserting one-half
33
interest in.” Defendants’ bad-faith behavior throughout this 15-year litigation
occurred for the specific and obvious purpose of preventing Robert from being
fairly compensated for his interests. Defendants now ask the Court, after
acting unfairly at almost every turn, to apply a doctrine rooted in fairness to
relieve them of their responsibility to buyout Robert for the amount
determined by the trial court. We decline to do so. If ever there was an
instance in which equity did not fall in a party’s favor, it is this case.
In light of all the defendants’ conduct regarding KDS and KPS to strip
Robert of his rightful interests, equity cannot abide imposing a discount to the
benefit of defendants.
B.
The Appellate Division found that the trial court, on remand, erred in
accepting Klein’s testimony from 2008 and failed to reach “a reasoned, just
and factually supported conclusion.” The Appellate Division noted that the
trial judge had “implicitly rejected” Klein’s opinion at trial in concluding that
KDS and KPS had no value; the court also stressed that the trial court failed to
explain its later acceptance of Klein’s valuation on remand. We disagree and
find that the trial court’s judgment was fully supported by the record.
We defer to the trial judge’s findings in this matter, particularly because
the trial judge handled this matter for over a decade, presided over the bench
34
trial, heard testimony, asked questions, and had, by far, the best feel for the
case. See, e.g., Township of West Windsor v. Nierenberg, 150 N.J. 111, 132
(1997) (“The rationale underlying that limited scope of appellate review is that
a trial judge’s findings are substantially influenced by his or her opportunity to
hear and see the witnesses and to get a ‘feel’ for the case that the reviewing
court cannot enjoy.”). The now-retired trial judge presided over the bench trial
during which Klein testified -- filling 165 pages of transcript -- and was
subject not only to cross-examination by defense counsel, but also questioning
by the trial judge regarding his valuation of the companies. Defendants’
expert, Schmidt, also testified, and the trial judge questioned him as well.
During Schmidt’s testimony regarding the application of a 35 percent
marketability discount, he admitted that his basis for applying the discount was
“instructions from counsel that in this -- based on the facts of this case, it was
appropriate.” 10
It was within the trial court’s wide discretion to accept or reject an
expert’s testimony, either in whole or in part. Brown v. Brown, 348 N.J.
10At trial, Robert’s counsel moved to strike Schmidt’s testimony regarding
the marketability discount. After Schmidt testified that he included the
discount because defense counsel instructed him to do so, the trial judge
sustained the objection. The court did not decide whether the discount applied
but noted, “if that’s the basis of his rendering the opinion, then I don’t really
want to hear the criticism of the other guy,” in reference to Klein.
35
Super. 466, 478 (App. Div. 2002) (“A trial court is free to accept or reject the
testimony of either side’s expert, and need not adopt the opinion of either
expert in its entirety.”). On remand, the trial court accepted Klein’s valuation
of the companies as “coherent and convincing.” It was certainly within the
court’s discretion to do so, particularly in light of the remand record that put in
focus defendants’ actions during the litigation to decimate KDS and KPS. The
trial court properly exercised its discretion in accepting Klein’s testimony over
Schmidt’s testimony, which was struck from the record, in part, because -- by
his own admission -- the sole basis for his “expert opinion” on including a
marketability discount was defense counsel’s directive to do so.
Certainly, this Court’s 2013 opinion placed the trial court in an unusual
situation. The trial court found in 2009 that KDS and KPS had no independent
value. This Court, in affirming the Appellate Division at the time, found that
the companies did in fact have value and that Robert’s surrender of his 50
percent interests was void for lack of consideration. We remanded the matter
back to the trial court to determine what remedy, if any, could be fashioned to
fairly compensate Robert for his interests in the two companies. In following
this Court’s directive on remand, the trial court had to take a position that was
the complete opposite of the one it took in 2009 because that determination
36
had been reversed. Indeed, the trial judge even noted the following in his
September 2016 letter decision:
I readily concede that portions of my decision differ
from previous ruling[s] made in this case. I previously
ruled KPS and KDS had no independent value as of the
date of the commencement of this case in November of
2007 . . . . I have now recognized that the companies
each had value, and I have valued them. That is a result
of Appellate and Supreme Court determinations in this
case. There is no basis to request of me that I reconsider
the determinations of those tribunals on this
fundamental point.
