Cronheim v. Tennant

• Decision Date: 30 June 1959
• Docket Number: No. A--126,A--126
• Citation: 153 A.2d 22,30 N.J. 360
• Parties: David CRONHEIM and Ruth Sampson, Individually, and Ruth Sampson, as representative of the holders of Voting Trust Certificates for Class 'A' Stock, and holders of Class 'B' Stock of the Twenty-Six Journal Square Corporation in dissolution, who did not receive their First, Second, or Third Liquidating Dividends, Plaintiffs-Appellants, v. George G. TENNANT, Jr., and John A. Hartpence, Defendants-Respondents.
• Court: New Jersey Supreme Court

Page 360

30 N.J. 360

153 A.2d 22

David CRONHEIM and Ruth Sampson, Individually, and Ruth Sampson, as representative of the holders of Voting Trust Certificates for Class 'A' Stock, and holders of Class 'B' Stock of the Twenty-Six Journal Square Corporation in dissolution, who did not receive their First, Second, or Third Liquidating Dividends, Plaintiffs-Appellants, v. George G. TENNANT, Jr., and John A. Hartpence, Defendants-Respondents.

No. A--126.

Supreme Court of New Jersey.

Argued May 19, 1959.

Decided June 30, 1959.

Max Brustin, Jersey City, for plaintiffs-appellants.

John A. Hartpence, Jersey City, for defendants-respondents.

The opinion of the court was delivered by

SCHETTINO, J.

Appeal is taken from a Superior Court, Chancery Division, judgment, granting defendants' motions for a change of venue and to strike the complaint on the ground that it fails to state a claim for relief and to dismiss the action with prejudice. Plaintiffs appealed to the Appellate Division and we certified under R.R. 1:10--1(a).

As we view the present litigation, plaintiffs are attempting to nullify by a collateral attack a final judgment and a supplemental order entered in a previous action entitled Tennant v. Wolf, Superior Court, Chancery Division, Bergen County, Docket No. C--1956--49 (hereafter referred to as the Tennant suit). The judgment is dated January 12, 1951 and the supplemental order is dated January 25, 1952. By the terms of the judgment the records of the corporation involved, with certain exceptions therein noted, were directed to be destroyed and all claims, except those specifically referred to, were forever barred. The impact of the Tennant case judgment and order produced this present action. In the present suit, the trial court considered the record in the Tennant suit.

A factual history of the Tennant suit is necessary for the present determinations. The Twenty-six Journal Square Corporation in dissolution (hereafter referred to as 'Journal Square') was a successor corporation to Union Labor Investment Corporation, a bankrupt. Journal Square was incorporated about March 15, 1937, for the purpose of taking title to and holding the bankrupt's assets which included a business property and office building. By a federal court order in reorganization proceedings, one of the present defendants, Tennant, and two others were appointed voting trustees to hold all of the Class 'A' or voting stock of Journal Square. These three and two others served as officers and directors of Journal Square from March 15, 1937 up to December 31, 1946.

On December 31, 1946, in accordance with a more than two-thirds vote of all classes of stockholders and with the unanimous vote of the five directors and pursuant to R.S. 14:13--1, N.J.S.A., a certificate of voluntary dissolution was filed with the Secretary of State of New Jersey on behalf of Journal Square. Thereafter, the same five men served as trustees in dissolution. After all creditors were paid, the trustees declared and distributed three liquidating dividends on March 25, 1947, February 16, 1948 and January 25, 1950. The total sum of the three dividends, at $15.05 per share, amounted to more than $395,000. Plaintiff, Ruth Sampson, admittedly received her first two dividend checks but did not receive her third dividend of $1,994.38.

On June 7, 1950 defendant Tennant, through his attorney defendant Hartpence, filed the Tennant suit seeking to compel his co-trustees to submit an accounting to the court. After due notice to all parties in interest, an order was entered, directing the trustees to prepare and file an account. The account covered the period from December 19, 1946 through August 31, 1950, and as of October 2, 1950 showed a balance in cash amounting to $1,398.48, as well as deposits of $10,295.35 representing the total of uncashed dividend checks which had been mailed to stockholders at their last known address and returned to Journal Square as undeliverable.

