In re Reach, McClinton & Co., Inc.
| Citation | 102 BR 392 |
| Decision Date | 09 June 1989 |
| Docket Number | Civ. A. No. 88-4968 (JCL). |
| Court | U.S. District Court — District of New Jersey |
| Parties | In re REACH, McCLINTON & CO., INC., L. Andrew Bernheim, Debtors. Jack BIRNBERG, as Trustee for Reach, McClinton & Co., Inc., and Santo J. Lalomia, as Trustee for L. Andrew Bernheim, Plaintiffs-Appellants, v. RANCHO La COSTA, La Costa Hotel & Spa, Harold F. Tebbets, Martha L. Moor, Una A. Clark, Mervyn Adelson, J.A. Donnelley, Burton L. Kramer, Moe B. Dalitz, Allard Roen, Benjamin Alpert, Irwin Molasky, Equitable Life Assurance Society, International Brotherhood of Teamsters, Chauffeurs, Warehousemen and Helpers of America, William Randall, La Costa Products International, Inc., Lorimar Inc., La Costa Land Co., Daon Corporation, John Doe 1-10, XYZ Partnerships 1-10, and XYZ Corporations 1-10, Defendants-Appellees. |
Bernard Schenkler, Ravin, Sarasohn, Cook, Baumgarten, Fisch & Baime, Roseland, N.J., for plaintiffs-appellants.
Walter J. Fessler, Lum, Hoens, Abeles, Conant & Danzis, Roseland, N.J., for defendants-appellees.
Appellants, the plaintiffs in this adversary proceeding before the bankruptcy court, appeal from the bankruptcy court's July 27, 1988 order granting appellees-defendants' motion for summary judgment and denying plaintiffs-appellants' cross-motion for summary judgment. This court has appellate jurisdiction pursuant to 28 U.S.C. § 158(a). For the reasons set forth below, the court reverses the order below and remands to the bankruptcy court for further proceedings.
This adversary proceeding was brought by the trustees of appellants' respective Chapter 11 estates to redress an alleged violation of the preemptive rights held by Reach, McClinton & Company hereinafter "Reach" as a shareholder of Rancho La Costa, Inc. hereinafter "Rancho" by Rancho and related entities and persons. Appellant L. Andrew Bernheim hereinafter "Bernheim" is the sole shareholder of Reach. The complaint was filed on December 11, 1985.
On July 7, 1988 the bankruptcy court decided cross-motions for summary judgment and supplied an oral opinion. The bankruptcy court granted summary judgment to the appellees on the ground that appellants' claims were time-barred, and therefore did not decide the actual merits of the case. The bankruptcy court found the following facts to be undisputed, a finding which is not clearly erroneous and which this court will rely on for purposes of deciding this appeal:
1) Rancho is a Nevada corporation.
2) Rancho originally authorized a limited number of shares of stock.
3) Reach was an owner of stock in Rancho.
4) The individual defendants were members of and comprised Rancho's board of directors.
5) Limitations in the form of moratoria were placed on the development of real property owned by Rancho for many years.
6) In approximately 1970 it became necessary for Rancho to restructure its finances, and during this refinancing the corporation required that certain guarantees be given by persons wishing to subscribe to debentures with a feature allowing the subscribers to convert to additional stock holdings. The bankruptcy court declined to find a date for purposes of the motions.
7) Those who were issued the debenture increased their personal guarantees to the pension fund to $35 million.
8) Reach knew of and expressly agreed to the debenture issuance in approximately 1970. Reach's owner at that time, Daniel M. Bernheim, executed on behalf of Reach the agreement authorizing the issuance. Reach was advised of this issuance at the time of the issuance. Reach did not subscribe to any further stock or debentures at that time, however, and did not execute a guarantee.
9) Rancho's bylaws required Rancho to give notice of the right to exercise preemptive rights, but Rancho did not give written notice of this right.
10) All of the actions of Rancho took place in California, including the Rancho board meeting which approved the debentures.
11) The business of Rancho was operated in California.
12) Most of the actual contacts among the parties occurred in California.
13) The debentures were held in California and were converted in California.
14) Daniel M. Bernheim spent significant amounts of time in California.
15) Daniel M. Bernheim died on September 10, 1977.
16) For the purposes of the summary judgment motions L. Andrew Bernheim succeeded to full ownership and control of Reach. He also spent significant amounts of time in California, and both he and Reach regularly received mail from California.
17) On March 22, 1978 Rancho passed a resolution increasing the number of shares, to allow for the issuance of new shares that resulted from the conversion of the debentures issued in connection with the restructuring of approximately 1970.
