KYLE J. FUNSCH VS. PROCIDA FUNDING, LLC (L-7221-16, BERGEN COUNTY AND STATEWIDE) ( 2020 )

NOT FOR PUBLICATION WITHOUT THE
APPROVAL OF THE APPELLATE DIVISION
This opinion shall not "constitute precedent or be binding upon any court ." Although it is posted on the
internet, this opinion is binding only on the parties in the case and its use in other cases is limited. R. 1:36-3.
SUPERIOR COURT OF NEW JERSEY
APPELLATE DIVISION
DOCKET NO. A-3899-18T4
KYLE J. FUNSCH,
Plaintiff-Appellant,
v.
PROCIDA FUNDING, LLC,
WILLIAM PROCIDA,
and JOHN MULLANE,
Defendants-Respondents.
Argued November 2, 2020 - Decided December 3, 2020
Before Judges Sabatino, Currier and DeAlmeida.
On appeal from the Superior Court of New Jersey, Law
Division, Bergen County, Docket No. L-7221-16.
Leonard Feiwus argued the cause for appellant
(Kasowitz Benson Torres LLP and Michael J. Bowe, of
the New York bar, admitted pro hac vice, attorneys;
Leonard Feiwus, Michael J. Bowe and Lauren
Tabaksblat, on the brief).
Leo V. Leyva argued the cause for respondents
(Cole Schotz PC, attorneys; Leo V. Leyva and Jason
Melzer, of counsel and on the brief; Wendy F. Klein,
Krista L. Kulp and Elizabeth A. Carbone, on the brief).
PER CURIAM
This appeal involves a dispute between two men about a business
relationship gone awry. The relationship began in 2009 when co-defendant
William "Billy" Procida hired plaintiff Kyle J. Funsch to work at Procida's real-
estate investment company, Procida Funding, LLC ("the LLC" or "the
Company"). Procida was the sole member of the LLC. In the ensuing years,
Funsch was mentored by Procida, and handled many transactions that raised
millions of dollars.
In May 2011, Procida sent an email to Funsch and another employee, co-
defendant John Mullane, that is the heart of this dispute. As interpreted by
Funsch, the 2011 email granted Funsch and Mullane the right to each receive a
12.5% share of the Company's net earnings, and allegedly promised them an
ownership share of the business. However, the LLC's Operating Agreement was
never amended to specify that Funsch had become an authorized member of the
LLC, nor did it detail the terms of his alleged membership.
Eventually the relationship between Procida and Funsch deteriorated, and
Funsch stopped working for the Company in December 2015. Funsch claimed
an equity interest in the LLC and a right to certain additional compensation,
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which Procida denied. According to Funsch, Procida also made disparaging
statements about him to business associates and clients.
In his complaint in the Law Division, Funsch asserted that, based on the
May 2011 email and other conduct by Procida holding him out at times as a
"partner" or "principal," he is entitled to an equity share in the LLC as well as
additional unpaid compensation. Funsch also sought damages from Procida for
alleged defamation.
After a non-jury trial, the court found Funsch's claims lacking in merit.
The court rejected his assertion of membership status in the LLC, finding the
May 2011 email and the other evidence inadequate to make Funsch a member
under the applicable LLC statutes and the Operating Agreement.
The court adopted Procida's trial testimony explaining the course of
events, and concluded the parties never achieved a meeting of the minds with
sufficiently definite terms to create an enforceable agreement. The court
particularly noted that Funsch never agreed to or signed any of the multiple
proposed amendments to the Operating Agreement that Procida presented to
him. Additionally, the court dismissed Funsch's defamation claims as a matter
of law, and also determined he was not owed any further compensation.
A-3899-18T4
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On appeal, Funsch variously argues: (1) the case should be reversed and
remanded for a jury trial, which the trial court improperly denied; (2) he should
have been declared an equity owner of the Company; (3) he is entitled to an
unpaid portion of the Company's profits from 2015; (4) the court should not have
excluded his damages expert's supplemental report; and (5) his cause of action
for defamation should be revived.
For the reasons to follow, we affirm the court's judgment in favor of
defendants.
I.
The record reveals the following relevant facts, allegations, and
procedural history.
The LLC
William Procida created Procida Funding, LLC in 2008 and was the sole
member at the time of its creation. The LLC is the fund manager for the 100
Mile Fund, a private equity investment enterprise launched in 2011. The 100
Mile Fund specializes in bridge, construction, mezzanine, and preferred real
estate equity investments.
The LLC is governed by an operating agreement dated December 16, 2008
(the "Operating Agreement"). Pertinent to this ownership dispute, Section 1.8
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of the Operating Agreement specifies that a new member may be admitted to the
LLC upon "the unanimous written consent of [its] Members." Because William
Procida was the sole member of the LLC, his personal consent was required to
admit any new members.
The Business Relationship Between Funsch and Procida
The business relationship between Funsch and Procida commenced in
2009. Funsch, who is much younger than Procida, had recently launched an
internet-based real estate company.
Between 2009 and 2011, Funsch, working with Mullane and under
Procida's tutelage, developed and implemented a residential "fix and flip"
program for the Company.
The May 13, 2011 Email
On May 13, 2011, Procida sent an email jointly to Funsch and Mullane
that is at the core of this litigation. The email contains the subject line, "my new
partners," and states the following:
[Y]our work to date has been admirable and your skill
sets improve daily. I am proud to work with you both
(despite that I beat you to the office today) therefore I
am making you partners. [T]he terms of which are as
follows: for as long as you work here, you will each
own and be entitled to 12.5% of the combined
companies [sic] net earnings. [Y]ou will receive a draw
against those earnings . . net income will be calculated
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by all income less all expenses exclusive of interest
income on my investments. [S]hould either of you
leave the firm you will forfeit any rights to future
earnings or ownership. [S]ince talk is cheap I wanted
to put something in writing, so we can consider this
legally binding. [A]s we've got many things to do save
this email.
