Wolfson v. Cary

Decision Date13 May 1986
Docket Number85-571 and 85-725,Nos. 85-398,s. 85-398
Citation11 Fla. L. Weekly 1139,488 So.2d 864
Parties11 Fla. L. Weekly 1139 Frances Louise WOLFSON, f/k/a Frances W. Cary, Appellant, v. Elton M. CARY, Appellee.
CourtFlorida District Court of Appeals

Podhurst, Orseck, Parks, Josefsberg, Eaton, Meadow & Olin and Joel S. Perwin, Miami, for appellant.

Lapidus & Stettin, Miami, Ruden, Barnett, McClosky, Schuster & Russell and Woodrow "Mac" Melvin, Jr., and Cindy Niad-Hannah (Ft. Lauderdale); Daniels & Hicks and Mark Hicks, Miami, for appellee.

Before HENDRY, HUBBART and NESBITT, JJ.

HENDRY, Judge.

Petitioner Frances L. Wolfson appeals a final judgment denying her a special equity in respondent Elton M. Cary's property and denying her motion for a permanent injunction against the use of three shares of common stock referred to in her petition for dissolution of marriage. Petitioner further appeals a final order of the court distributing a tax refund equally between herself and respondent. 1

The relevant facts are as follows. Appellant Frances L. Wolfson 2 married appellee Elton Cary in 1968. Ms. Wolfson's father, Mitchell "Colonel" Wolfson, was the founder and Chairman of Wometco Enterprises, Inc. She was the beneficiary of a trust established by her father which consisted of a substantial bloc of Wometco stock. Ms. Wolfson obtained legal title to the stock in 1972. Ms. Wolfson's husband, Elton Cary, was the sole owner of Adae & Hooper Insurance, Inc.

In 1973, the couple decided to establish an insurance company. They agreed to make equal capital contributions and in return, each was to receive 50% of the stock in the company. Shortly thereafter, they incorporated G.I.C. Corp. (GIC) as the parent holding company for General Insurance Company, Inc., General Insurance Managers, Inc., General Insurance Adjustors, Inc., and Adae & Hooper Insurance, Inc. In order to capitalize GIC, Mr. Cary contributed all of his interest in Adae & Hooper Insurance, Inc., valued at somewhere between $440,000 and $575,000, and Ms. Wolfson contributed a portion of her Wometco stock valued at $440,000. In addition, Ms. Wolfson pledged some of her Wometco stock as collateral for an $850,000 loan to GIC. This loan was later satisfied. GIC's articles of incorporation authorized the company to issue up to 5,000 shares of common stock and 1,000 shares of preferred stock. Subsequently, 5,000 shares of GIC common stock were issued and Ms. Wolfson and Mr. Cary each received 2,500 shares. No preferred shares were issued.

There were four directors elected to the GIC board: Ms. Wolfson, Mr. Cary, Thomas Trantham and Arthur Hertz. Mr. Cary was elected chairman and Ms. Wolfson was elected vice president and secretary.

In 1978, after five years of operation, it was felt that GIC required additional capital funds. Ms. Wolfson contributed more of her Wometco stock, valued at $2.2 million. Mr. Cary executed a note for $2.2 million in favor of GIC and gave Ms. Wolfson his proxy until such time as the note was paid off. The purpose of the note was to assure that the investments made by the parties continued to be substantially equivalent.

In September, 1983, Ms. Wolfson petitioned for dissolution of the marriage. In her prayer for relief, Ms. Wolfson sought a special equity in her husband's 2,500 shares of GIC stock, based upon the inequality of the couple's capital contributions. Mr. Cary answered the petition and claimed a special equity in his wife's non-marital assets, including her shares of GIC stock, on the ground that her assets had increased in value due to his business and management skills.

In December, 1983, Mr. Cary obtained a $2.5 million loan from Southeast Bank which he in part used to satisfy his note with GIC. He pledged all of his assets, including his 2,500 shares of GIC stock, as collateral for the loan. Mr. Cary paid off the note to GIC and secured the return of his proxy.

Unaware that her husband had obtained the return of his proxy, Ms. Wolfson sought on January 13, 1984 to replace her husband and Mr. Trantham as directors of GIC. This effort failed as she and her husband each held an equal amount of shares. On January 26, 1984, Mr. Trantham and Mr. Cary voted to appoint Donald Aronow to fill the vacancy on the board of directors created by the resignation of Mr. Hertz. On March 5, 1984, a special meeting of the GIC board was held, at which Mr. Aronow, Mr. Trantham and Mr. Cary voted to amend the bylaws to require that each director of the corporation be a shareholder. To satisfy this requirement, the board issued 1,000 shares of preferred stock. This preferred stock provided for a right of conversion into shares of common stock at the rate of 250 shares of preferred stock for each one share of common stock. The board then offered the 250 shares of preferred stock to each of the four directors at a purchase price of $14.00 per share. According to Mr. Cary, the purpose behind the issuance of the convertible preferred shares was to prevent Ms. Wolfson from using her stock to vote a deadlock among the stockholders and force the statutory dissolution of the company.

