Heller v. Hartz Mountain Industries, Inc.

• Citation: 270 N.J.Super. 143,636 A.2d 599
• Parties: Eugene HELLER, individually and as trustee for the benefit of Bonni S. Heller and Todd A. Heller, Plaintiff, v. HARTZ MOUNTAIN INDUSTRIES, INC., and Leonard N. Stern, Defendants. HARTZ MOUNTAIN INDUSTRIES, INC., Plaintiff, v. Eugene HELLER, individually and as trustee for the benefit of Bonni S. Heller and Todd A. Heller, Defendant.
• Decision Date: 27 August 1993
• Court: Superior Court of New Jersey

Page 143

270 N.J.Super. 143

636 A.2d 599

Eugene HELLER, individually and as trustee for the benefit

of Bonni S. Heller and Todd A. Heller, Plaintiff, v. HARTZ MOUNTAIN INDUSTRIES, INC., and Leonard N. Stern, Defendants.

HARTZ MOUNTAIN INDUSTRIES, INC., Plaintiff, v. Eugene HELLER, individually and as trustee for the benefit

of Bonni S. Heller and Todd A. Heller, Defendant.

Superior Court of New Jersey, Law Division Hudson County.

Decided Aug. 27, 1993.

Laurence B. Orloff, Roseland, for plaintiff/defendant Heller (Orloff, Lowenbach, Stifelman & Siegel, Roseland, and Kramer, Levin, Naftalis, Nessen, Kamin & Frankel (of the New York bar), attorneys; Mr. Orloff, Arthur H. Aufses, III, and Richard M. Molot, New York City, on the brief).

David I. Goldblatt, New York City, for plaintiff Hartz Mountain and defendants Stern and Hartz Mountain (Proskauer, Rose, Goetz & Mendelsohn, New York City (of the New York bar) and DeCotiis & Pinto, Hackensack, attorneys; Mr. Goldblatt and Sheila M. Gowan, New York City, on the brief).

D'ITALIA, J.S.C.

This matter is before the court on cross-motions for summary judgment. The motions present significant questions regarding the applicability of fiduciary standards to a partner managing the buyout of a co-partner and the standards of impartiality to which party-designated appraisers should be held.

These consolidated actions arise out of plaintiff Eugene Heller's ("Heller") withdrawal from various partnerships in which he was associated with defendant Hartz Mountain Industries, Inc. ("Hartz"). Much of the factual background of these matters is undisputed.

Hartz is a New York corporation maintaining its principal place of business in Secaucus, New Jersey. It is engaged in the business of owning, developing and managing commercial real estate located primarily in northern New Jersey. Defendant Stern serves as the Chairman of the Board of Hartz.

Heller joined Hartz in the mid 1960's. Early on, Stern and Heller agreed that Heller would be a ten-percent participant in all of Hartz's real estate investments, which were being developed in partnership form, with Hartz as the managing partner and key Hartz executives as participants. From approximately 1977 until his resignation in 1991, Heller served as President of Hartz and was responsible for the development and management of Hartz's portfolio of real estate development projects. Heller estimates the market value of Hartz's portfolio at nearly two billion dollars.

By 1981, Heller had acquired a partnership interest in approximately sixteen Hartz partnerships, which collectively owned and managed a minimum of eighty-five properties. ¹ Each partnership was subject to a written partnership agreement. Each agreement provides for the withdrawal of partners and a method for determining the purchase price of a withdrawing partner's interest.

On June 25, 1991, Heller advised Hartz that he was resigning all of his partnership interests. Under the terms of the partnership and related agreements, this notice imposed a duty on Hartz to procure appraisals to determine the value of Heller's interests. Each of the partnership agreements provides that either the partnership or Hartz, as managing general partner, must purchase a withdrawing partner's interest.

The sixteen partnerships at issue can be grouped into two categories according to the procedures by which the withdrawing partner's interest is to be determined. Nine partnerships have been characterized as "single appraiser" partnerships. These single appraiser partnerships require the parties initially to negotiate the value of partnership properties. ² If the parties cannot reach an accord, the partnership agreements provide that value shall be determined by one appraiser, who is to be selected by the general partner. The remaining seven partnerships require the general and withdrawing partner to jointly select a single appraiser. If they are unable to agree on a single appraiser, however, then each is to select one appraiser, and those appraisers must select a third. All sixteen partnership agreements provide that the value determined by appraisal "shall be binding and conclusive" on the parties.

On November 5, 1991, Hartz informed Heller that it had selected Robert J. DiFalco of Cushman & Wakefield of New Jersey ("C & W") to determine the appraised value of the real estate in the single appraiser partnerships. DiFalco is a director and manager of C & W, a wholly owned subsidiary of Cushman & Wakefield, Inc., which is a national firm of real estate brokers and appraisers. By letter dated December 4, 1991, Heller advised Hartz that he objected to the appointment of DiFalco. On December 6, 1991, Hartz inquired as to the basis of Heller's objection. Heller elected not to respond.