[(Emphasis added).]
The email continued:
[I]f I die or become disabled it is my wish that you guys
own 50% and send the balance to my kids. [Y]ou are
now to refer to yourselves as my partners. [W]e will
fine tune this over time. [W]e will do a press release to
announce this shortly.
[(Emphasis added).]
Funsch argued this email constituted "unanimous written consent" by
Procida to make Funsch an equity owner in the Company. In opposition, Procida
argued the May 2011 email was merely a promotion of Funsch to a salaried
employee who could hold himself out publicly as a "partner" in the business , but
only as long as Funsch worked at the Company.
It is undisputed that in the weeks following the May 2011 email, the
Company issued multiple public announcements describing Funsch and Mullane
as "partners." The announcements appeared on the Company's website and in
the June 6, 2011 issue of Institutional Investor News, a trade publication.
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As Procida conceded on cross-examination at trial, Funsch was also held
out to investors, lenders, regulators, and the public on several occasions as a
"principal" or "partner." For example, these statements appeared in the
following publications, filings, and communications:
• SEC Form D signed by Procida dated January 9, 2012
identifying Funsch as a "principal" of Procida Funding;
• Procida Funding's website, listing Funsch as a
"Principal";
• a Final Private Placement Memorandum for the 100
Mile Fund, LLC identifying Funsch as a "principal at
Procida Funding";
• a May 18, 2011 email from Procida to Gregory R.
Haworth, attorney for Procida Funding, stating: "[J]ohn
and [K]yle should be noted as partners in the fund
manager";
• a September 22, 2012 email from Procida to a client,
Salvatore Pappalardo, stating "Kyle is a partner who has
successfully closed over 200 million in the last [three]
years. With several repeat customers. . . . If u can’t
deal with [K]yle I’m sorry but that’s how we run our
company";
• an October 4, 2012 email from Procida to Carl Schwartz
describing "Kyle Funsch and John Mullane. Both
partners" as "[m]y new [Z]urlini and [Mc]clain. Great
guys," thereby drawing an analogy to Procida's former
equity partners in Palisades Financial, Procida’s former
company; and
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• a June 8, 2015 business magazine story entitled "Urban
Renewal: The money men," identifying Funsch as one
of the Company's "principals" in an interview with
Funsch, Procida, and Mullane, and in which Procida
personally described Funsch as "the partner in charge of
originations."
Defendants underscored at trial that the May 2011 email is devoid of any
references to "membership," "equity," or "ownership interest" in the Company
itself. They further stressed the email lacks any specific terms and/or conditions
related to: (1) loss sharing; (2) capital contributions; (3) work schedule; (4)
consent rights; (5) amending the books and records or other Company
documents; and (6) the Company's debts.
As further counterproof, defendants cited to an email sent by Procida on
July 26, 2011 to Funsch, Mullane, and third parties, asserting that Procida owned
"100%" of the Company and that "[J]ohn and [K]yle are cash flow partners."
[(Emphasis added).]
Defendants also stressed that Funsch never received a Schedule K-1 or
any membership certificates; made any capital contributions to the Company;
executed any amended operating agreement for the Company; shared in the
Company's losses; or managed the Company or possessed any voting rights of
any nature.
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In another email chain on February 8, 2012 between Funsch and Ali Betts,
the controller of the Company, Betts stated that Funsch needed an "official
partnership agreement with [Procida], not an email, not today you are his
partner[], tomorrow his junior partner[], then his employee[], then his kid[] . . .
a real agreement with 3 . . . count them 1 2 3 signatures from all parties!"
[(Emphasis added).] Funsch responded:
I will speak for myself in saying that I will not sign
documents, represent the company nor my family when
I have [zero] say. The one thing at Palfi [Procida's
former company] that [Procida] attributes to failure was
control, that isn't changing this time around.
Sometimes a little input is helpful but it's extremely
difficult when you are treated as a pawn in a game of
chess.
[(Emphasis added).]
Later, in his testimony at trial, Funsch acknowledged that he never sought a
"partnership agreement" from Procida.
In December 2012, Procida raised the revenue-sharing percentage earned
by Funsch and Mullane from 12.5% to 15% each. Procida wrote an email on
December 20, 2012 to, among others, Procida’s attorney, stating, "I want to
amend the [P]rocida [F]unding operating agreement to admit [K]yle. [A]nd
[J]ohn as [straight] up 15% partners. Effective [J]an. 1." As instructed by this
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email, Funsch and Mullane were thereafter compensated at the rate of 15% of
net earnings.
As we have already noted, the parties never executed an amended
Operating Agreement. Between 2012 and 2015, a series of four draft proposed
amendments were circulated between Procida and Funsch, along with other
persons. But none of these proposed amendments were signed or agreed to by
Funsch.
In one such proposed amendment, the terms of which were explained in a
June 19, 2015 email from Procida, he made clear that he would still retain
exclusive control over any and all Company decisions. For example, Procida's
exclusive authority would extend to any decision to stop cash flow distributions,
or to remove any "operating manager" from the Company if that individual
performed a so-called "bad boy act." As Procida described in his email, such
"bad boy acts" would include "lying cheating or stealing or violating the
moonlighting clause," and whether such an act occurred would be determined at
his own "sole discretion."
