Rosenfield v. Metals Selling Corp.
| Decision Date | 28 June 1994 |
| Docket Number | No. 14697,14697 |
| Court | Connecticut Supreme Court |
| Parties | Raymond ROSENFIELD v. The METALS SELLING CORPORATION. Raymond ROSENFIELD v. Norman ROSENFIELD, et al. Raymond ROSENFIELD v. METALMAST MARINE, INC. Raymond ROSENFIELD v. Norman ROSENFIELD, et al. |
Janet C. Hall, with whom was Daniel F. Sullivan, Hartford, for appellee-appellant (plaintiff Raymond Rosenfield).
Before BORDEN, BERDON, NORCOTT, KATZ and DUPONT, JJ.
The principal issue in this appeal and cross appeal is, under the facts of the case, the extent to which the business judgment rule shields a corporate officer from liability for depletion of corporate assets. This appeal is the culmination of a business dispute between two brothers, the plaintiff Raymond Rosenfield, and the defendant Norman Rosenfield. 1 The dispute involved two close corporations, the defendants Metals Selling Corporation (Metals Selling) and Metalmast On his appeal, Norman challenges: (1) the standard of review employed by the trial court in connection with its review of the auditor's findings; and (2) the court's finding that Norman was not entitled to reimbursement for certain posttrial attorney's fees and rental payments. On his cross appeal, Raymond challenges the trial court's conclusions that: (1) Norman's management of Metals Selling, during the period when it was under his sole control and when its assets were substantially depleted, was protected by the business judgment rule and was not a breach of the duty of care owed by Norman to the shareholders of Metals Selling; (2) payment of the legal fees of Schatz & Schatz, Ribicoff & Kotkin (law firm) by the two defendant corporations for representation of both the defendant corporations and Norman in this litigation was proper; (3) salary increases and bonuses paid to Norman's son, Paul Rosenfield, an employee of Metalmast Marine, and rental payments made by Metals Selling to Norman, were not voidable self-dealing transactions; and (4) the assessment of the costs of the appraisal proceedings against Norman was not required pursuant to General Statutes § 33-384. We affirm the judgment of the trial court.
Marine, Inc. (Metalmast), owned and managed by the Rosenfields. Norman appeals and Raymond cross appeals from the judgment of the trial court. That judgment rejected in part the findings of a court-appointed auditor favorable to Norman and adverse to Raymond. 2
The record discloses the following facts. In 1938, Raymond settled in Putnam and began a career in business. He was joined thereafter by his younger brother Norman, with whom he founded Metals Selling on the western bank of the Quinebaug River. 3 Metals Selling processed various metals and was primarily engaged in the business of grinding magnesium under contract. Subsequent to founding Metals Selling, Raymond and Norman diversified their line of business in 1958 by forming Metalmast, a manufacturer of aluminum masts and sailboats. Throughout the existence of the two corporations, either Raymond and Norman individually, or their respective immediate families, each owned 50 percent of the voting capital stock of Metals Selling and Metalmast. From the time of incorporation of Metals Selling and Metalmast, Raymond and Norman were officers and directors of both companies. From the 1940s through the beginning of the 1980s, the two brothers worked together in the two companies running them by "consensus and agreement."
Although both brothers were equal owners of the two companies, from the 1940s through some time in the 1970s, Raymond exercised more authority in the businesses than did Norman. Norman's and Raymond's children became employees of the two companies. Norman's son, Paul Rosenfield, was employed by Metalmast. Raymond's children, Charles Rosenfield and Katherine Rosenfield, were employees of Metals Selling.
During 1984, after Raymond had partially retired, relations between Raymond and Norman, and between their respective families, deteriorated markedly. Raymond's children were not able to work with Norman as their superior. Raymond proposed solutions to these problems to which Norman did not agree. Raymond then suggested that the brothers' business interests be separated. Norman first ignored the suggestions and then refused. At this time, Raymond significantly diminished his working hours, so that by early 1985, he had no involvement with the companies' activities. Thereafter, Metalmast and Metals Selling were controlled by Norman.
By 1986, Raymond insisted on the separation of the business interests of the two brothers. Norman resisted. Subsequently, in 1988, Raymond commenced these four actions.
Two actions sought dissolution of Metals Selling and Metalmast pursuant to General Statutes § 33-382(a). 4 The other two actions were derivative suits seeking, on behalf of the companies, damages from Norman
Prior to answers being filed by the defendants in these actions, Norman and Raymond entered into an agreement (stipulation) in an effort to narrow the issues dividing them and to settle the dispute. Pursuant to the stipulation, Norman and Raymond agreed to the appointment of an auditor, who was charged with the valuation of Metals Selling and Metalmast and otherwise resolving all claims between the two brothers arising out of their working and corporate relationship over the previous forty years. 5 The stipulation established a procedure for the submission of evidence to the auditor, and provided that the auditor's report was to be filed with the trial court. The stipulation provided further that the auditor's report was subject to protest by either brother at a hearing before the trial court, and that the brothers could conduct discovery prior to that hearing, call witnesses, and subject witnesses to cross-examination. The stipulation stated that the trial court was under "no obligation to either accept or reject" the auditor's report. The stipulation did not, however, refer to chapter 15 of the Practice Book, 6 or specify the standard of review to be applied by the trial court to the auditor's report.
Both brothers submitted claims to the auditor. The claims ranged from the significant 7 The auditor's report rejected substantially all of Raymond's claims against Norman and accepted substantially all of Norman's claims against Raymond. Pursuant to the stipulation, an evidentiary hearing was held on the auditor's report in the trial court. 9 After determining that no special deference was to be accorded to the findings of the auditor, the trial court rejected the auditor's findings in favor of Norman's claims against Raymond, and accepted the auditor's findings rejecting Raymond's claims against Norman. In short, the trial court did not disturb the allocation of assets existing between Raymond and Norman at the beginning of the dispute. This appeal and cross appeal followed.
to the petty. 8 In total, Raymond submitted forty-three pages of claims against Norman, and Norman submitted nine pages of claims against Raymond
THE APPEAL
On appeal, Norman first claims that the trial court improperly accorded an incorrect standard of review to the findings of the auditor. He argues that the language of the stipulation mandated deference by the trial court to the findings of the auditor, because the auditor's report was subject to the provisions of chapter 15 of the Practice Book, and that the trial court improperly failed to accord the findings in the auditor's report the appropriate deference. This claim is without merit.
The standard of review to be accorded the auditor's finding was not specified in the stipulation. The stipulation did not refer to chapter 15 of the Practice Book. See footnote 6. None of the applicable procedures specified in the Practice Book for creating a reference were followed in either the stipulation or in the auditor's report. Those procedures include the closing of pleadings and the filing of a claims list pursuant to Practice Book § 433. 10 In addition, under Practice Book §§ 435 through 440, parties seeking to challenge the report of an auditor appointed pursuant to such a reference are afforded very limited rights. These rights do not include the right to conduct discovery after the report has been filed with the trial court, the right to an evidentiary hearing, or the right to cross-examine witnesses.
The language of the stipulation provided for the appointment of an auditor, whose report when presented to the trial court would be "subject to protest by either Norman or Raymond." The stipulation further provided that "[t]he court [was] under no obligation to accept or reject the auditor's report"; and that there would be an evidentiary hearing on the auditor's report that would be subject to procedural due process. The stipulation further afforded both brothers the right to conduct discovery and cross-examine witnesses in connection with the evidentiary hearing.
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