On February 4, 1992, Hartz filed a declaratory judgment action seeking a determination that its engagement of DiFalco was consistent with the partnership agreements. Four days later, on February 8, 1992, Heller filed a separate action seeking to compel delivery of the DiFalco appraisals. These cases were consolidated on March 9, 1992.

The DiFalco appraisals were delivered to Heller on April 2, 1992. On April 27, 1992, Heller amended his complaint to challenge the substance of the DiFalco appraisals as "shockingly low." The amended complaint alleges that Hartz's internal valuations of the single appraiser properties as of March 1991 totalled $214,562,182, while DiFalco appraised these same properties as having a value of $133,230,000 as of October 31, 1991.

By this motion, Heller seeks partial summary judgment setting aside the DiFalco appraisals of his interest in the single appraiser partnership properties. ³ Heller contends that Hartz, as managing partner under the single appraiser partnership agreements, owed him a fiduciary obligation to manage the valuation and purchase of his partnership interests in the utmost good faith. Heller further contends that Hartz breached this duty by acting in a manner designed to compromise the independence of the appraiser and to influence the appraisal report. Heller also argues that the DiFalco appraisals are, in fact, tainted as a result of Hartz's actions and should not, therefore, be considered either binding or conclusive. Heller seeks to bar the use of these appraisals for any purpose in the valuation of his partnership interests.

Hartz has cross-moved for an order declaring its appointment of DiFalco to be consistent with any obligations owed to Heller and for a determination that the appraisals are binding and conclusive. The cross-motions also seek a determination that DiFalco may serve as the Hartz-designated appraiser in connection with the three-appraiser partnerships.

It is well-settled that summary judgments are to be granted with extreme caution. Ruvolo v. American Cas. Co., 39 N.J. 490, 499, 189 A.2d 204 (1963). In deciding a motion for summary judgment, the court must determine whether or not a genuine issue of material fact exists. The burden is placed on the movant to exclude any reasonable doubt as to the existence of any genuine issue of material fact and all inferences of doubt are drawn against the moving party in favor of the opponent. Judson v. Peoples Bank & Trust Co. of Westfield, 17 N.J. 67, 74-75, 110 A.2d 24 (1954). Only when it is found that there is no genuine issue of material fact and the movant is entitled to judgment as a matter of law should such a motion be granted.

Many of the issues projected by these motions would require the court to resolve a host of disputed factual matters. These disputed facts, and the variety of inferences which might be drawn from them, preclude the grant of summary judgment for either party on such issues as whether Hartz breached its duty to select a truly independent appraiser and whether Hartz's conduct inappropriately influenced the appraisal report which ultimately issued. Moreover, since the parties are contending in large measure over the presence or absence of good faith, the court would be obliged to determine what motivated Hartz to act as it did during the appraisal process. In such cases, the grant of summary judgment is problematic. As was said in Judson, where the subjective element of good faith is material to the claim of the movant or defense of the party moved against, "a conclusion from papers alone that palpably there exists no genuine issue of material fact will ordinarily be very difficult to sustain." Judson, supra, 17 N.J. at 76, 110 A.2d 24.

Heller is, however, entitled to relief from the binding effect of the appraisals based on undisputed facts which support the conclusion that Hartz breached its fiduciary duty to manage the buyout process in a fair manner. The court rejects Hartz's contention that the appraisals have presumed validity and should not be set aside except upon proof of fraud, mistake or bad faith under the authority of cases such as Elberon Bathing Co. v. Ambassador Ins. Co., 77 N.J. 1, 14-17, 389 A.2d 439 (1978), and Titus v. West American Ins. Co., 143 N.J.Super. 195, 205, 362 A.2d 1236 (Law Div.1976).

Elberon Bathing Co. and Titus are insurance loss cases in which the insurance policy provides for appraisal as a mechanism for resolving disputes over value. In such cases, public policy discourages litigation over procedures which were designed to resolve disputes without litigation. Thus, as with arbitration, appraisal awards in insurance loss cases are accorded "every reasonable intendment" and a presumption of validity. Elberon, supra, 77 N.J. at 14, 389 A.2d 439; Melton Bros. v. Philadelphia Fire and Marine Ins. Co., 104 N.J.Eq. 153, 158, 144 A. 726 (E. & A. 1929). See also N.J.S.A. 2A:24-8. While the policy of encouraging parties to accept the results of contractually based private dispute resolution has general application, it must yield where, as here, the parties are in a fiduciary relation. The conduct of a fiduciary is always subject...