Funsch did not respond to the June 19, 2015 email from Procida. Indeed,
the only action Funsch appeared to take in connection with the proposed
Operating Agreement amendments was when he forwarded an email to his
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mother in October 2015 with Procida's comments about such a proposal. Funsch
wrote his mother, "[Procida] produced an unassignable document then gives
[four] business days [for me] to review and give comments. It took [four] years
to get a document." In her reply, Funsch's mother, who evidently has business
experience, questioned what advantage it would be for Funsch to be a member
of the Company. She suggested to him that he instead "just [get] a contract that
says [he] is entitled to [a rate of] 13.04% [in compensation]."
The parties disputed the legal significance of the exchange of drafts of
proposed amendments to the Operating Agreement. Funsch argued the drafts
"continued to recognize [his] and Mullane's previously conferred status as
members." By contrast, defendants argued that such proposed amendments
constituted mere negotiations that, only if fully consummated, would elevate
Funsch and Mullane from employees to "partners."
As support for their position, defendants noted that throughout his time at
the Company, Funsch received W-2s,1 the type of tax form an employee
1
IRS Form W-2 (entitled "Wage and Tax Statement").
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receives, as opposed to a K-1 form,2 which a partner in a firm typically receives.3
Defendants also pointed out that Funsch "never asked why he was not receiving
a Schedule K-1 for his share of Company profits, despite knowing what a
Schedule K-1 was and having a family accountant at his disposal." Defendants
further noted that, in 2012, Funsch "requested that Procida increase his base
salary." [(Emphasis added).]
Termination of the Business Relationship Between Funsch and Procida
The parties sharply disputed at trial whether Procida fired Funsch or
Funsch voluntarily quit. The record is clear that, towards the end of their
business relationship, Funsch and Procida frequently argued in the office.
The tensions reached an apex on December 17, 2015, when Funsch and
Procida had an altercation. According to Funsch, he attempted to avoid
escalating the altercation by walking away, but Procida followed him into the
parking lot and "continued to scream" at him. Procida's version was that while
2
Schedule K-1 (IRS Form 1065, entitled "Partner's Share of Income,
Deductions, Credits, etc.").
3
Funsch's W-2s reflect he earned $109,038.50 in 2012, $185,577.03 in 2013,
$306,601.16 in 2014, and $282,985.07 in 2015. Funsch testified at trial that he
believed he was entitled to an additional sum of approximately $200,000 for
work he performed in 2015 but was unable to substantiate that full figure. He
presently asserts he is owed a lower figure of $65,638.93 for 2015.
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he was "yelling" orders in the office, Funsch stood up and suddenly and
belligerently proclaimed to him, "[D]o you have to talk so damn loud?" and left
the office. Procida recalled he followed Funsch into the hallway to ask what
was going on, to which Funsch responded, "[I]t's your f***ing [C]ompany, do
what you want," and sprinted down to the parking lot. According to Procida, he
followed Funsch to the parking lot, whereupon Funsch jumped into his car and
began to drive away.
Following the December 17 altercation, according to Procida, Funsch's
resignation was thereafter accepted. Procida further asserts in his brief, "out of
an abundance of caution, a text message [4] was sent to Funsch confirming that
he was no longer associated with the Company."
Funsch admitted that he drove away from Procida after the altercation, but
noted there is no evidence that he ever tendered his resignation. Funsch argues
in his brief that Procida sent the post-altercation text message "purporting to fire
4
The text message states:
I think that this relationship is over. We will discuss an
unwind tomorrow. No need to come back to the office
now or ever[.] Leo [his attorney] will be sending u
formal notice. I ask that u don't go to the office today
or tomorrow. We will arrange for u to get your personal
belongings. Pls don't make me have u removed.
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[Funsch], even though he lacked the authority to do so under the 2008 Operating
Agreement." That argument presumes that Procida had made Funsch a member
of the LLC before the altercation.
Events After Funsch's Departure
According to Funsch's testimony, he has been unemployed since leaving
the Company in 2015, aside from a brief foray into starting his own limited
liability company. As of the time of trial, he reportedly had applied to about
four jobs over three years.
Funsch alleged he has been unable to find work because Procida
"intentionally disparaged and defamed [Funsch's] work performance to, among
others, [Funsch's] colleagues, and prospective investors, partners, and
employers."
As support for this claim, Funsch cited two emails: one Procida sent the
day after Funsch's departure to the entire staff at the Company, berating their
performance and questioning why he had to perform everyone else's work and
beseeching them to do better. The other email was the previously mentioned
email forwarded by Procida to two of the Company's main investors, with the
following message:
No need to be alarmed but as my valued friends, trusted
advisors and my [two] most important investment
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partners I needed u to be aware of the below email
which is only a small part of why I had to terminate
[K]yle yesterday which trust me was one of the most
difficult decisions of my life[.]
Defendants disputed plaintiff's claim of intentional wrongdoing by
pointing out that a few weeks after Funsch left the Company, Procida "attempted
to assist Funsch to find another job that would have paid $300,000.00 a year."
The Trial Court's Decision
After considering the documentary exhibits, the trial testimony of Funsch,
Procida, and other witnesses, and the arguments of counsel, the trial court issued
a fifteen-page written decision on April 15, 2019, ruling in defendants' favor.
With respect to Funsch's central claim of an ownership stake in the LLC,
the court found the evidence "demonstrated that Mr. Funsch did not have, and
knew he never had, a membership interest in Procida Funding." The court
reasoned that under both the New Jersey Limited Liability Company Act (the
"LLCA"), and the New Jersey Revised Limited Liability Company Act (the
"RULLCA"), a "member" of an LLC is a person who has been admitted as
"provided in and upon compliance with the [LLC's] operating agreement."
N.J.S.A. 42:2B-21(b)(1) (the LLCA provision); N.J.S.A. 42:2C-31(c)(1) (the
cognate RULLCA provision).
