Wolosoff v. CSI Liquidating Trust

• Decision Date: 30 October 1985
• Citation: 205 N.J.Super. 349,500 A.2d 1076
• Parties: James K. WOLOSOFF, Plaintiff-Respondent, v. CSI LIQUIDATING TRUST, Morty Wolosoff, Milton Hendler, Individually and as Trustees of the CSI Liquidating Trust, and Irving B. Kahn, Defendants-Appellants, and Thomas B. Troehler, Defendant.
• Court: New Jersey Superior Court — Appellate Division

Page 349

205 N.J.Super. 349

500 A.2d 1076

James K. WOLOSOFF, Plaintiff-Respondent, v. CSI LIQUIDATING TRUST, Morty Wolosoff, Milton Hendler Individually and as Trustees of the CSI Liquidating Trust, and Irving B. Kahn Defendants-Appellants and Thomas B. Troehler, Defendant.

Superior Court of New Jersey Appellate Division.

Argued Oct. 2, 1985.

Decided Oct. 30, 1985.

Ronald M. Sturtz, Roseland, for defendants-appellants CSI Liquidating Trust, Morty Wolosoff and Milton Hendler (Hannoch, Weisman, Stern, Besser, Berkowitz and Kinney, P.A., Roseland, attorneys, Ronald M. Sturtz and Elizabeth A. Weiler, Roseland, on the brief).

Richard A. Levao, Morristown, for defendant-appellant Irving B. Kahn (Shanley & Fisher, P.C., Morristown, attorneys, Richard A. Levao and Thomas F. Campion, Morristown, on the brief).

Paul A. Rowe, Iselin, for plaintiff-respondent (Greenbaum, Rowe, Smith, Ravin, Davis & Bergstein, Iselin, attorneys, Douglas K. Wolfson and Nancy E. Brodey, Iselin, on the brief).

Before Judges O'BRIEN, SIMPSON and SCALERA.

The opinion of the court was delivered by

SCALERA, J.S.C. (temporarily assigned).

This appeal stems from the trial court's order removing defendants Morty Wolosoff and Milton Hendler as trustees of the defendant, CSI Liquidating Trust. Implicated are the legal principles to be applied in a court's forcible removal of trustees as well as consideration of the proofs necessary to properly determine that issue.

Cable Systems Incorporated (CSI) was incorporated in 1973, and operated a cable television company in southern New Jersey and was the owner of several municipal cable franchises. Ultimately, the ownership of stock was held as follows

                Morty Wolosoff        (a defendant)         5%
                Milton Hendler        (a defendant)        10%
                Irving B. Kahn        (a defendant)        20%
                Thomas B. Troehler    (a defendant)        10%
                Jeremiah E. Hastings                       10%
                Gloria Wolosoff       (wife of Morty)      20%
                James K. Wolosoff     (the plaintiff and
                                      nephew of Morty)     25%
                                                          ----
                                                          100%
                

Audubon Electronics, Inc., (Audubon) was also a cable television company with franchises contiguous to those of CSI. Audubon was owned 100% by Irving Kahn (Kahn). Both CSI and Audubon were operated by substantially the same personnel and primarily utilized CSI equipment pursuant to agreement of the companies. Both CSI and Audubon eventually flourished as cable television companies. In or about 1979 and 1980 Kahn began to negotiate for the sale of both his company, Audubon, and CSI, of which he was a minority stockholder. In 1980, as a result of Kahn's efforts, Audubon and CSI entered into formal contracts for the purchase of all of their assets by The New York Times Company (Times). The price for CSI was $23,000,000 and the price for Audubon was $59,000,000.

The CSI sale agreement provided for the majority of the purchase price to be paid in installments through two non-negotiable notes totalling $3 million dollars and four negotiable notes totalling $17 million dollars. The agreement was structured to permit the Times to offset "future construction costs" against the purchase price not to exceed the $3 million dollars represented by the non-negotiable notes.

It was at the time of negotiations for the sale of CSI and Audubon that the "warfare" between the parties began. Plaintiff James K. Wolosoff, as owner of the largest percentage of CSI stock (25%), objected to the proposed sale of CSI to the Times. He believed that the price negotiated for CSI was deliberately under-valued and that the price to be paid for Audubon (owned entirely by Kahn) was deliberately overstated.

