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SUPERIOR COURT OF NEW JERSEY CHANCERY DIVISION - MORRIS COUNTY. DOCKET NO. MRS-C-184-92 APPELLATE NO. # JARWICK DEVELOPMENTS, INC., ADA REICHMANN AND JOSEF HALPERN : Plaintiffs : -vs: JOSEPH WILF AND THE ALS. : Defendants : _____________________________ PLACE: MORRIS COUNTY COURTHOUSE WASHINGTON AND COURT STREETS MORRISTOWN, NEW JERSEY 07963 DATE: August 5, 2013 BEFORE: HONORABLE DEANNE M. WILSON, J.S.C., P.J. TRANSCRIPT ORDERED BY: ANGELA SMEDLEY, ESQ. (Winston & Strawn, LLP) APPEARANCES: PRICE O. GIELEN, ESQUIRE (Neuberger, Quinn, Gielen, Rubin, Gibber, P.A.) Attorneys for Plaintiffs, Ada Reichmann And Jarwick Developments, Inc. LAURIE A. ENGEMANN, CCR, CRCR OFFICIAL COURT REPORTER MORRIS COUNTY COURTHOUSE WASHINGTON AND COURT STREETS MORRISTOWN, NEW JERSEY 07963 LICENSE NUMBER 30X1001950
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4 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 THE COURT: I see we have the plaintiffs here or their representatives and the defendants, their representatives. We don't have Jeff Barsky, the plaintiff's expert accountant here. I believe he is on vacation. We do have Mr. Hoberman here who is the defendant's expert accountant witness. Briefly I told you all this morning I was going to try to approach this in an organized manner so those of you who haven't been living with this case in the past, two, four, or 20 years, in the case of some, have a framework in which to put my findings of fact and conclusions of law as I go through them. So I'm going to start with just a very brief introduction, and then go into the facts and procedure a little more as I did on the motion to dismiss. Halwil, a partnership was formed in 1985, and the partners were J.H.W. which was an entity that was owned 50/50 by Joseph and Harry Wilf. Harry Wilf is now unfortunately deceased. His son Lenny is, Leonard, sorry, is a defendant. That reminded me, at the beginning of the case, we determined that we were going to use first names for all of the parties, because there were so many parties with the last name of Wilf, and it was very important to distinguish them one from the other. And there were at least two 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Halperns more that were mentioned during the course of the case, and of course there were two Reichmanns, parties to the case but related, Mrs. Reichmann, at any rate, to Josef Halpern by blood. So I mean no disrespect or diminution to anyone's status by using a first name. Just an attempt to identify you. Joseph Wilf is the father of Zygi and Mark and the uncle of Lenny. Joseph Wilf is still with us, but I believe that his capacity to exercise his executive function is limited at this time, although he is still, Zygi testified he comes to work. They get him to work as much as they can shall we say. The individuals who were deposed pursuant to this action, this aspect of it, were Lenny, Mark, and Zygi for the defendants, the Reichmanns and Joseph Wilf (sic.) for the plaintiffs, in addition to many other witnesses and staff at Short Hills, the Wilf headquarters. MR. SNYDER: Judge, do you mean Josef Halpern? THE COURT: Did I leave out Josef Halpern? MR. SNYDER: No, you said Joseph Wilf for the plaintiff. THE COURT: Oh, Josef Halpern for the plaintiff. Joseph Wilf didn't testify at all. I had to make a ruling in that regard. I was satisfied that
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8 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Jarwick the plaintiff in this case. Jarwick is an entity that was formed by Ada Reichmann in order to hold Abe Halpern's interest in Rachel Gardens. And Jarwick, as I said is one of the plaintiffs in this case. Ada Reichmann, as an important fact is the sister of Joe Halpern, and Abe Halpern. And that is significant because otherwise the transfer would have had to have been approved by all of the other partners which it was not. The formal -- the negotiations and the written index, or a written indicia of this assignment occurred in August of 1989 in the form of two letters exchanged between Harry Wilf and Ralph Reichmann concerning the transfer and concerning the role of the Reichmanns in this entity. The formal assignment actually occurred in 1990, the formal, I mean the legal paper assignment. So, going back to the first index of the assignment to Jarwick in August of 1989 Joe Schochet, Rabbi Rottenberg who were both witnesses in this case met with Harry Wilf and Joseph Wilf was also present at this meeting in August of 1989 and Zygi was introduced and came through the meeting a couple of times, but was not really a fixture in the meeting. And I should also note at this period of time, I'm sorry if this is just a little disjointed there are just so many facts in 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 this case I'm trying to do a summary but I realize that sometimes you have to go back and put in pieces in order to have the summary make sense. At this period of time, Harry Wilf was apparently the guiding light of the Wilf organization. Zygi testified that his father Joseph was actually the partner who dealt with the projects, and the building of the projects and he had the knowledge of, would you call it sticks and bricks? Of the wood and the bricks that built the buildings, and Harry was more the overall negotiator of the business. I tried to contemplate what this would be like, and the most that I could, the closest I could think of was that Joseph was the body and that Harry was the soul of that enterprise, and they function together. They were brothers of course, very close brothers, they function together with their partners' desks facing each other, if not through the entirety of their governance of the Wilf enterprises, during most of it for sure. So, in August of '89 Joe Schochet and Michael Rottenberg met with Harry Wilf, Joseph Wilf was there, and Zygi just kind of went in and out. And during that period of time they agreed that Jarwick was taking over the interest of Abe Halpern, it was going to be admitted as a partner, and that it took over 25 percent of the partnership and agreed to put up
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12 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 MR. GIELEN: You said Joseph Wilf testified that when asked -THE COURT: No. No. You are right. I believe it was Joe Schochet. MR. GURYAN: It was Schochet. THE COURT: All right. In February of 1991 after a long illness Harry Wilf passed on. And during this period of time between 1989, 1989 and 1991 there were certain communications that were attempted between Jarwick and the Wilfs, but there was never a response made. And in early 1992, I believe it was January of 1992, Joe Schochet met with, went down to New Jersey to Short Hills to find out what was going on, financial statements had been requested, none had been received, in fact, no communications had been received, or there were no communications received that were produced as evidence during the trial either testimonial or documentarily. So Joe Schochet went to Short Hills to find out what was going on. He initially met with Joseph Wilf who said he didn't have any response to his questions about his 25 percent partnership, but that he should speak to his son Zygi. And I think I forgot to mention Mark. Mark came into the enterprise at some time, he is, he was the younger of the two brothers, and as soon as he was finished with law school, he 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 joined the Wilf entities too, I will deal with that when I come to the specific dates in the specific findings of fact. And Joe Schochet did meet with Zygi and he wanted to know what was going on with Rachel Gardens. What had been happening and why hadn't he received any information. And he was greeted with what has become a rather famous quote during the course of this case. "The train has left the station." And by that, apparently, Zygi meant that the partnership was ongoing, the project was moving along, and Jarwick was not part of it. Now, the Reichmanns, at least Ralph Reichmann is a very sophisticated, very successful Canadian real estate developer and manager or at least he was been in the past. I don't know what his current status is, but at that time he was a real estate developer and manager or person of substance. He had made the determination that "the train has left the station" was not an appropriate response to an agreement that had been made between him and Harry Wilf. So, in September of 1992, to show you how old this case is, it was filed on September 11th, pardon me, 1992, and in 1992, nobody had any idea that September 11th had any meaning whatsoever. Now, this suit, the initial suit was brought