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Here, the sole executed Operating Agreement clearly established that
Procida, the Company's founder, was the sole member of the LLC. Under the
express terms of the Operating Agreement, Funsch could only be admitted as a
member with Procida's "prior unanimous written consent." The court found that
Procida "did not consent, in writing or otherwise, to Mr. Funsch's admission as
a member."
The court recognized the series of four proposed amendments to the
Operating Agreement would have admitted Funsch as an LLC member "if
finalized and executed," but that he "rejected each and every [such] draft
agreement." The court added that "[t]he existence of ongoing negotiations
concerning Mr. Funsch's admission, demonstrates that the parties had never
come to any agreement." The court insightfully added its perception that the
various communications between the parties about the draft agreements
evidenced "a reluctance by [Funsch] to consummate an agreement, where
instead of just receiving income from [the Company], he would potentially face
liability."
The court flatly rejected Funsch's contention that the May 2011 email
sufficed to imbue him with the legal status of a member of the LLC. As the
court observed, the email "does not state that it is amending or supplementing
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the operating agreement." The court further noted the email "lacks core, basic,
and material terms relating to Funsch's relationship with Procida Funding" that
would be expected to be included in an amendment admitting a new member.
For example, the court pointed out the email omitted any provisions addressing
such topics as loss sharing, capital contributions, and consent rights.
The court further underscored that the May 2011 email promised Funsch
a percentage of the Company's net earnings only "for as long as [he] work[ed]
[there]," and that "should Funsch leave the firm [he] will forfeit any rights to
future earnings or ownership." The court agreed with defendants that the
message was "simply an email notifying Mr. Funsch about his promotion and
altering the manner in which [his] compensation was calculated." The court also
found significant that the May 2011 email was thereafter "clarified" by Procida's
July 26, 2011 email, which specifically referred to Funsch and Mullane as "cash
flow partners," and not members. The court further noted that Funsch confirmed
he was paid as a W-2 employee and did not receive any K-1 forms reflecting
any owner distributions.
In addition, the court rejected Funsch's argument that the various press
announcements and other statements Procida made to third parties referring to
Funsch and Mullane as "partners" and "principals" were sufficient to grant them
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the legal status of members in the LLC. The court cited Procida's testimony that
he imprecisely used the term "partner" and similar words "to inveigh apparent
authority for negotiation purposes, but not to confer [upon Funsch and Mullane]
LLC membership status."
The court summarized its rejection of plaintiff's ownership claim as
follows: "At best the evidence only demonstrates that Mr. Procida was
considering admitting Mr. Funsch and that there were ongoing negotiations over
same." More pointedly, the court characterized Funsch's claim of ownership as
"absolute folly," and that "any claim [he] somehow thought he was a member of
the LLC or somehow entitled to be a member is entirely fallacious."
The court further determined in its findings of fact that Funsch had
voluntarily resigned from the Company when he walked off the premises in
December 2015 and did not return. Because of that voluntary departure, Funsch
was not entitled to any more payment from the Company's earnings for 2015,
consistent with the conditions set forth in the May 2011 email.
With regard to plaintiff's defamation claim, the court acknowledged that
at times Procida used coarse and sometimes profane language to criticize Funsch
and other employees of the Company. The court also acknowledged that Procida
"clearly is a hard-driving real estate entrepreneur," and that in this "highly
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stressed . . . business milieu," Procida "would scream and be abusive." Even so,
the court found no evidence that Procida had defamed Funsch to others.
The court determined in this regard that an August 11, 2015 email Procida
sent to John Newman, which contained a line saying that "[m]y guys suck," did
not identify Funsch or any another individual personally. In addition, the court
found that a long email Procida sent to Company staff the day after Funsch's
departure, alluding to a previous "famous blow out" with Funsch, did not rise to
actionable defamation. Further, the court rejected Funsch's claim that a private
text message Procida sent to Funsch about this litigation and disclaiming
liability was likewise not a viable basis for a defamation claim.
On the whole, the court determined that Procida's critiques of Funsch's
work amounted to "non-actionable statements of opinion." The court further
noted that Funsch had not produced at trial any witness who received or had
been affected by the allegedly defamatory statements, or any proof that the
statements were harmful to Funsch. The court rejected Funsch's theory that the
statements were so pernicious as to be defamatory per se.
The present appeal followed.
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II.
We first address Funsch's argument that he was unfairly denied the
opportunity to have his claims tried by a jury. In approaching that issue, we
recognize that Funsch included a jury demand with his complaint in accordance
with Rule 4:35-1(a).
We are mindful that during a colloquy with the court on March 3, 2017,
when the attorneys appeared that day to argue a defense motion to dismiss the
complaint, the lawyers and the judge mentioned on the record that a jury trial
had been requested. At that time, the judge stated he anticipated that equitable
facets of the case would be decided by the court after a jury first decided "the
legal issues[,] which would be contract or – or defamation."
Nevertheless, for reasons that are not clear to us from the record, the trial
court's docket entries at some point classified this lawsuit as a non-jury case,
despite the jury demand accompanying the complaint. This apparently led to
the case being assigned a trial date for a non-jury proceeding in early November
2018.
On October 12, 2018, counsel appeared for oral argument on defendants'
motion for summary judgment. At that motion argument, Funsch was
represented by a different partner of the law firm because the partner's colleague
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who had been primarily handling the case was in trial on another matter. During
the course of that October 2018 proceeding, which was more than eighteen
months after the March 2017 hearing, the following discussion took place about
whether the case would be tried by a jury:
THE COURT: Well shouldn't -- now let's cut to the
chase. Shouldn't we wait to hear the [evidence of an
alleged creation of an ownership interest] in court? We
have a trial date, a bench trial, on 11-13-2018 and then
we can find out if [such a right] ever really was really
[e]nunciated.
