Bhagat v. Bharat A. Bhagat & Cranbury Hotels, LLC

• Decision Date: 30 January 2014
• Citation: 84 A.3d 583,217 N.J. 22
• Court: New Jersey Supreme Court
• Parties: Amratlal C. BHAGAT, Individually and as Shareholder of ABB Properties Corporation, a New Jersey Corporation and as a Shareholder of Easterner Motor Inn, Inc., a New Jersey Corporation, Plaintiff–Appellant, v. Bharat A. BHAGAT and Cranbury Hotels, LLC, a New Jersey Limited Liability Company, Defendants–Respondents.

217 N.J. 22

84 A.3d 583

Amratlal C. BHAGAT, Individually and as Shareholder of ABB Properties Corporation, a New Jersey Corporation and as a Shareholder of Easterner Motor Inn, Inc., a New Jersey Corporation, Plaintiff–Appellant,

v.Bharat A. BHAGAT and Cranbury Hotels, LLC, a New Jersey Limited Liability Company, Defendants–Respondents.

Supreme Court of New Jersey.

Argued Feb. 27, 2013.

Decided Jan. 30, 2014.

Joseph B. Fiorenzo argued the cause for appellant (Sokol, Behot & Fiorenzo, attorneys; Mr. Fiorenzo and Steven N. Siegel, Hackensack, on the briefs).

Jonathan I. Epstein argued the cause for respondents (Drinker Biddle & Reath, attorneys; Mr. Epstein and Karen A. Denys, Princeton, on the brief).

Judge CUFF (temporarily assigned) delivered the opinion of the Court.

This appeal arises from the purported transfer of stock in a closely held corporation between a father and son. Both parties concede that when a father transfers stock to a son, a presumption of a gift arises. The issue is whether the father adduced sufficient evidence to rebut that presumption in the context of cross-motions for summary judgment. That issue implicates the applicable standard of proof, the nature and quality of the evidence that will satisfy that standard, and the manner in which the standard of proof governs the summary judgment analysis. We must also determine whether a position taken by the son in earlier litigation against other family members bars his current position that his father gifted to him all of the stock in the family business.

Here, despite the urging of plaintiff and some reasoned authority elsewhere, we decline to abandon the well-established clear and convincing standard of proof in favor of the preponderance of the evidence standard. We also reiterate that every motion for summary judgment requires the court, trial or appellate, to review the motion record against not only the elements of the cause of action, but also the evidential standard governing that cause of action.

Finally, we emphasize that the doctrine of judicial estoppel may be invoked only when a position advanced in prior litigation concerning the subject matter of the current litigation has been accepted by a court and led to a judgment in favor of that party. If the matter is resolved by settlement, as in this case, the circumstances warranting application of the bar do not exist. The prior inconsistent position, however, may be utilized in the current litigation as an admission and for impeachment purposes.

I.

On December 3, 2003, Amratlal C. Bhagat (A.C.), individually and as shareholder of ABB Properties Corporation (ABB Properties) and as a shareholder of Easterner Motor Inn, Inc. (Easterner), filed a complaint against his son, Bharat A. Bhagat (B.B.),¹ Cranbury Hotels, L.L.C. (Cranbury), and various other corporate entities (collectively defendants). This action was prompted by B.B.'s creation of a new entity, Cranbury, and the transfer of a hotel and property from Easterner to Cranbury. A.C. alleged that B.B. breached a fiduciary duty owed to A.C. and converted, as his own, stock intended for A.C. A.C. also alleged B.B. fraudulently and deceitfully transferred the stock to his ownership. A.C. sought immediate access to the books and records of ABB Properties, an accounting, imposition of a constructive trust on Cranbury, appointment of a temporary receiver, and disgorgement or restitution of funds and property acquired by B.B. In the answer, B.B. denied that A.C. owned any stock in ABB Properties. In a counterclaim, defendants alleged that A.C. breached his obligations under power of attorney and breached the fiduciary duty owed by A.C. to B.B.

A.C. and B.B. filed motions for summary judgment. The facts, viewed in the light most favorable to A.C., are derived from the certifications submitted by both parties in support of and in opposition to cross-motions for summary judgment.

Since the early 1970s, the Bhagat family business has centered on owning and operating hotels and motels. In 1974, a corporation known as Easterner was formed to purchase and operate a Quality Inn hotel in Bordentown. The majority stockholders in Easterner were Nagarki K. Tailor and his wife Janaki Tailor (the Tailors). Janaki is the daughter of A.C. and the sister of B.B. Neither A.C. nor B.B. owned stock in Easterner at that time. In 1981, Winter Park Motor Inn, Inc. (Winter Park) was formed to purchase and operate a Quality Inn in Winter Park, Florida.² In 1982, Easterner purchased a Best Western hotel in Bordentown.