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16 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 and justice. Just as I think I encouraged the parties at many points during this litigation to reach a businessman's, business person's conclusion to this case, but it obviously didn't happen. In June of 2002, I believe it was Bastille Day, June 14th, Judge Stanton determined in responding to a motion that there was to be a valuation of Jarwick's 25 percent partnership interest. And that the valuation date would be January 8, 2002, (sic.) for some reason I'm thinking it was January 1st. MR. LEBENSFELD: 1992 Judge. THE COURT: Was it January 1st? MR. GURYAN: It was actually January 8th, but everyone assumed it was January 1st. THE COURT: So they are both wrong. MR. GURYAN: They are both wrong. THE COURT: Thank you, Mr. Guryan. Somewhere between January 1st and January 8, 1992. MR. GURYAN: I think one of the appraisers used January 1st as the valuation date. THE COURT: I had always thought it was January 1st, but because January 8th was the date that Mr. Schochet was informed that the train had left the station, January 8th is nudging January 1st out of my mind, but it was I do believe January 1st. 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 And let's see, Judge Stanton then retired, a blissful state for any judge who has served on the bench for a long time and been in contact with this case for a long time. But he didn't conduct the valuation trial, and he didn't determine what the damages were going to be before he retired. He referred the case to Judge MacKenzie who was the predecessor, and my predecessor in this chancery position. And in March of 2004 after trying the case with experts on both sides on valuation, Judge MacKenzie made the determination that as of January of 1992 Jarwick's interest was worthless. Was worth nothing, and implicit in Judge Stanton's ruling as well as Judge MacKenzie's ruling was that Jarwick's partnership interest ceased at that time as of in 2002. MR. GIELEN: In 1992, your Honor. THE COURT: Judge Stanton, Judge Stanton's opinion was in 2002. And Judge MacKenzie's opinion was then I believe 2004. MR. GIELEN: Correct. MR. GURYAN: Correct. THE COURT: And implicit in those opinions was that Jarwick was not a partner after 1992, after January 1, 1992, those decisions by Judge Stanton having been made in June of 2002 and by Judge MacKenzie
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20 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 behalf of his wife and Jarwick to make capital contributions or to sign loan agreements as necessary to fund the project. The fact that the other partners never called upon him to fulfill that promise makes this promise no less valuable. His exposure was no more or less significant than that of defendants in obtaining outside financing for the project. The adjustment of debits and credits may be made accordingly. So there were various and sundry applications, post appeal applications to the Appellate Division. Just a moment let me catch up with myself here. There were various applications to the Appellate Division and I believe there was a petition for certification to the Supreme Court. And various other applications on the appellate level that followed the Appellate Division opinion. And the case, once again wound itself back down to the trial court. In October of 2009 an amended complaint was filed by Jarwick, and earlier the Wilfs had moved to join Joe Halpern as a necessary party in the litigation. And the resolution of that motion became unnecessary as Joe moved to intervene and he filed his complaint by consent. This is about the time I discovered what a Jarwick was and what a Wilf was. And 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 that it had a '92 docket number I found incredible. Now, I'm beginning to really understand having listened to the case for almost two years. Now the Jarwick amended complaint and Joe Halpern's complaint essentially pled the same causes of action, breach of fiduciary duty, breach of contract, breach of the covenant of good faith and fair dealing, unjust enrichment, equitable fraud, fraud, conversion, civil conspiracy, various violations of the Uniform Partnership Act, and violations of RICO, Racketeering Influenced Corrupt Organizations Act, in New Jersey. New Jersey RICO. There were also some new defendants in the case, they have settled out, one of them Marvin Cohen was a witness and was on the stand for many days of the trial. He having been the accountant for many Wilf entities as well as Joe Halpern's personal accountant. So, in or around October 2009, I had I believe it was a telephone conference with parties, was my initial contact, and we began to set a schedule for discovery. I discovered that really discovery was far from complete because of the length of time that had passed since it had been in the trial court. And we, let's see, I think the trial started in October of 1999, and this is now October of 2009, when I first had
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24 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 tried to put it together for a final decision. And it was just unending. This morning driving into the courthouse I'm thinking, oh, what about this, what about that. I have finally come to peace with the fact that I simply cannot and no court can, and no court has to deal with every single fact that was put on the record by every single document, every single witness. I am a judge who grants summary judgment motions with probably more frequency than most, because I think that most cases, in my experience really don't have material disputed facts attended to them. This case is really not too much of an exception. There are not too many material disputed facts in this case. Particularly when you have accountants involved there tend to be a lot of disputed material facts because accountants know that judges don't understand accounting they can tell us just about anything that they want to and we have got to believe it. The two accountants in this case were truly exceptional. Both of them I can say were truly independent accountants with the result being that there were very few disputed material facts. Most of the dispute was over issues of law, which can and should be dealt with on summary judgment motions thus avoiding 210 days of trial, but when you have a case that can go on for 210 trial days, 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 there are so many facts that the judge, at least in this case is simply unable to get her arms around them in order to make the conclusions of law that would have been necessary to resolve claims. So, we started the trial -- just a moment, I want to make sure I haven't missed anything here. At this point, I think I should mention that while the defendants allege a number of affirmative defenses in their counterclaim, pardon me, in their answer to the initial complaint, the amended complaint and Joe Halpern's complaint, the overriding affirmative defense had to do with the statute of limitations, the common law claims, and particularly for the RICO claims. And we attempted to deal with that on the motion to dismiss, and the relief sought, initially was dissociation, the relief sought by the plaintiffs was dissociation. Unfortunately, Mr. Halpern, Joe Halpern became ill during the course of this litigation. Fortunately, he is here today through the courtesy of our sometimes running elevator, and the claim for dissociation has been changed to dissolution for reasons which we will discuss when we get to the remedy. Okay. Now, I don't want you to think I'm missing the various parts of the RICO and statute of
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28 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 now, let me see here, if there is something I should be doing. Oh, yes, I want to quote a paragraph from I believe it is Mr. Guryan's closing argument, because it is a rather wonderful summary of where we are in this case. It was made I believe with regard to the statute of limitations argument, my picking it out of the 18 days of closing arguments has nothing to do with my ruling on the statute of limitations, but I do believe that this particular paragraph is a wonderful summary of where we are. The Halpern complaint and Jarwick's amended complaint were filed 24 years after the formation of Halwil, 21 years after the formation of Pernwil, 17 years after the filing of the original complaint, 14 years after Jarwick was furnished with Beck Weiss' accounting records, 12 years after Josef Halpern was first deposed and was furnished with the copy of the complaint, original complaint, ten years after the conclusion of the original liability trial, eight years after the second Morrison report was issued, three years after the Appellate Division issued its decision, two years after the Neuberger Quinn firm was substituted as counsel for Jarwick, and eight months after Jeffrey Barsky issued his first report dated January 30, 2009. 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 To my knowledge there has never been a case like this in New Jersey jurisprudence, I hope not in the jurisprudence of any other state. I believe that in Old England perhaps Jarndyce versus Jarndyce would top it. But we in the judiciary and this judge in particular try to move cases along. There is no reason in the world why a case should be tried 20 years after the initial complaint is filed. And although there were a number of contributory reasons, while judges and attorney complain about case management and rushing cases through, if you can avoid having something like this, it is worth rushing a few people through, because this, this would have been an entirely different case if I had been trying it in, or Judge Stanton had been trying the whole thing in 1996, 1998, even in 2000, if the entire case had been tried through by one judge at one time, it would have been a whole different set, clearly a whole different set of facts. And Mr. Barsky and Mr. Hoberman and myself would have had far fewer sleepless nights. So, I'm now going to, just a moment, I have one more thing to check, to make sure that I didn't -I'm now going to go back into chambers, and I'm going to get at least part of the summary of the, my resolution of the causes of action, which will be