Immediately upon the conclusion of the special meeting, a copy of the board's resolution was filed with the Florida Secretary of State. Upon such filing, Mr. Aronow, Mr. Trantham and Mr. Cary each purchased 250 shares of preferred stock. Ms. Wolfson was also tendered the right to purchase the preferred shares, but declined to do so. Upon receipt of the stock certificates, the three directors tendered their preferred shares back to GIC, requesting the conversion of their shares to common stock. The corporation in return issued to each of the directors one share of common stock. Thus, Mr. Cary acquired one more share of common stock, bringing his total number of shares to 2,501. 3 Mr. Aronow acquired one share of common stock, as did Mr. Trantham. The impact of this transaction was to reduce Ms. Wolfson's and Mr. Cary's stock ownership from 50% to 49% each. On March 30, 1984, Ms. Wolfson secured a temporary restraining order which enjoined the GIC directors from using the three newly-issued shares of common stock.

In April, 1984, all of the stock of Wometco Enterprises, Inc. was sold at the price of $46.50 per share. GIC received approximately $19 million for the Wometco stock that Ms. Wolfson had invested in the corporation. Shortly thereafter, Mr. Cary moved to amend his counter-petition to include the allegation that Ms. Wolfson's Wometco stock had sold at such a high price as a direct result of his extraordinary services to that company. 4 Ms. Wolfson moved to amend her petition to include an application for a permanent injunction with respect to the use of the newly-issued shares and to add the GIC directors and its subsidiaries as parties to the cause. Both parties' motions to amend were granted.

The case was tried non-jury. Evidence was offered that Mr. Cary owed GIC approximately $2.3 million, that the only substantial asset he owned was his one-half interest in the company and that he had drawn over $1.8 million in salary from the company. Evidence was also offered that Ms. Wolfson had a net worth of between $50 and $60 million, not including her one-half interest in GIC. Following trial, the court entered a final judgment dissolving the marriage. It denied the parties' requests for a special equity in each other's property and dissolved the temporary restraining order against the use of the three common shares. The court reserved jurisdiction to rule on the distribution of the parties' 1983 federal income tax refund.

The court later held a post-judgment hearing on the distribution of the tax refund, which totalled $78,353, plus interest. It was conceded by the parties that, although they were separated at the time, they had filed a joint return for the 1983 tax year. Ms. Wolfson offered evidence that a company separately owned by her, Marine Reinsurance Corp., had experienced a 1983 income loss of $976,059. This loss, coupled with Ms. Wolfson's other income and deductions, would have resulted in a net taxable loss to her of $303,814. During the same year, Mr. Cary's income and deductions would have resulted in a federal income tax liability of $133,510, had he filed a separate return. Mr. Cary offered evidence that Marine Reinsurance acted as a reinsurer of business generated by General Insurance Co., a GIC subsidiary, that Mr. Cary founded Marine Reinsurance and that Marine Reinsurance was regularly used by the couple as part of their tax planning. The trial court ordered that the tax return be divided equally between them. Ms. Wolfson filed two appeals from the final judgment dissolving the marriage [Case Nos. 85-398, 85-571] and also filed an appeal from the order on distribution of the tax return [Case No. 85-725]. These three appeals were consolidated by order of this court.

The three issues presented for our consideration are: (1) whether the issuance of the three shares of common stock upon conversion from preferred stock was contrary to the law, since all the authorized common stock had already been fully issued; (2) whether there is competent substantial evidence to support the trial court's denial of Ms. Wolfson's claim for a special equity in Mr. Cary's GIC shares; and (3) whether the trial court erred in distributing the 1983 federal income tax refund equally between the parties.

On the question whether the issuance of the three shares of common stock was contrary to the law, we find the shares were issued illegally and, accordingly, are void.

At its inception, GIC's articles of incorporation authorized two classes of stock: 5,000 shares of common stock and 1,000 shares of preferred stock. At its organizational meeting, GIC's board of directors issued all 5,000 shares of the common stock, but did not issue any of the preferred stock.

The issuance of the three shares of common stock in 1984 caused the number of...

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2 books & journal articles
  • § 7.05 Using Marital Funds to Pay a Premarital Mortgage or Using Separate Funds to Pay a Mortgage Loan Obtained During Marriage
    • United States
    • Full Court Press Divorce, Separation and the Distribution of Property Title CHAPTER 7 Property Acquired or Improved with Both Separate and Marital Property
    • Invalid date
    ...marriage by one spouse was a "separate non-marital asset" because only that spouse was liable to repay the loan. See Wolfson v. Cary, 488 So.2d 864 (Fla. App. 1986).[123] See, e.g., Estate of Freeburn, 97 Idaho 845, 555 P.2d 385 (1976). See also, Horton v. Horton, 480 So.2d 258 (Fla. App. 1......
  • Special equity and unequal distribution of assets.
    • United States
    • Florida Bar Journal Vol. 75 No. 10, November 2001
    • 1 d4 Novembro d4 2001
    ...marriage pre- (Fla. 1st DCA 1993) sumed to be in further- ance of the marriage Wolfson v. Cary, Funds invested in No special equity 488 So. 2d 864 insurance company because each spouse's (Fla. 3d DCA 1986) formed by husband and contribution was rela- wife during the tively equal marriage Yo......

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