....
On the quantification of value, the [defendants]
demurred when invited by the court to consider a new
expert, post-remand . . . . That left the court with
Hubert Klein’s unrebutted values, which I accepted. In
the course of doing so, I abandoned, as I am bound by
my oath to abandon, the belief that KDS and KPS were
valueless creatures of George Sipko and Koger, Inc. --
a concept [the defendants] to this day refuse[] to
abandon, but which the Appellate Division and the
Supreme Court has determined to be unsupportable and
incorrect.
For the Appellate Division to find that the trial court failed to reach a reasoned
and just conclusion, in part because it failed to explain its differing position on
remand, ignores the reality of the appellate process that oftentimes, as in this
case, requires trial courts to proceed on remand in a manner that is the
complete opposite of the court’s previous position. The trial court certainly
37
cannot be faulted for following the directives of this Court on remand and
abandoning its previous holding, which had been reversed on appeal.
In remanding the matter, the Appellate Division directed the trial court
to consider all sources of information regarding “the fairness and equity of
Klein’s suggested buyout price, including Schmidt’s criticisms.” There are
several reasons why the trial court logically did not consider Schmidt’s
testimony from 2008. First, Schmidt did not separately value KDS and KPS
because defendants instructed him not to do so. During trial, Schmidt
considered all the entities together as one and never put forth an independent
value for KDS or KPS. Second, as noted above, Schmidt’s testimony
regarding the application of a marketability discount was stricken from the
trial court record.
Lastly, and most relevant to this Court’s remand in 2013, Schmidt
testified that KDS and KPS had no independent value. That was the crux of
Schmidt’s expert testimony and part of his criticisms of Klein’s valuation. It
bears repeating: In 2013, this Court found that KDS and KPS did have
independent value. Schmidt previously testified that KDS and KPS had no
independent value and the trial court agreed at that time. We reversed that
finding. So it stands to reason that it would serve no purpose whatsoever for
38
the trial court to revisit the testimony of an expert whose position was reversed
by this Court almost a decade ago.
The trial court did, however, give defendants an opportunity on remand
to call an expert to present their position on the valuation of the companies.
Recognizing that their expert at trial did not value the companies
independently, the trial court gave defendants the chance to present the
testimony anew in light of this Court’s remand. Defendants declined, making
the strategic decision to refuse to abandon their argument that the companies
had no value. Even before this Court, counsel for Ras continued to argue the
lack of value in the companies. This Court held almost a decade ago that the
companies had independent value and we do not revisit that finding, regardless
of defendants’ continued inability to accept it.
Defendants claimed before the trial court and the Appellate Division that
they declined to present an expert on remand because they could not have
imagined that the trial court would order a buyout, given that there was no
finding of shareholder oppression. But as this Court’s 2013 opinion noted, the
lack of a finding of shareholder oppression did not prevent the trial court from
exercising its equitable powers to fashion a remedy for Robert. Furthermore,
in ordering the accounting in 2014, the trial court specifically noted that the
results of the accounting could justify certain remedies, including a buyout.
39
Defendants therefore cannot continue to ignore this Court’s 2013 decision and
pretend that they were unaware that a buyout was a possibility.
Defendants took a risk and it did not pay off. Defendants now want
another bite at the apple, but given all that has transpired in this case and all of
defendants’ misconduct, we cannot allow that. Were we to grant defendants
another remand to address the very issue they had the opportunity to fully
litigate during the first remand, we would be promoting the principle that
“repetitive bites at the apple are allowed.” See Cummings v. Bahr, 295 N.J.
Super. 374, 384 (App. Div. 1996). We decline to provide defendants with
another bite of “this thoroughly chewed apple.” See Whitfield v. Blackwood,
101 N.J. 500, 500 (1986) (Clifford, J., concurring).
VI.
For the foregoing reasons, we reverse the judgment of the Appellate
Division and remand the matter to the trial court to reinstate its August 19,
2016 judgment.
CHIEF JUSTICE RABNER; JUSTICES ALBIN and SOLOMON; and
JUDGE FUENTES (temporarily assigned) join in JUSTICE PIERRE-LOUIS’s
opinion. JUSTICE PATTERSON did not participate.
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