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32 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 knowingly dealing with the partnership in the conduct or winding up of the partnership business on behalf of a party having an interest materially adverse to the partnership, and to refrain from actions intended to cause material injury to the partnership in the conduct of a partnership business before dissolution. A partner's duty of care to the partnership and the other partners in the conduct of and the winding up of the partnership is limited to refraining from engaging in grossly negligent or reckless conduct, intentional misconduct or a knowing violation of the law. And the Uniform Partnership Act goes on to tell us that a partner does not violate that duty or obligation under the act or under a partnership agreement simply because the partner's conduct furthers the partner's own interest. A partner may lend money to and transact other business with the partnership and as to each loan or transaction the rights and obligations of the partner, this is important, are quote, the same as those of a person who is not a partner subject to other applicable law. Now, why did I emphasize, "the same as those of a person who is not a partner"? Because if you are an outside vendor to a partnership, you want to sell them something, you want to perform a service, or you 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 want to loan them some money, you go to the partnership and you give them the deal. Here is what I will do for you. This is what you pay for it. Here is what I'm going to provide you for, provide you with, this is what you pay for. I would like to make you a loan these are the terms. And then what happens? Nothing unless the partnership agrees to pay that money for the service, to pay that money for the material, to repay that loan with that rate of interest. This provision of the partnership act does not mean that you can go to a partnership, perform some service and then say, by the way, I mowed your lawn and I want $20 for it. That is not what the rights and obligations of a person who is not a partner mean. I was reading to you out of N.J.S.A. 42:1A-23 provides that each partner and the partnership shall furnish to a partner, and to the legal representative of the deceased partner or a partner under legal disability, one, without demand. This duty of a partner are divided into two categories, without demand, and with demand. A partner in the partnership are obligated to provide without demand any information concerning the partnership's business and affairs reasonably required for the proper exercise of the partner's rights and duties under the partnership agreement or the act. That means very simply whether
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36 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 find itself in the hands of his brother Abe Halpern, or later after that when Jarwick came into the relationship, into the hands of Ralph and Ada Reichmann. And the ousting of Ralph and Ada Reichmann, which occurred, according to Zygi's testimony prior to 1990 when the City financing was closing, would mean that there were going to be, certainly the 1989 financial statement wasn't going to be given to them, and the later ones a fortiori would not be given to them. Zygi testified clearly that prior to the closing on the City loan, which was to provide $36 million for the construction of Rachel Gardens, Zygi and his father decided, his father Joseph Wilf, decided that the Reichmann's had gotten too good a deal. And so they were just simply not going to honor it. Now, I found that testimony candid, credible, even though I wondered then, and I wonder to this day how a nephew who so honored his father, Harry Wilf, could possibly renege on a deal that Harry had initiated. I don't know why it happened. But these are words from the mouth of Zygmunt Wilf himself. Now given the fact that he made a determination long before the train left the station to Joel Schochet's ears he made the determination that Jarwick was not going to be included 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 in the Rachel Gardens project. He clearly didn't send him in a financial statement. And if he didn't send them to the Reichmann's, he clearly would not send them to Ada Reichmann's brother. It matters not to me that there was a large age disparity between Ada and her brother Joe. Excuse me. It is okay. I am not upset I just want to wait a minute until you finish so you can hear. If at any time anybody needs to take a break, let me know I can stop and start. And Mr. Lebensfeld would you keep track. Where was I. (The last paragraph was read back.) THE COURT: These ladies are disappearing animals, and I hope, gentlemen, after having had a court reporter live throughout this trial, you would become a proponent of why we should have them. If I had attempted to do this trial with a voice recording, we would probably still be here on opening statements. Frightening thought. It matters not to me that Ada and her brother Joe did not have a close relationship, that they lived a thousand miles apart, that there was an age disparity, and that they didn't talk about things. Commonsense tells you that if you don't want one sibling to have information, you are not going to give
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40 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Halpern, and of course they were each to provide their own share beyond what they were providing for Joe Halpern. A handshake agreement took place in 1984 was a valid contract. That contract was reflected a year later in written form in the Halwil agreement and those were two valid binding contracts. Parties voluntarily entered into them. There was consideration given. There was acceptance, and everybody was bound. Three years later the Pernwil agreement came into affect. The Halwil agreement and the Pernwil agreement both being drafted by the Wilf Law Firm and as the Appellate Division found and as Reg also, pardon me, Judge Stanton also found, Halwil transferred by virtue of the Pernwil agreement all of its assets to Pernwil. There was no consideration given. And of course Abe's interest was vitiated. And then we have the 1989 letter agreement between Jarwick and the Wilfs. And that was initiated by a handshake. Harry Wilf dictated the terms. Sent the terms to Ralph Reichmann. Ralph Reichmann responded by the return and that was a contract. That provided that Jarwick was to get 25 percent of the profits and Jarwick would provide any shortfall in funding. The Wilfs breached all of those agreements. At no time did Jarwick receive anything with respect to its 25 percent share, and I could not 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 find a year after 1990 in which, I believe 1990 was the last year or it could have been 1989 in which Joe Halpern received his 25 percent share. The clear terms of those valid contracts were broken. They were not honored. And that is breach of contract, Weichert Realtors versus Ryan at 128 New Jersey 427 at page 435 says that if the parties agree on the essential terms and manifest an intention to be bound by those terms they have created an enforceable contract. And here we have essential terms. The manifestation of an intention to be bound, and I might add that the Wilfs continued to manifest that intention to be bound long after their uncle and father Harry left this earth; but they didn't do it. They did not abide by the enforceable contract. Now, we have in New Jersey as many other states do a cause of action called breach of the covenant of good faith and fair dealing. I'm just going to go into this briefly, because a breach of the covenant of good faith and fair dealing is typically a cause of action that is espoused when what is done by the defendant does not really amount to a breach of contract. New Jersey holds that the covenant of good faith and fair dealing is inherent in every contract. And so though you may be abiding by the specific terms