ABB Properties was also formed in 1981. Winter Park and Easterner became wholly owned and operated subsidiaries of ABB Properties.³ As of 1984, the Tailors and B.B. each owned 100 shares of Class–A voting stock and 350 shares of Class–B non-voting stock in ABB Properties. Ranjana Bhagat, sister of Janaki Tailor and B.B., owned 100 shares of Class–B non-voting stock in ABB Properties. A.C. owned no stock in ABB Properties at that time.

In 1984, A.C.'s attorney, James P. MacLean, III, drafted trust documents that B.B., the Tailors, and Ranjana each signed; the documents designated a portion of each child's shares in ABB Properties as being held “in trust” for A.C. B.B. and the Tailors each placed 52 shares of Class–A voting stock and 188 shares of Class–B non-voting stock in trust for A.C. Ranjana placed all one hundred shares of her Class–B non-voting stock in trust for A.C.

In a December 4, 1984 inter-office memorandum, MacLean wrote that he had “dictated a very simple form of authorization and direction in which each of the boys acknowledges that 52 shares of voting and 188 shares of non-voting [stock] are held in trust for A.C. Bhagat as the beneficial owner and that on Bhagat's request I am authorized and directed to transfer those shares to A.C. Bhagat.”

A.C. thus became the “beneficial owner” of 104 shares of voting stock, constituting a majority interest in ABB Properties. B.B., Ranjana, and the Tailors remained the owners “on the books” because no change was made in the stock ledgers or corporate books.

On June 26, 1989, A.C. signed a document entitled “DECLARATION OF GIFT,” which conveyed his common stock in ABB Properties to B.B. The document stated:

For love and affection, the undersigned AMRATLAL C. BHAGAT, hereby transfers and conveys the following common capital stock of ABB PROPERTIES CORPORATION to and in favor of his son, BHARAT A. BHAGAT, [at a particular address in Winter Park, Florida]:

(a) 53 shares of the class A (voting) common capital stock of ABB Properties Corporation.

(b) 187 shares of the class B (non-voting common) capital stock of ABB Properties Corporation.

On the same date, A.C. signed a “STOCK POWER,” in which he “s[old], assign[ed] and transfer[red]” to B.B. fifty-three shares of Class–A voting stock, and also appointed his attorney “to transfer the said stock on the books of the within named company with full power of substitution in the premises.” That same day A.C. signed a similar “STOCK POWER” for 187 shares of Class–B non-voting stock. These documents do not indicate that the transfer was temporary or conditional. Also on that date, B.B. signed an “OPTION TO PURCHASE STOCK,” in which he granted A.C. “the option, exercisable exclusively by him, to purchase any or all” of the gifted shares at the price of $1 per share. This instrument provided that the option “shall expire five years from the date hereof or upon the death of [A.C.], whichever shall first occur.”

Around the time of this transaction, A.C. lived with B.B. in Florida. Purportedly, in accordance with traditions of Indian culture, A.C. frequently spoke about the family business and would tell B.B. “all of this is for you only.” B.B. asserts that “in the Indian culture, it is customary for the father to give everything to the eldest son.”

On August 24, 1989, an attorney for ABB Properties, William A. Walker II, wrote two letters that referenced the gift. Walker wrote one letter to A.C. referencing the documents granting the gift and instructing A.C. to retain those documents and the proper notation of the option on the stock certificates. The second letter was to a real estate loan officer at Southeast Bank in Florida, which stated in relevant part:

Based upon certification received by us from Attorney James P. MacLean, III of Haddonfield, New Jersey, we advise that Bharat A. Bhagat held 48 shares of the voting common stock and 162 shares of the non-voting common stock, representing 24% and 20.25% of the outstanding and authorized shares, respectively.

In a recent transaction which occurred in our office Mr. Bhagat became owner of additional shares as follows:

53 shares of voting common stock

187 shares of non-voting common stock

The result of the above is that, based upon the certification of Attorney James P. MacLean III and the transaction which occurred in our office, Mr. Bharat A. Bhagat became the owner and holder of the following shares of common capital stock in ABB Properties, Inc., a New Jersey Corporation.

101 shares of Class A (voting) common capital stock representing 50.5% of the total outstanding. 349 shares of Class B (non-voting) common capital stock representing 43.6% of the total outstanding.

Under the terms of the stock certificate, the shares are transferable on the books and records of the corporation, which we do not maintain, but execution of the appropriate stock powers and delivery of certificates representing the transfer of ownership and control to Bharat A. Bhagat have been completed, which two items constitute all incidence of ownership necessary to vest control in Bharat A. Bhagat.

In 1990, using the same set of forms as those used in the 1989 transaction, A.C. transferred 50 shares of Class–A voting stock and 288 shares of Class–B non-voting stock in ABB Properties to B.B. The parties did not use an attorney for this transaction but simply utilized the same forms that the attorneys had prepared the...