DEFENSE COUNSEL: Absolutely not, Your Honor.
THE COURT: Okay.
DEFENSE COUNSEL: Because the undisputed facts
that he was never listed as an owner on the tax returns,
never insisted he was an owner --
THE COURT: Well, it will be a real short trial then,
right?
DEFENSE COUNSEL: But that's not what the standard
is here.
THE COURT: Okay.
[(Emphasis added).]
The argument then focused on the May 2011 email:
DEFENSE COUNSEL: The e-mail says what it says,
it's not a matter -- it's not a matter for a jury.
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THE COURT: Well, I have to find out if he left [the
Company] or not even, don't I?
DEFENSE COUNSEL: He left, he's not there.
[(Emphasis added).]
A few minutes later, plaintiff's counsel, who had not previously appeared in the
case, rose to present his opposition to defendants' summary judgment motion:
PLAINTIFF'S COUNSEL: I had to parachute into this
case about a month ago because [my partner], who has
been taking lead on it has been handling it for a couple
of years, is trying the case in Morristown and in fact, I
think she's waiting for a jury today. So you know, I
apologize that she couldn't be here --
THE COURT: Yeah because we -- by the way,
November 13th is the main event, we're not cancelling
that.
PLAINTIFF'S COUNSEL: Yeah, I --
THE COURT: When I write down a trial day on a
complex commercial date, that's the date we're going,
it's a done deal, unless you lose your motion today.
PLAINTIFF'S COUNSEL: Right.
THE COURT: So tell me –
PLAINTIFF'S COUNSEL: Well, Your Honor, first of
all --
THE COURT: -- about facts.
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PLAINTIFF'S COUNSEL: -- we do welcome that date
and we're pleased that we're finally getting an
opportunity. You did mention, though, that it was a
bench trial. We do have a jury demand on the front
page of our complaint. So --
THE COURT: Well, it's been listed as no jury for the
entire time. It's --
PLAINTIFF'S COUNSEL: Well, there's a -- there is a
jury demand in our complaint, Your Honor.
THE COURT: I don't know about that. We put this
down as a non-jury trial forever.
DEFENSE COUNSEL: That's our understanding too,
Your Honor.
PLAINTIFF'S COUNSEL: I don't know, I think that's
an --
THE COURT: So you can try to figure out how you can
now change it to a jury trial but it's not going to happen,
I don't think.
PLAINTIFF'S COUNSEL: Your Honor, if you look at
page 12 of our complaint --
THE COURT: I'm not looking at page 12 of your
complaint. This thing has been marked as a non-jury
case. It was stipulated as that, it was set down as that
and for you to now pull out a complaint at last minute,
as a substitute attorney, and say it's going to be a jury
trial, isn't going to happen.
PLAINTIFF'S COUNSEL: And Your Honor, quite
frankly, quite frankly, as I said, I haven't been working
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on it. If there was such a stipulation, I'm not aware of
it so I apologize.
THE COURT: And even if there wasn't, that's the way
this thing has been already carried for the whole nine
yards.
PLAINTIFF'S COUNSEL: Right.
THE COURT: I didn't come up with it because when I
came up with the whole idea of when we were going to
do it, that's how I slipped it in. I knew I could do it as
a non-jury trial and fit it in with the way scheduling is.
PLAINTIFF'S COUNSEL: Understood and I appreciate
Your Honor clarifying it for me because I was unaware
of that but --
THE COURT: Anyway, tell me the facts.
PLAINTIFF'S COUNSEL: Certainly.
[(Emphasis added).]
Plaintiff's counsel then proceeded to present his arguments opposing the
dispositive motion, and there was no further discussion about the court's clear
plan to try the case without a jury. As it turned out, plaintiff successful ly
convinced the court to deny summary judgment and the case proceeded to a
bench trial on November 13. In the meantime, no one from plaintiff's law firm
wrote the court a letter or filed a motion asking the judge to reconsider his
decision to try the case without a jury.
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Based on what has been presented to us on appeal, the court evidently was
mistaken in several respects about the jury demand. There is no evidence
presented to us of any stipulation of the parties to waive a jury.
In addition, the judge's observations on October 12, 2018 that the case had
been listed as a non-jury case from its inception are contradicted by the
discussion at the earlier proceeding in March 2017 about using a jury in the case
to decide certain issues. It may well be that, without a transcript 5 to consult, the
judge simply did not remember what was said at the earlier session that occurred
more than a year before, and was relying on the docket's "non-jury" entry. It is
also possible that defense counsel, who personally had not appeared at the March
2017 session, was unaware of those discussions about a jury trial.
Funsch argues that the court unfairly deprived him of a right to jury trial,
brushed aside his jury request, and afforded his attorney no fair chance to show
that the docket's non-jury designation was mistaken. He requests that the
evidence and the results of the bench trial be swept aside and the case remanded
for a new trial, this time by jury.
5
A transcript of the March 3, 2017 proceeding was not prepared until the present
post-judgment appeal.
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In opposition, defendants argue that plaintiff and his counsel waived his
right to a jury trial by acquiescence. They do not assert, however, that there had
been a stipulation with a jury waiver. They note that after the October 12
proceeding, plaintiff did not submit any jury voir dire questions or proposed jury
charges in accordance with Rule 4:25-7 and Appendix XXIII of the Court Rules.
Nor did plaintiff attempt to move for leave to appeal seeking relief from this
court, although we note such interlocutory review would have been
discretionary. See R. 2:5-6.