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44 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 partnership. That type of conduct is a breach of the covenant of good faith and fair dealing; and it is evidenced by deliberate and irresponsible attitude that your partner with whom you have a contract is not entitled to the benefit of their bargain and you are entitled to more. And the very changes that occurred during the course of this litigation, Jarwick is a partner, Jarwick may be a partner, Jarwick is not a partner, Jarwick is a partner, just the changes that took place in response to the changing posture is evidence of a cover up of removal of funds that should not be removed, and if they should be removed, you must ask yourself the question: Why wouldn't you just say they were removed? Why wouldn't it be placed in a financial statement that was distributed to everyone? Now, during the closing argument we heard a lot about a treasurer map. There is no treasurer map in this case. There is simply no treasurer map. I am a reasonably intelligent person. I have an undergraduate degree from Stanford University. I graduated from the top of my class from Seton Hall Law School. I practiced law for 18 years. I have been a judge for almost 17 years, complex commercial litigation. I have seen a lot of financial statements. I have gone to a lot of accountant seminars that are 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 given so judges know what they are doing with financial statements. I have never seen a forensic accounting such as I have seen in this case. Why did it take me over 100 days to do this opinion, I have to tell you, at least 75 of those days were spent in financial statements, general ledgers, adjusting journal entries, trial balances, I will show you as I go through my factual findings with regard to each portion of damages. I had to sit down, fortunately, I went to a school where children learned how to diagram sentences in order to identify certain parts of speech so I know how to diagram. Fortunately I did, because in many instances I just had to take a huge sheet, like this and diagram what happened to these monies. I don't know what the accounting fees, the expert fees were in this case, but at the beginning I do believe somebody made reference to Mr. Barsky's fee being a few hundred thousand short of a million dollars. By the time he finished testifying, more. I have no reason to believe Mr. Hoberman's fees were any different. Why could that possibly be? They didn't have as much trouble as I did to go through this. That is what they are, forensic accountants. But I have never seen -- once before in my life have I seen an accountants's bill of a million
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48 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Now, ladies and gentlemen, from everything that all of the witnesses and all of the family on both sides of this case have said about Harry Wilf, I have to believe that he had every intention of fulfilling his promise at the time that it was made. But as that promise was carried down by the successors to Harry and to some extent Joseph those successors being Lenny, Zygi and Mark, the promises were not kept, and rather than coming out at the very beginning and saying deal is changed. They continued to make the promises to Josef Halpern, and of course a year and a half later, I believe it was a year and a half after Harry made the promise, then Zygi did say to Mr. Reichmann's representative, Ralph Reichmann's representative, "The train has left the station," the deal has changed. It is not in. This is not the type of a partnership under New Jersey law where you can do that. So the continuation of exclusion of Jarwick, even in the face of Judge Stanton's recognition that they were a partner prior, well, prior to his finding that they were not a partner as of 1992, and well after the Appellate Division's finding that they were a partner as of 1992, the Appellate Division's finding coming in December 2006. The Wilf's continued to run the partnership the way they always had, ignoring 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Jarwick. Not giving Jarwick their due as a partner. And I am finding that based upon Zygi's testimony, and to some extent that of Mark and Lenny, the Wilfs always intended to run the partnership this way. Nobody seemed to find it surprising that much higher grossly disproportionate management fees were charged to Pernwil then any other partnership ever in the history of the Wilf's organization. Nobody seemed to find it was surprising that unreasonable interest was charged on related-party loans. Neither of these, interest on related-party loans or management fees having been mentioned at all in the formation of the partnership. The Wilfs didn't seem to find it strange that there was no standard for allocating salary of Short Hills personnel. And I will read transcripts that say, we didn't really have a standard. It is just the way. At the end of trying to describe how the Wilfs allocate or didn't allocate a certain expense would be just, well, that is the way we have always done business. And in one memorable passage, Zygi says, well, in our partnerships this is the way it works. If they thought we took too much, when we were the managing, essentially the managing partner, the de facto managing partner, then our other partners in that enterprise would just take more in the enterprises we shared with
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52 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 civil conspiracy is a combination of two or more persons acting in concert to commit an unlawful act or to commit a lawful act by unlawful means. The principal element of which is an agreement between the parties, between the conspireing parties, to inflict a wrong against or injury upon another. And an overt act that results in damage. Now, I commented in my opinion on the motion to dismiss that being a chancery judge I see a lot of dysfunctional families. After 22 months of testimony in this case, I didn't see a dysfunctional family. And indeed the Wilfs may have first prize in the entire State of New Jersey for a family of wealth engaged in a family business, particularly a second generation where they still get along. And I hope that nothing I'm doing is going to cause that to change. The Wilfs, two brothers and a cousin do get along. They all three respected, Lenny's father Harry and they all three respect Zygi's and Mark's father Joseph. As I said before, I think they even like each other. And it is clear after listening to Lenny's deposition testimony, and Mark's and Zygi's trial testimony, as well as deposition testimony that they act in concert with each other, which, you know, in many respects is completely admirable. It is the only way a family can co-exist in 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 a business. And it is very, very unusual. And they trust each other. Zygi being the master chef is the one that, even though as Lenny said he goes to work every day, et cetera, et cetera, and Mark works every day in pursuit, all three of them in pursuit of various enterprises, both having to do with real estate and not having to do with real estate. And Zygi is the master chef the self-described master chef, and it was very difficult for the three of them to describe how they functioned because it is almost a magical and very gifted kind of interaction that they have, that I think is based on trust and affection. And I think it was Zygi who testified about, he thought about the Wilf organization 24 hours a day even in his sleep. As a little boy he grew up with his father talking about it to his uncle every time they were together constantly, constantly, constantly, constantly. So it is in their genes and it is in their blood. And they acted together by consent, but it was really a tacit consent, because as Zygi said, if he was going to run all of these projects, he didn't have time, I think he is right, to go into detail with every one of his partners, probably not even with his brother and his cousin, but at some point in time they would get together, they would express to each other what was
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56 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 MR. GURYAN: I do. THE COURT: Okay. Because it was your argument. Okay. All right. The first issue under RICO, as it is in any matter, any cause of action, is standing. And the defendants made a valiant -- made a valiant attempt to argue that the plaintiffs had no standing under RICO for a number of reasons, the most notable of which was that their contention was that the expulsion of Jarwick was the alleged predicate act, and that that was not a predicate act under RICO. And for a number of other reasons, it was the subject of long and exhaustive argument. But I am finding that both plaintiffs, Joe Halpern and Jarwick, have standing under RICO for a number of different reasons, the most notable of which -- and I'm not going to go into the others right now -is that Jarwick and Joe Halpern were clearly the targets of the misappropriation of funds from the partnership. And while the Wilfs may not have looked upon this as harm, direct harm to Jarwick, because it is their contention that they were not a partner, they were a partner and -- but not for the entire period of time. And I will go into that when I talk about the claim of right. 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 So Jarwick and Joe Halpern did have standing under RICO to the claim for treble damages and counsel fees and cost of suit and investigation for the pertinent period of time, which I will go into in just a couple of minutes. I am finding that the second part of RICO, that a racketeering -- pattern of racketeering activity consisting of predicate acts -- and I'm going to deal with predicate acts first -- has been met. Theft by unlawful taking or disposition, which is set forth in N.J.S.A. 2C:20-3; theft by failure to make required disposition of property, sometimes called embezzlement, under N.J.S.A. 2C:20-9; misapplication of entrusted property under N.J.S.A. 2C:21-15; theft by deception -- theft by deception is set forth at 2C:20-4; falsifying or tampering with records, N.J.S.A. 2C:21-4; mail and wire fraud, which is set forth and included in our state RICO under the U.S. Code 18 U.S. C, sections 1341 and 1343. I believe that's it. Let me see. Those are all of the causes of actions which RICO was a predicate act. And I do find that the defendants have violated those strictures, and that those violations do constitute a pattern of racketeering activity within the ambit of N.J.S.A. 2C:41-1 D, that there was a conspiracy to violate RICO set forth under N.J.S.A, or spelled out under N.J.S.A.