On October 20, 1950 an order was issued and made returnable on January 12, 1951, directing all stockholders and other parties who might have an interest to show cause why the account should not be approved, why accounting fees should not be paid, why the trustees should not be authorized to abandon all interest in a certain judgment claim (not here relevant), why all Journal Square's records except shareholder lists should not be ordered destroyed, and why the trustees should not be discharged after payment and disbursement of fees and allowances. The order specifically stated that payments of compensation and fees were to be made 'so far as there may be no other funds available, from the amounts now on deposit in the several liquidating dividend accounts presently maintained.' On November 8, 1950 a copy of the order was mailed to each of the numerous stockholders and voting trust certificate holders. Some of the notices were returned because the addressees could not be located by the post office. Additionally, as required by the order, the notice was published in a Jersey City newspaper once a month during four successive months prior to January 12, 1951.

On the return day, January 12, 1951, an order was signed allowing compensation of $750 to an accounting firm; $3,500 to defendant Tennant, for services as statutory trustee; and $2,500 to defendant Hartpence, for services as the statutory trustee's attorney. All compensation was directed to be paid at first from the balance of cash on hand, and then from the funds on deposit in the unclaimed liquidating dividend accounts. The order also provided that the balance remaining after such payments was to be turned over to the Clerk of the Superior Court. The balance amounted to $3,857.33 and was deposited with the clerk on February 19, 1951.

In a petition for instructions, dated October 23, 1951, in the Tennant suit, Tennant stated that subsequent to depositing the balance with the clerk, at least ten of the non-claiming shareholders appeared and requested information as to how they might obtain their dividends, and that the clerk received similar inquiries and requested Tennant to apply for further instructions from the court. On that day an order to show cause was issued why a supplemental order should not be entered providing for the payment of a final pro rata 20% Dividend to stockholders who had not received the prior dividends, why any stockholder not then claiming should not be forever barred, and why additional fees should not be paid to the present defendants. Mailing to shareholders was specifically dispensed with by the order. However, notice of this order was published for six successive weeks in the same Jersey City newspaper. On the return day, November 30, 1951, a supplemental order was entered setting December 21, 1951 as the final date for unpaid shareholders to file claims qualifying them for the 20% Dividend. Notice of this order, although not required by the court, was published in the Jersey City newspaper on December 7 and 14, 1951.

On January 21, 1952 a final report was filed by Tennant setting forth the claims of six shareholders who had filed their claims. At this time the trial court awarded a like amount of $1,651.57 each to Tennant and Hartpence for the additional services rendered on the petition for instructions and on the subsequent steps. All other claims of stockholders not then provided for were ordered forever barred. After the stockholders and defendants were paid, nothing remained in the clerk's accounts.

The present complaint alleges that plaintiffs have just recently learned of the Tennant suit; that they had no knowledge and received no notice or communication of the proceedings which led to the judgment of January 21, 1951, and to the final supplemental order of January 26, 1952; that the money segregated to pay the liquidating dividends constitute a trust fund which was wrongfully invaded both in January 1951 and January 1952 to pay compensation to the trustee and his attorney; and that the January 1951 judgment and the January 1952 order were invalid and deprived plaintiffs of their property without due process of law. Additionally, the complaint alleges that when Tennant and his co-trustees declared and set aside the first, second and third dividends which were undeliverable, unclaimed or uncollected by the stockholders in interest, they entered into a special trust relationship to the unpaid stockholders, whether known or unknown, that with respect to these dividends they belonged to each such stockholder severally in equity, that the trustees could not divert or use these funds for any purpose other than to hold them for the equitable owners, and that therefore they were co-trustees of plaintiff Ruth Sampson for her unpaid dividends. Plaintiffs also charge the Tennant violated this special trust; that both defendants here 'wrongfully procured' the various orders and judgment entered in the original Tennant action, and that Tennant was guilty of self-dealing with trust funds. Plaintiffs also alleged that as they received no notice and had no knowledge of the proceedings leading up to the January 12, 1951 judgment and the final supplemental order of January 25, 1952, these two orders should be set aside on the grounds that they are void and against equity and good conscience.

Plaintiff Cronheim claims that he is the real party in interest, that he paid for the stock, and that he took title to it in his daughter's name. The daughter is plaintiff Ruth Sampson.

Plaintiffs' counsel was asked at oral argument as to just when plaintiff Ruth Sampson had moved to the New Jersey shore from Essex County. By letter dated May 20, 1959 her attorney informed us that she had moved in mid-year 1946 before any liquidating dividend had been...