The litigation commenced when plaintiff herein brought suit in the United States District Court of New Jersey against CSI, Audubon, Kahn, Thomas B. Troehler (Troehler), Milton Hendler (Hendler), Morty Wolosoff (Morty W.), Gloria Wolosoff (Gloria W.) and Jerimiah E. Hastings (Hastings). James Wolosoff (plaintiff) did not seek to "block" the sale of CSI to the Times, but instead sought damages from the individual defendants and Audubon contending that they had committed fraud, had engaged in conflicts of interest and had breached fiduciary duties in participating in the negotiation and sale of CSI and Audubon. Defendants in that suit brought a motion for summary judgment as a result of which plaintiff sought to submit to a voluntary dismissal without prejudice. The District Court Judge refused to accept the tender and ultimately entered a dismissal of the suit with prejudice subject to recommencement only upon terms and conditions. He took this course to facilitate the sale of CSI and Audubon to the Times pursuant to the agreements of sale. The closing between CSI and the Times took place as scheduled on March 2, 1981.

Soon thereafter plaintiff filed another suit against Hendler, Hastings, Troehler, Morty W., Gloria W. and CSI seeking repayment of a loan allegedly made by him to CSI and compelling payment to him of his share of the CSI sale proceeds. The defendants counterclaimed, claiming damages incurred from plaintiff's refusal to cooperate in the sale of CSI.

Judge William A. Dreier, (then sitting in Chancery), held a bench trial during which he heard testimony from plaintiff, Morty W. and Hendler as well as others. In rendering an oral opinion in which he entered judgment in favor of the plaintiff for the amount of the loan plus interest and dismissed the counterclaim, Judge Dreier commented extensively upon the lack of credibility of both Morty W., Hendler and Kahn as well as their motivations for that testimony. While he did not "paint [plaintiff James Wolosoff] as the model of a credible witness", he was convinced of the legitimacy of his claim. (Judge Dreier's decision was affirmed by this court, subsequent to the filing of the instant appeal). Still pending is a counterclaim by Morty W. against James Wolosoff concerning other joint investments by them which was severed prior to trial.

The factual equation here requires mention that prior to this suit Judge Dreier had also presided over a trial in which one Coleman Finkel (the accountant for Morty W. and Hendler) had sued plaintiff to recover for his partnership interest in a hotel. During the course of that trial, Morty W. testified on behalf of Finkel. Judge Dreier adjudicated the claim in favor of Finkel and against James Wolosoff commenting unfavorably concerning the credibility of James Wolosoff in that proceeding.

Meanwhile, in order to obtain tax advantages from the sale of CSI to the Times, a "majority" of CSI stockholders voted to enter into a Liquidating Trust Agreement (Trust) pursuant to 26 U.S.C.A. § 337. Hendler, Troehler and Morty W. were appointed as trustees, despite the objection of plaintiff. The Trust agreement provided that the duties of the trustees would center around winding up the affairs of CSI in the sale of its assets to the Times. This was to be accomplished by assigning the contract with the Times to the Trust and by having the CSI shareholders exchange their stock for a proportionate certificate of ownership in the Trust. The trustees were not required to post any security bond and were entitled to receive compensation of $100 per hour for their duties as trustees. The trust agreement further provided that, "Services which any Trustee may render in any other capacity (e.g., as accountant) [would] be compensated on a quantum meruit basis." Further, the trustees were empowered to collect assets, pay obligations, and to withhold distribution of trust income to meet present or future liabilities. The trust agreement specifically provided that it was to be governed in accordance with the laws of this State.

When the first non-negotiable note for 2 million dollars became due, the Times claimed a construction offset against CSI greatly exceeding that amount. At the same time, the Times claimed construction offsets against the payments due to Audubon. The trustees, on behalf of the Trust, and Kahn, on behalf of Audubon, vehemently disputed the amounts of offset being asserted by the Times. Consequently, Kahn started a suit in New York essentially seeking access to the Times' books to verify or disprove the offset construction claims being asserted. The defendant trustees joined in that suit, taking the position that in order to protect the assets of the Trust, they too would require access to such information. (Kahn and the trustees agreed to finance that litigation with Kahn paying 81.85% and the Trust 18.15%). The Times filed a counterclaim to establish its offset claims.

The defendant trustees decided that they would make no distribution of the $5,000,000 payment in light of the outstanding claims by the Times. The trustees were counselled that, should distribution be made and later the Times be successful in its claims, the trustees might be personally liable for the amount distributed. Thus, neither the plaintiff nor the other beneficiaries of the Trust received any monies from the $5 million dollar payment. It was against this backdrop of bitterness, hostility, controversy and recriminations that the present litigation was instituted pitting plaintiff as one warring faction against Kahn, Hendler, Morty W. and their alleged cohorts as the other.

Plaintiff James Wolosoff commenced this action on April 16, 1984, by filing a verified complaint and order to show cause seeking to compel payment of his proportionate share of the $5,000,000 payment received by the Trust from the Times, and further seeking to have the court remove Hendler and Morty W. as trustees. He named as defendants the Trust, Troehler, Morty W., Hendler and Kahn, but did not name or notice the two remaining beneficiaries of the trust, Gloria W. and Hastings. On the return day of the order to show cause, after a review of extensive written submissions by ...