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60 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 organized crime type of conduct, which could include any one of those acts that I just read to you that are predicate acts for civil RICO. And Ball II, our Supreme Court case, along with the Appellate Division case, the initial Ball case, State v. Ball, tells the trial court that you look at how the participants associated with each other, whether they had discrete roles; whether the conduct involved a level of planning, a high level of planning; how decisions were made, were they made in the manner that showed that people were acting in concert; was there a high level of coordination involved in the implementation of the organization; and you look at how frequently the group engaged in the particular incidents complained of. There was a high level of coordination with regard to Pernwil, Halwil, Rachel Gardens. Decisions, as I said, were made by consensus. And it appears to be a very well-oiled machine that, despite the presence of a low-income housing aspect to it and a lousy real estate market, it is continuing to make money and almost runs by itself, because it has been running under the direction of the Wilfs and their accountants, I might add. Their accountants are no longer parties to the case, but they were part of the enterprise, they 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 had to be in order to make it all work. Let's see. I haven't done pattern, have I, gentlemen? MR. LEBENSFELD: Yes, you did. MR. HIMMEL: Yes. THE COURT: I did pattern? MR. LONG: Your Honor, you indicated that you were making a finding of pattern but you didn't describe the elements or the definition, I don't believe, and the statutes, if that is what you mean. THE COURT: Thank you. I thought I remembered reading 41-1D but I didn't read the statute, which I do want to do, so that everybody understands what the New Jersey legislature considers to be a pattern of racketeering. It requires, one, engaging in at least two incidents of racketeering conduct, one of which shall have occurred after the effective date of this act, and the last of which shall have occurred within ten years after a prior incident of racketeering activity. And we have that in this case. Two, a showing that the incidents of racketeering activity embrace criminal conduct that has either the same or similar purposes, results, participants, or victims or methods of commission, or
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64 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 four-year and a five-year statute of limitations, and he was not. He clearly was not. The defense has argued, in the many, many years since Judge Meehan decided the case, our legislature has not seen fit to enact a specific statute of limitations for RICO. That could be for any number of reasons although, usually, when a legislature -- it is true, as counsel argued, when a legislature is not correct, a judicial opinion, it usually means that they agree with it. In this case however, this was a Law Division opinion. It was three and a half pages. I said it has only been cited once. And it was not dealing with the issue as to whether or not New Jersey's five-year statute covered this case. And as I said, there has been an argument made, which I will go into a little more later, that actually our civil statute of limitations should deal with it for six years, so that all of your civil actions are covered under the same statute of limitations. And further argument that I believe the criminal statute is six years and the argument is made, why should a prosecutor have six years to bring a RICO complaint and a private party only five, or four, or two, or whatever it is. Why should they have less. It would be much more consistent and logical if they were 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 both the same. So I am finding that the five-year statute of limitations applies for reasons and cases that we will go into a little more in-depth. Now, the defendants have argued that RICO does not apply. And by extension, nothing applies if -- because the defendants had an honest belief that what they were doing was correct and valid. And this is called the claim -- their claim of right theory. Now because I'm just doing a summary, I'm not going to go into all of the reasons why I do not find that the claim of right defense applies to any cause of action in this case, RICO or otherwise, with one similar type of argument, I think it does apply. And it is not exactly what the defendants argued, but I think it is a logical extension. The claim of right arises from -- just a moment. I want to read to you exactly what the claim of right comes from, but I don't seem to have the statutory reference up here. Just a moment. THE LAW CLERK: Do you want me to check. THE COURT: Look at 2C:20 -- just bring me the pocket part of the book. If you can wait for just a second because it is actually in the statute itself, the language. Okay. N.J.S.A. 2C:20-2 provides for the
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68 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 June. this is as far as punitive or RICO damages would be concerned. If a court has told you that you can do something, it is very difficult for a subsequent court to come along and say you cannot do that which the other court has told you you can. Now what am I talking about, specifically? Between 1992 and -- let's see, Judge Stanton's opinion was January of 2002, I believe, on the valuation date. Between January of 2002 and December of 2006, when the Appellate Division reversed Judge Stanton, for all practical purposes, and for all purposes, the New Jersey judiciary had determined that Jarwick was not a partner. So for this court to say that the Wilfs had no claim of right to deny them the fruits of their partnership is not appropriate. Once the Appellate Division decided that they were a partner, the rules of the game changed. And before Judge Stanton determined that they were not a partner, in January of 2002 -somebody correct me if I'm wrong. I had the paper. Was it January or June? MR. GURYAN: I thought it was June. MR. GIELEN: I thought so also. THE COURT: June 14th. MR. GURYAN: Something like that. It was 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 THE COURT: Yeah. June 14th. In that period of time, there -- as far as a criminal act is concerned, the Wilfs had the right to believe that what they were doing was correct. And therefore, any punitive damages that might attach to that would not be appropriate. So that is what -- did you argue on -MR. SNYDER: I believe we did, Judge. THE COURT: It was so mixed up with everything that was going on with your assertion of claim of right at that time, I may have picked up the germ of that thought from you Mr. Snyder. But it is very difficult to say -- it does not apply to Josef Halpern, because Josef Halpern remained a partner, was a partner. I know it is Zygi Wilf's position that the Jarwick's were not a partner, never been a partner, et cetera. But when Judge Stanton said they were a partner, their partnership ceased as of June of 2002, from that point until the Appellate Division, the Wilfs had a right to not give them the emoluments of their partnership. Now it has not escaped me, lest anyone think that it has, that even after the Appellate Division reversed Judge Stanton and before Judge Stanton said that the Wilfs were not a partner after 2002, the Wilfs uniformly, pervasively and consistently have -- and up
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72 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 The books and records of the partnership are turned over to Jarwick in 1995. I believe Mr. Morrison was retained in 1997. The valuation hearing utilized expert reports from both sides before Judge MacKenzie. While this case was on appeal, nobody could do anything with their complaint that was extant in the court. So I pulled out equitably tolled the statute for that period of time, which brought the time period from which enhanced damages could be obtained, pulled it backwards to January 1st of 2000. That was a short period of time after Bill Morrison had filed his report. I know there is an argument that Mr. Halpern -- that Joe Halpern was not told -- and a very good argument, which I gave great consideration to, by the way -- was never told, for reasons which I will go into when we go into this in detail, by the Reichmanns, by the Wilfs, by Mr. Morrison, or Mr. Cohen, of these irregularities in the financial statements or off the financial statements. I'm not extending the statute -- I'm not tolling the statute of limitations for any longer period of time because Mr. Halpern had many, many years in which to react and conduct some type of an investigation, notwithstanding the fact that there was a fiduciary relationship here 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 and that the Wilfs had a duty to disclose. And just as one example, Mr. Halpern knew what rents were being charged for these apartments. He knew what was being collected. And he knew what he was getting. And he wasn't getting -- he clearly was not getting 25 percent of the profits that were being thrown off, the net profits that were being thrown off by this entity. And while I am -- I say this with reluctance because the Wilfs knew very clearly that they were the subject of a complaint that was filed in 1992. The complaint did not allege misappropriation. But the complaint sought an accounting. And they knew that they were going to have to provide an accounting. They have known that ever since they were served with this complaint, which I assume was shortly after September 11, 1992. And, under the separate accrual court rule and doctrine that we have in New Jersey, compensatory damages will go back to September 11, 1992, for both parties, but the enhanced damages for Jarwick will be relieved from the time of Judge Stanton's opinion on valuation until the Appellate Division opinion. And I will go into this in a more organized detail when we go into everything specific. MR. LEBENSFELD: Your Honor, as to Joe