18) Bernheim had knowledge of this issuance of new shares by no later than December 31, 1981. This date is arbitrarily set because Bernheim claims he first acquired knowledge by reading Rancho's December 31, 1978 corporate statement sometime in 1981. The actual date may be sooner because Bernheim's counsel conceded that Bernheim received the statement sometime in 1980.
19) Footnote 10 of the corporate statement would put any reasonable person on notice of an irregularity and would require that person to inquire further.
20) Reach was qualified to do business in California, did do business in California, and appointed an agent for service of process in California.
21) All business dealings between Reach and Rancho took place in California.
22) Reach's principal place of business may have been in New York.
23) Reach was authorized to and did maintain an office in New Jersey.
24) Reach was a corporation of the State of New Jersey.
25) Reach conducted business for or on behalf of foreign firms, and conducted business with many firms in the United States.
26) Reach was a national business with offices in Chicago, Atlanta, Boston, Los Angeles, Newark, and New York.
After stating the controlling standards for summary judgment, the bankruptcy court addressed and rejected appellants' argument that New Jersey's tolling statute for persons who are not New Jersey residents, N.J.Stat.Ann. § 2A:14-22, extended the date on which the limitations period began to run to August 3, 1983, the date when the New Jersey Supreme Court struck down that statute as unconstitutional in Coons v. Honda Motor Co., 94 N.J. 307, 463 A.2d 921 (1983) (Coons I), because the New Jersey Supreme Court held that this decision was to be applied prospectively only in Coons v. Honda Motor Co., 96 N.J. 419, 476 A.2d 763 (1984) (Coons II). The bankruptcy court found appellants' argument to be an erroneous reading of Coons II, since the court in Coons II explicitly "excluded from the scope of the Coons I ruling only those actions already commenced on August 3, 1983," 96 N.J. at 434, 476 A.2d 763, a date well before the filing of the instant suit. Tr. of Decision at 9.1
The bankruptcy court then addressed the argument by appellees that California's statute of limitations controlled and that under California's statute of limitations the case was time-barred. Appellants argued that New Jersey's statute of limitations, not California's, controlled, and that under New Jersey's statute of limitations the case was not time-barred. The bankruptcy court observed that prior to the New Jersey Supreme Court's decision in Heavner v. Uniroyal Inc., 63 N.J. 130, 305 A.2d 412 (1973), New Jersey treated statutes of limitation as procedural and accordingly always applied the law of the forum. In Heavner, however, the court modified this approach in favor of a test whereby the New Jersey statute would not apply if New Jersey did not have a substantial interest in the matter. Tr. of Decision at 11-12. The bankruptcy court focused its attention on defendants' activity within the forum state of New Jersey. Id. at 12.
The bankruptcy court found that the cause of action arose in California and not New Jersey because "the last significant event which gave rise to the cause of action was the issuance of the additional stock on March 22, 1978." Id. The bankruptcy court then observed that it could not "find that fair play and substantial justice suggest that a company operating in California in a California situation is not entitled to the protection of the California statute of limitations." Id.
The bankruptcy court distinguished the cases of Dent v. Cunningham, 786 F.2d 173 (3d Cir.1986), and Warner v. Auberge Gray Rocks Inn, Ltee., 827 F.2d 938 (3d Cir.1987), which held that the New Jersey statute of limitations applied, by noting that unlike the plaintiffs in those cases, who were individuals, Reach as a corporation was subject to California's long-arm statute and was thus subject to the jurisdiction of California courts. Tr. of Decision at 13-15. The bankruptcy court then recognized a five-part test, set forth in Heavner and summarized in O'Keeffe v. Snyder, 83 N.J. 478, 490, 416 A.2d 862 (1980), under which a statute of limitations other than New Jersey's statute would be applied: (1) the cause of action arose in the other state; (2) the parties are all present in and amenable to jurisdiction in the other state; (3) New Jersey has no substantial interest in the matter; (4) the substantive law of the other jurisdiction is applicable; and (5) the limitations period of the other jurisdiction has expired at the time of the commencement of the suit in New Jersey.
The bankruptcy court found that these requirements were met in this case. Tr. of Decision at 14-16. Critical on this appeal is the bankruptcy court's statement regarding New Jersey's interest in this matter:
New Jersey has no substantial interest in the matter. Mr. Hirsch in oral argument made the argument that any domiciliary per force raises the issue of substantial interest in the matter. If the mere fact of being a domiciliary corporation, particularly a multi-state corporation, gives New Jersey...
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