It is possible that plaintiff, having succeeded in persuading a judge who
planned to be the factfinder at trial to deny defendants' motion for summary
judgment, could have strategically decided to accept the judge for that role. Or
perhaps, on reflection, the client and counsel might have felt that a swifter trial
date and a less costly trial without the extra time and expense of jury selection,
jury instructions, and deliberations was to their potential benefit. We simply do
not know what, if any, strategic factors may have affected plaintiff's lack of
further action in the intervening four weeks before the bench trial started.
It is well established that waiver is a "voluntary relinquishment of a known
right" evidenced by a clear, unequivocal, and decisive act from which an
intention to relinquish the right can be based. Sroczynski v. Milek, 197 N.J. 36,
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26
63-64 (2008) (quoting Knorr v. Smeal, 178 N.J. 169, 177 (2003)). At times, a
waiver may be implied by conduct or acquiescence. Guber v. Peters, 149 N.J.
Super. 138, 140 (App. Div. 1977) (holding that the defendants had waived their
right to a jury trial requested in their initial pleadings by failing to press that
right to the court thereafter). Silence by counsel may be construed in appropriate
circumstances as waiver of a jury. See, e.g., Van Note-Harvey Assocs., P.C. v.
Twp. of E. Hanover, 175 N.J. 535, 541 (2003) (holding that defendants waived
any right to have a jury decide prejudgment interest claims by failing to object
after the court repeatedly made clear that the court would decide that interest
claim post-trial).
That said, we also recognize the trial judge put plaintiff's counsel, who
was appearing for the first time in the case, in an awkward situation by
mistakenly telling him the case had always been regarded as a non-jury matter
and suggesting, without a contrary word from defense counsel, that there was a
stipulation to that effect. The judge should have afforded counsel a fuller
opportunity to state his concerns on the record after telling him in no uncertain
terms that a jury trial "is not going to happen."
To be sure, plaintiff's attorney did not voice the words "I object" after the
judge interrupted him, and instead politely thanked the judge for "clarifying" the
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27
topic. Plaintiff argues his counsel made a sufficient attempt to preserve his
opposition to a bench trial under Rule 1:7-2, and that we should deem that
attempt to be a valid continuing objection which preserved his right to appeal.
In this regard, we bear in mind the Supreme Court's observation in Mead v.
Wiley Methodist Episcopal Church, 4 N.J. 200, 205 (1950), that "[c]ounsel is
not required to continuously object or take exception to a [ruling] he deems
erroneous after having made known his objection and clearly stating the grounds
therefor."
We also appreciate that an attorney in counsel's shoes might have wanted
to avoid possibly antagonizing the court by renewing opposition to a bench trial,
since the judge had made clear there would be no jury and would thus be the
trier of fact. However, we caution that it is wrong to ever presume that a judge
will not abide by his oath and ethical duty to judge the merits of a case fairly,
just because the judge made a certain pretrial ruling on an issue against that
party. See Liteky v. United States, 510 U.S. 540, 550-56 (1994) (observing that
a judge's ability to decide a case fairly should not be impugned simply because
the judge made earlier rulings against that litigant). And, although the judge
had stated his plan to try the case without a jury firmly, we will not presume the
judge would have denied fair consideration to a further application by plaintiff
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for relief, particularly if the judge had been presented with a transcript of the
March 2017 proceeding showing what had been discussed earlier, or an
acknowledgment by defendants of that discussion. We will not presume the
judge was incapable of changing course, once apprised of a fuller and accurate
background.
Given the circumstances, we decline to resolve the thorny question of
whether plaintiff's attorney's comments to the court on October 12 and
subsequent participation in the bench trial amounted to a waiver of the claimed
right to a jury trial. It is unnecessary for us to do so because, upon a closer
assessment of the issues, there was no jury right to be waived on a viable claim.
The right to a civil jury trial is preserved federally as the Seventh
Amendment to the United States Constitution. Allstate N.J. Ins. Co. v. Lajara,
222 N.J. 129, 141 (2015). However, the Seventh Amendment guarantee
"extends only to federal trials because the Seventh Amendment has not been
made applicable to the States through the Fourteenth Amendment's Due Process
Clause." Ibid. Thus, "the right to a trial by jury in New Jersey must arise under
either a statute or the state constitution." Ibid. (quoting In re Env't Ins.
Declaratory Judgment Actions, 149 N.J. 278, 292 (1997)).
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As the Court in Lajara noted, New Jersey's constitutional jurisprudence
dictates that the right to a jury trial only applies to causes of action that sound
in law rather than equity, which entails not only looking at whether the remedy
is legal in nature, but also whether the cause of action resembles one that existed
at common law. Id. at 142. Here, Funsch's core contention that he is entitled to
be declared a member of the LLC under the applicable statutes and Operating
Agreement is fundamentally an issue for the court rather than one cognizable as
a common law claim suitable for a jury.
Our opinion in IMO Indus. Inc. v. Transamerica Corp., 437 N.J. Super.
577, 636 (App. Div. 2014), finding no viable right to a civil trial by jury, is
instructive. In that case, the plaintiff sought a jury trial on certain of its claims
seeking compensatory and punitive damages. Nonetheless, we held that the
original complaint primarily focused on declaratory relief, seeking the court's
aid in defining and fixing the obligations of the defendants pursuant to an
agreement between the parties. Id. at 634. We also noted the damages that the
plaintiff sought were in connection with pending or future obligations of the
defendants. Ibid. Consequently, the case was not one in which a plaintiff had a
right to a trial by jury. As Judge Ashrafi wrote:
All of IMO's pleadings sought declarations about the
future obligations of defendants. Any alleged claims of
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30
bad faith, wrongful abandonment, breach of fiduciary
duty, or tortious interference stem from whether the
contractual rights alleged by IMO in fact existed. From
the outset and throughout the litigation, IMO's
complaints were mainly equitable.