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76 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 what elements I'm throwing into damages, after I tell you what kind of damages I am awarding. We are awarding, for that period of time, punitive damages, RICO damages, attorneys' fees, cost of investigation, cost of suit. And I don't know what I'm going to do with that, folks. I just really don't know. Attorneys' fees are -- they have always been a problem in this case. And the punitive damages will have to await the submissions that you have been preparing for me, right? You have been preparing them for me, right? MR. SNYDER: Yes. THE COURT: And also the attorneys' fees you have been working on. MR. HIMMEL: Yes. MR. LEBENSFELD: Yes. THE COURT: For those of you who are here who don't know what I'm talking about, I realized that we were going to have a very short time frame for me to rule on these post-judgment matters, so counsel were cooperative enough to agree to prepare those submissions ahead of time so I can get to them as quickly as possible. And as a matter of fact, I think this executive summary was suggested by Mr. Gielen so that the parties will have even more time to look at 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 what is happening, and do whatever they have to do in a post-judgment way. Now that is the monetary damage issue. Now that I have explained to you broadly, generally, what we will call a claim of right, but isn't really a claim of right, it is just commonsense, you see the problem I'm having with calculation of damages? So maybe Mr. Barsky and Mr. Hoberman can help us out on that. And the last issue is -- what is the last -oh, dissolution. As I said before, dissociation was -did I go into anything at all on punitive damages? MR. GIELEN: No, your Honor. THE COURT: I did say I was awarding punitive damages? MR. GIELEN: Yes. THE COURT: I am awarding punitive damages because what was done in this case does fit within the requirements of New Jersey's punitive damages act. It was done not with a reckless, but a willful disregard of the rights of the partners, Jarwick and Josef Halpern. And it was clearly not negligent. It was not even grossly negligent. It was grossly willful. And it was done repeatedly. And the outcome was foreordained when the act itself, or the acts
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80 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 lawyer's bad faith, not the bad faith of the man on the street would understand it. There are a lot of words that are being used in this opinion that have a different connotation outside this courtroom, like racketeering influenced. Those are not my words. Those are the words of the New Jersey Act. That is one of the reasons why I described the predicate acts, so that those who do not understand what a predicate act is will not think it consists of murder and other acts, extortion and things like that. It is what it is. Okay. Now, we are going to have a very interesting week or week and a half ahead of us, at the end of which, because I have completed the opinion to myself, even though I haven't been able to get the whole thing on the record, to say the least today, there will be a dissolution of Pernwil. And I'm just briefly going to tell you why. Very, very briefly. These people can no longer live together. Even were Josef Halpern not ill, there is no way that they could go back and work together, not after what has happened in this case. And the plaintiffs are entitled to dissolution and to their share of the assets. Now, Rachel Gardens is a very economically 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 productive entity. And I have indicated several times during the course of this trial that I felt that the parties should come to some kind of an understanding as to how they could extricate themselves from each other without -- I was going to call it the golden cow -without killing the golden goose, or the goose that laid the golden egg, I guess is what we call it. So I am going to order dissolution. I am going to hold that for 30 days to allow the parties to try to come to some kind of a disentanglement that is not going to have a detrimental effect on the tenants at Rachel Gardens, that is not going to have the effect of ruining the income that is being spun off from Rachel Gardens. And of course, Josef Halpern's illness makes dissolution, as opposed to dissociation, the only alternative. And Jarwicks, of course, are far distant. And nobody -Zygi testified, and I believe the Reichmanns also testified, nobody intended that they were going to come down and run Rachel Gardens. They were the money people. So you have 30 days to try to come to an equitable resolution of this, short of dissolution which, in my experience as a judge, is a disastrous way to -MR. GURYAN: But you are not ordering
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84 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 make that argument, those cannot be the subject of punitive damages or RICO damages because they were already distributed? MR. GURYAN: I think that was -- I don't remember if that was a specific argument, but I certainly made the argument with respect to Josef Halpern already receiving certain monies. THE COURT: Yeah. Well, I think, because I just recently reread this, your point was, because all of the distributions were going back into the pot -MR. GURYAN: Correct. THE COURT: -- the way the accountants have calculated damages, and there is no harm done if everything goes into the pot and there are no enhanced damages, because they come out 50/25/25, right? But they can't -- it can't be done that way for a calculation of punitive damages and RICO damages, because they don't come out 50/25/25, because of the time period for RICO and the exemption for Jarwick, the tolling part -- the nontolling, I should say, for Jarwick. You understand what I'm talking about, don't you, Mr. Hoberman? MR. HOBERMAN: Yes. THE COURT: I was going to say, if you say 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 just -MR. GURYAN: Throwing everything back. THE COURT: Yes. MR. LEBENSFELD: But in his scenarios -THE COURT: I understand. But I want your respective accountants to go over them. Let's stop for a moment, because Mr. Hoberman is explaining to the Wilfs what I'm saying. So everybody gets it, we are not double dipping here. Okay. I hope I have included everything. If I haven't, I'm just going to slide under the bench and go away. The first element that I will be -- I guess I'm going to be addressing in detail RICO tomorrow, no, I know I didn't get it right. MR. LEBENSFELD: Your Honor, Mr. Barsky's damage calculations as to Joe Halpern deducted the money he had been paid. THE COURT: His scenarios did. MR. LEBENSFELD: Right. THE COURT: I'm not sure that the core schedule did. MR. LEBENSFELD: It did, your Honor. THE COURT: It did? Okay. I wasn't sure. MR. LEBENSFELD: No, the core schedule is
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88 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 accounting reason. But in most instances, Mr. Hoberman gave me the same answer. If there is no accounting reason and there is no legal reason, there is no reason, because nothing else matters here. Mr. Lebensfeld talked about being the moral and right thing to do, and that is admirable. But I am sworn to enforce the law under principles of equity. That is really all I can do. Most of the time they match up, thank goodness. So because there was no oral agreement, because there was no written agreement, because there is no statutory provision for any of these fees to be taken out in the amount that they were taken out or, in some -- in most instances, to be taken out at all, from Pernwil, is why they are being thrown back in for distribution. And there is one -- there is just -- let me make one comment when we get -- one other comment, I think, when we get to theoretical fees. All of the management fees are to be put back into the pot for 50/25/25 distribution. The theoretical fees and the hypothetical fees are fees that the Wilfs claim that they should be paid because they performed valuable services for the partnership. I have to assume that the Wilfs, or their organization, performed some services for the partnership. As far as 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 the onsite management, that was done by Joe Halpern and his staff. And there really is no dispute about that. And even -- I will go into this in detail. Even the Wilf organization employees, who work not only in Pernwil but at other entities, support that proposition. Now I considered some type of a hypothetical or a theoretical fee. However -- and this was really the last decision that I made in this case. It was the one that I labored over the longest -- I am deciding not to award hypothetical or theoretical fees for a couple of reasons. First of all, exactly what the Wilfs did was not quantified, except by the suggestion of a percentage of net profits, or a percentage of the rents, like a management fee. So I would say to myself, maybe they are entitled to a management fee. Then I think, what are you talking about, there is no agreement for management fees. This is an entity that is governed by an agreement. Not only was there no written agreement for management fees, management fees were never discussed. Just simply never discussed. So, while -- and I know that Zygi in particular is very proud of what he called the value that was created by the Wilfs with Pernwil Gardens, however, he himself
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92 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 be awarding an undisclosed, unagreed to management fee. So I'm not awarding those fees, although I thought long and hard about it. And I mentioned before the quantum meruit argument that could have been raised. But quantum meruit is an equitable remedy that would be precluded by unclean hands. And unclean hands is not, as a lot of people think, coming into court having done something naughty someplace along the line, but it is having done something untoward or inequitable with regard to the conduct before which you are appearing before the court. And I am not allowing interest on related-party loans. There is no statute for it. There is nothing in the agreement. There is no loan document. There is simply nothing. In addition to the fact interest was taken on related-party loans that weren't really related-party loans. And I'm fully aware of the fact that, at some point in time early in the partnership, the Wilfs had to put money in because Jarwick wasn't built up, it wasn't throwing off any money. I'm not sure, because it didn't come out at trial, why they had to do that, because they had a $36 million loan. But it probably had something to do 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 with the environmental problems they were encountering along the way. I don't know why. But there was testimony that the Wilfs, on previous projects, had also made short-term loans of their own money for which they received no interest. And it might have even been different if the loans had been documented and set out in financial statements or, at the very minimum, discussed with their partners and everybody agreed, well, we will pay you a half percent above prime or whatever it was. I don't even know where that language came from in note four, in the various financial statements, but it certainly is not in any agreement. Now, the distributions, above and beyond the three point -- the three to one, have to be put back so they can be appropriately distributed according to the ownership percentages. I'm not sure how that is going to work out with the various -- but that is why we have CPAs, to figure that out. Because the damages are broken up. They are not just straight compensatory. They apply to one entity for one point and one for another. So, you know, the wonderful thing about CPAs is they don't write 200-page briefs. MR. LEBENSFELD: Your Honor, I apologize if I'm stepping over the bounds. I apologize. But I don't understand your last statement. I thought I
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96 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 THE COURT: Sure. MR. GIELEN: The compensatory damages go back before 1992. The complaint was filed in 1992 seeking an accounting -THE COURT: Just a moment. Just hold on. Let me look at my sheet here. Yes, a small amount of them did go back to 1989, and actually, relatively speaking, there was a small amount of damages before 1992. But thank you for that. Save me a conference call. The excess payroll. All of the excess payroll has got to go back in. And it has to go back in because there is no commonsense rationale for it. There is no legal rationale. Some of these people did something for Pernwil. But in order to charge Pernwil for the labors of these people who gave services to Pernwil, Pernwil has to know what it is that they are paying and why, and what these people are supposed to be doing for them. That is what it means to have a contract and have the rights and obligations of a third-party. You don't just do payroll. I mean, ADP has got to have a contract with the firms that they do payroll for. And I'm not -- I've never run a business except for a law firm, so I'm not going to tell the Wilfs how to run their business. But when you do 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 things this way, you subject yourself to these kinds of rulings. Insurance. I just have to say a couple of things. I have a whole packet here, as you might imagine, of information on insurance and calculations. We spent at least four days on this, at least. And there -- I was totally confused for the first two as far as what was charged. I went over Zygi's testimony repeatedly, and I still couldn't make head nor tail of it. I couldn't tell what it was. What rate he was charging. He kept going back and forth between market rate, the Wilf rate, the one off rate. And by the end of the second day, I was beginning to think, I don't really care, this is such a small amount of money, I just don't really care. This is ridiculous. But I realized I couldn't -- that was not an appropriate judicial reaction to something I didn't understand. And then I believe somebody, I think it was Mr. Barsky, found in some of the papers that he had been given a receipt for insurance. And it was substantially less than what the Wilfs had been charging Pernwil for their insurance. And I guess we have, at long last, gotten to trueing up. Because it was Zygi's testimony that construction liability insurance was not charged in the
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100 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 a large organization in Short Hills. I believe at least one floor, perhaps two, were occupied by the Wilf law firm, which doesn't have anything to do with Pernwil. But the rent has got to go back in, because there was no reasonable basis for the amount of rent that was charged. There was -- I will go into this in more detail tomorrow with quotes from depositions and trial. The balancing or true up argument, as I said, just doesn't work, because it is totally, totally arbitrary, and came up only after Jarwick had been ruled by the Appellate Division to be a partner. And then we have commissions. Some of the commissions were just receptacles for reclassification of management fees into commission pots. Others were end-of-the-month checks that were paid to some Wilf employees, most of which had nothing to do with Pernwil. There was also a FICA problem with these end-of-the-month checks, which is not within my bailiwick, but I believe they were reported on 1099s not W-2s. There was never an explanation for that. And I was unclear as to what these end-of-the-month checks were for. And they were certainly not made with any discussion, disclosure or agreement. Advertising. The Wilfs did advertising for 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 the vacancies at Rachel Gardens in addition to all of their other projects. And these ads were placed in advertising -- real estate advertising magazines, I will call them. And I was never able to make any kind of a finding as to what their reasonable advertising costs were. Jill Carl was the person who came as a witness, and she placed all of the Pernwil ads and all of the Garden Homes advertising ads in addition. And she had never seen or heard of some of the amounts of tens of thousands of dollars a month that were taken from Pernwil for advertising. Ms. Carl didn't come back to testify, but the expense of running the ads was relatively minor, and the Wilfs were charged -- the Wilfs were given a discount. They passed half of that discount on, I believe, to Pernwil, and they kept the rest for themselves, taking for themselves the half that Pernwil paid. So those should go back into the pot. I believe that the legal fees have been equalized -- nope, they haven't. I believe they were equalized as of 2010. MR. GIELEN: There are a couple of items that Mr. Barsky had omitted, and that is why they were added back later when it was presented to you in trial. THE COURT: But the bulk of the legal fees have already been equalized?