[Id. at 634-35 (emphasis added).]
Similarly here, Funsch's contentions that he had the legal status of an
equity "member" of the LLC are mainly equitable in nature. His claims for
additional monetary compensation are predicated upon a legal assessment as to
whether the parties' course of conduct rises to a level that satisfies the
membership criteria of the LLC statutes (the LLCA and the RULLCA) and the
unamended Operating Agreement. That assessment was based on documentary
evidence, such as the May 2011 email and other written statements, the existence
of which was undisputed. What the parties essentially fought over at trial was
the legal import of those statements. The assessment of ownership or
membership status inherently involved complex issues of contract law, business
law, and statutory law. Arguably, the only credibility issue at trial concerned
exactly what occurred in December 2015 when the parties had an argument and
Funsch left the building. But that discrete event did not bear upon the core legal
issue of whether Funsch was a member of the LLC.
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We are cognizant that, in some breach-of-contract cases, it may be
appropriate for a jury to resolve disputed issues of fact, and, as plaintiff's counsel
reminds us, model civil jury charges are available for such cases. But here the
predicate dispute was not about what was said or done, but rather the legal
consequences of the parties' actions and inactions. Those were appropriate
issues for the court to decide, not a jury. If, hypothetically, the court had decided
that Funsch was indeed a member of the LLC with an equity share, then perhaps
the residual dispute over whether Funsch was entitled to further compensation
might have been an appropriate damages issue for a jury. But no such
membership status was ever established as a matter of law. And, to the extent
that Funsch contends as an alternative claim that he was short-changed in his
2015 payout as a mere employee, that subsidiary issue does not alter the primary
thrust of the case as a whole.
We do agree with plaintiff that his claim of defamation, had it been viable,
would have been appropriate for a jury. Even so, for the reasons we briefly
discuss in Part IV, the evidence that emerged at trial shows there was no genuine
issue of material fact for a jury to decide because there was insufficient proof of
the legal elements of such a claim.
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In sum, waiver or no waiver, plaintiff was not deprived of an enforceable
right to a jury trial. There is no need for the case to be tried anew before a jury.
III.
We turn to the substance of plaintiff's arguments, specifically his
contentions that the trial court misapplied the law and lacked a sufficient basis
in the evidence to conclude he never became a member of the LLC with an
equity interest in the Company. We further consider plaintiff's claim that the
trial court erred in rejecting his claim for additional compensation.
In assessing these points, we are guided by well-established principles of
appellate review. An appellate court shall "not disturb the factual findings and
legal conclusions of the trial judge unless [it is] convinced that they are so
manifestly unsupported by or inconsistent with the competent, relevant and
reasonably credible evidence as to offend the interests of justice." Seidman v.
Clifton Sav. Bank, 205 N.J. 150, 169 (2011) (quoting In re Trust Created by
Agreement Dated Dec. 20, 1961, 194 N.J. 276, 284 (2008)); see also Anderson
v. City of Bessemer City, 470 U.S. 564, 574 (1985) (noting the trial court's
"major role is the determination of fact"); Rova Farms Resort, Inc. v. Invs. Ins.
Co. of Am., 65 N.J. 474, 484 (1974). We only review de novo the trial court's
A-3899-18T4
33
legal determinations. 30 River Ct. E. Urb. Renewal Co. v. Capograsso, 383 N.J.
Super. 470, 476 (App. Div. 2006) (citing Rova Farms, 65 N.J. at 483-84).
Applying that scope of review, we affirm the trial court's substantive
decision, substantially for the sound reasons set forth in its detailed wr itten
opinion dated April 15, 2019. We need not reiterate that analysis here, as we
are satisfied the court correctly applied the LLC statutes and the Company's
Operating Agreement, and that the court's conclusions have ample support in the
evidence.
We agree with the trial court that the May 2011 email was simply too
incomplete and indefinite to establish the necessary terms to elevate Funsch to
membership status in the LLC. We also concur that Funsch's admitted steadfast
refusal to execute any of the proposed draft Operating Agreements severely
undermines his claims. We are likewise convinced that the parties' course of
conduct and Procida's imprecise references to Funsch as a "partner" were
insufficient to grant him the legal status of a member. 6
6
That said, we do note some concern about Procida's representation to the SEC
on the Form D filing stating that Funsch was a "principal" of the LLC, but the
truth and materiality of that representation would be more appropriate for
securities regulators or investors to address, if at all, see 17 C.F.R. §§ 230.501
and 230.503(a) (concerning Form D disclosure requirements), and does not
control the internal relationships of these parties under the LLC statutes. We do
not make any ruling here about that issue.
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34
We reject plaintiff's argument that the court focused unduly in its analysis
upon the absence of any capital contribution by Funsch. Although we are
mindful that the statutes do not require a person to make a capital contribution
in order to become a member of an LLC, it still can be one indication of such
membership rights. The court duly considered several other factors apart from
the absence of a capital investment in soundly concluding that Funsch never
attained the status of a member in the LLC.
We likewise uphold the court's determination that Funsch was not owed
any additional compensation for 2015 after his departure from the firm. The
May 2011 email, on which Funsch so heavily relies as part of his ownership
claim, specifies that "should either of you [Funsch or Mullane] leave the firm
you will forfeit any rights to future earnings or ownership." The trial court
determined, as a matter of fact, that Funsch voluntarily resigned after the
argument with Procida on December 17, 2015. That finding of fact, even if it
can be reasonably debated, is supported by ample evidence to deserve our
appellate deference. Rova Farms, 65 N.J. at 484.