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104 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 recollection was that Zygi did not remember his asking about Rachel Affordable. Joe's recollection is that Zygi said that his father and uncle needed the tax advantages of affordable housing and that Joe's income was not sufficient to avail himself of those. So they were going to take that tax benefit. It was Joe's position and his testimony that he was entitled to the profits, even though he was not going to be getting the tax benefits. He knew that Rachel Affordable was a separate entity, separate accounting, et cetera, but nobody told him that he was not going to be a recipient of 25 percent of the profits of Rachel Affordable. And as it turned out, Pernwil paid most of the expenses of Rachel Affordable. Pernwil paid for the construction of Rachel Affordable. And Joe Halpern thought that he was a 25 percent shareholder of Rachel Gardens which included Rachel Affordable. He rented out to his employees who qualified apartments in Rachel Affordable. He didn't have to ask anybody to do it. He did it. He got the approval of the township through for Rachel Affordable, and worked with the township as far as obtaining lists, et cetera, et cetera, when there was a vacancy in Rachel Affordable. So he should be entitled to 25 percent of the profits from Rachel Affordable. 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 I want to say a word about credibility. The model jury charges give instructions to juries on how to judge credibility. What did the witness say? What were the witness's gestures, tone of voice during the testimony? Did what the witness say make sense? Did it make sense in light of other things that you know made sense? And it tells the jury that if you don't believe the witness in one thing, you may chose to disbelieve them in everything. I've always thought that was a rather heavy handed jury charge. And I have done a lot of bench trials in my career, and I've never used that. If you don't believe one thing that they say, don't believe anything that they say. It is a little heavy handed. And I read very carefully, and went back and forth over Mr. Guryan's lengthy closing argument on Josef Halpern's credibility, and there were inconsistencies in Josef Halpern's testimony from his deposition. I believe he was deposed twice, two separate time periods, one in 1997 -MR. LEBENSFELD: Yes. THE COURT: -- and then later for this trial. And then he was on trial here testifying in two separate time frames. And there were inconsistencies in his testimony. There are a couple of reasons why I
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108 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 talking about the initial litigation. And I found Josef Halpern largely to be a credible witness. And where there were inconsistencies -- where there were inconsistencies, I found them one by one. And if you want me to, folks, I can go through all of them. But I don't think you are going to want me to. They were because he became extremely emotionally involved in the subject of the questioning, and started speaking very, very quickly. And this, in particular, occurred with an incident that happened in the early 2000s at Rachel Gardens with an unrelated piece of litigation. But I found those inconsistencies to be largely unrelated to anything pertaining to a statute of limitations issue in this case or a disclosure or an agreement. We will go over P-400. I'm sure we will go over it ad nauseam, starting tomorrow perhaps. But I discount those inconsistencies, although I agree that there were inconsistencies. But I believe that they were due to factors other than willful lying, or even accidental untruths. I found Mr. Halpern to be largely credible. That is not to say that I found the Wilfs to be incredible. Because I felt that the Wilfs were forthcoming in their testimony, they were candid. And as you will see when I read the trial transcripts and 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 deposition transcripts, most of my findings of fact are based on the Wilfs testimony. So, there is one more thing that I meant to address. There goes my memory. We will deal with it later, whenever that is. Okay. Thank you very much. I will see you all at ten o'clock tomorrow. Is there anything else that I have to address by way of a summary, so that whoever is going to be doing post-judgment, things can get going on them? MR. GURYAN: I think maybe we ought to review this tonight and if there are additional items, we can ask that they be covered tomorrow. THE COURT: Would you just give me a moment or so to answer your additional inquiry? That is why I was hoping you might tell me this afternoon, so I could be prepared for tomorrow. MR. GIELEN: I do have one thing, your Honor. If your Honor wants to, in order for Mr. Hoberman and Mr. Barsky to possibly begin to reconstruct an accounting based on the summary you provided to us, there is one issue that begins their accounting, which is how to treat the capital contributions. The dispute was between Mr. Barsky and Mr. Hoberman. Mr. Hoberman counted them as he had them
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112 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 THE COURT: You know, I don't know why, but I haven't considered that, I don't think. But I didn't go through all of the Rachel Affordable things here. I was just summarizing everything. But I don't recall having considered it, except that I do recall believing that capital contributions are not repaid as loans when they -- right, when they can be repaid. Of course these weren't repaid then. But they are repaid at a capital event like a closing, a sale, a refinance. MR. GIELEN: Or a dissolution. THE COURT: Or a dissolution. But why don't you think about that. I will think about it. Maybe tomorrow you can show me where the testimony is on that. Or if you want to -- well, no, faxing it to me, e-mailing it tonight. Believe it or not, I don't take the trial transcripts home with me. MR. GIELEN: Okay. THE COURT: Okay. So I mean, if somebody would -- I mean, you have been appearing in front of me, at least by telephone, since October of 2009. What do you think the odds are that I'm going to shoot from the hip on that one? MR. GIELEN: I didn't expect you to. I just wanted to let you know that the accountants won't be able to -1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 him. MR. GIELEN: We have been. THE COURT: In Alaska? MR. GIELEN: Yes. MR. GURYAN: We understand the issues. We will speak to Mr. Hoberman about it tonight. THE COURT: Okay. And if somebody could let me know where the trial testimony is -MR. GIELEN: I will. MR. SNYDER: We can do that, Judge. MR. GIELEN: If you guys can do Mr. Hoberman, I will do Mr. Barsky. MR. GURYAN: We can do that, sure. THE COURT: I do remember the issue. I don't remember deciding it. All right. Thank you, all. Off the record. MR. GURYAN: Discuss that. MR. GIELEN: -- work in corporation until that issue is resolved. THE COURT: Okay. I think they've got enough to do for right now. I mean, just explaining this to Jeff Barsky -MR. GIELEN: No, no, Mr. Barsky knows exactly what this issue is. THE COURT: I hope you are not e-mailing
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