Further, even if this court held Funsch had been duly admitted as a
member pursuant to the 2008 Operating Agreement, the distinction between
voluntarily leaving and being fired would not affect his claim of an equity share
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35
in the enterprise. The Operating Agreement provides in Section Eight that a
member can only sell, assign, or otherwise dispose of his interest in the
Company with the "prior written consent of a majority of the other
nontransferring [m]embers" or if he dies, becomes incompetent, or goes
bankrupt.
As the trial court correctly noted, the default "statutory provisions" of the
LLCA and RULLCA 7 apply only in the absence of an operating agreement.
Hence, the language in Section Eight of the Operating Agreement controls here.8
See Union Cnty. Improvement Auth. v. Artaki, LLC, 392 N.J. Super. 141, 152
(App. Div. 2007); IE Test, LLC v. Carroll, 226 N.J. 166, 178 (2016). Under that
7
It appears the LLCA would apply to this case, as the "alleged operative event,"
i.e., the May 2011 email, occurred prior to the effective date of the RULLCA.
8
The Operating Agreement further states in Section Eight that:
The value of each Member's Interest in the Company
will be determined on the date this Agreement is signed,
and the value will be endorsed on Schedule 3 attached
. . . . The value of each Member's Interest will be
redetermined unanimously by the Members annually
....
While Funsch produced expert testimony on the valuation of the Company at
trial, the fact that he never signed a revised Operating Agreement and never
completed its pursuant "Schedule 3" lends further support to his status as an
employee rather than an equity owner, as it is unclear what exactly his share of
the Company would be.
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36
provision, Funsch had no viable claim for a buyout of his alleged interest in the
Company.
We also defer to the trial court's determination that Funsch was not owed
any additional compensation for 2015 for the period preceding his walkout. The
court reasonably relied in this regard on the Company's Profit and Loss
Statement for 2015.
Funsch argues the trial court should not have relied on the 2015 Profit and
Loss Statement, since it only reflects Funsch's alleged share of the profits, prior
to so-called "audit and 'true-up,'" not what Funsch was actually paid during this
period. Funsch asserts he is entitled to an additional $65,638.93 for 2015.
Funsch also argues he should have been awarded additional profits from the
Company derived from the "promote" of loans originated by the 100 Mile Fund ,
which he says were typically distributed in the first quarter of the following year
and would not have been reflected on the 2015 Profit and Loss Statement.
In response, defendants note the only competent evidence produced by
Funsch to support his claim is the 2015 Profit and Loss Statement, which
demonstrates "the profits of the Company for all of 2015 – not the relevant
period January 1, 2015-December 17, 2015 (the time frame in which Funsch was
still employed)." Defendants point out it is "entirely possible that the Company
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37
closed deals after December 17, 2015 (prior to year-end [sic]) thus earning
profits after Funsch was no longer employed" and which profits he would not
be entitled to collect. Defendants thus assert that Funsch did not meet his burden
to demonstrate what the Company's profits were as of December 17, 2015.
We agree with defendants that plaintiff has failed to show the trial court
clearly erred in rejecting his claim to an additional $65,638.93 in compensation.
While not explicitly stated, Funsch appears to calculate the figure of $65,638.93
by subtracting the total wages he received (less income tax withheld) on his 2015
W-2, i.e., $282,985.07, from the total amount of distribution on the 2015 Profit
and Loss Statement, $348,624. However, Funsch does not compare the 2015
Profit and Loss Statement to the 2014 Profit and Loss Statement , which
comparison helps explain the approximately $23,000 decrease in his salary in
2015 from 2014. In 2015, the Company's net income was approximately
$125,000 less than its net income in 2014, resulting in a decrease in Funsch's
distribution on the Profit and Loss Statement, from $367,724 in 2014 to
$348,624 in 2015. That appears to account for the difference between Funsch's
2014 and 2015 W-2s, reflecting that he took home $306,601.16 in wages in 2014
and earned $282,985.07 in 2015. Although that comparison does not refute
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38
Funsch's claim for additional compensation in its entirety, it undercuts his
quantification of a shortfall of over $65,000.
Additionally, Funsch does not reconcile his admission that he would not
be entitled to any "future earnings or ownership" with his argument that he is
entitled to the so-called "promote," i.e., additional profits calculated following
the Company audit and "true-up," which for 2015 was computed and distributed
in the first quarter of 2016. Funsch admitted in his brief that the promote is
calculated at the conclusion of each calendar year and disbursed in the first
quarter of the following year, but he does not explain why he was entitled to
such profits when his relationship with the Company ended on December 17,
2015.
Given our limited scope of appellate review, and bearing in mind that
Funsch bore the burden of proof on his claims, we are unpersuaded that the trial
court clearly erred in its denial of additional compensation.
IV.
We briefly address the rejection of Funsch's claim for defamation. We
concur with the trial court that Funsch failed to put forward sufficient evidence
to sustain such a cause of action.
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39
To succeed on a defamation claim, a plaintiff is obligated to prove by a
preponderance of the evidence that the defendant: (1) made false and defamatory
statements of fact about plaintiff, (2) to third parties in a non-privileged setting,
(3) depending upon the nature of the speech and the plaintiff, with either
knowledge that the statements were false, a reckless disregard for the truth or
falsity of the statements, or negligence in failing to ascertain the truth or falsity
of the statements. See G.D. v. Kenny, 205 N.J. 275, 292-93 (2011) (citing
DeAngelis v. Hill, 180 N.J. 1, 13 (2004)); see also Restatement (Second) of
Torts § 558 (1977).
Importantly, a defendant's statements of opinion about a plaintiff, rather
than of fact, are not actionable defamation. As the trial court properly noted,
"[s]tatements of opinion, like unverifiable statements of fact, generally cannot
be proved true or false." Lynch v. N.J. Educ. Ass'n, 161 N.J. 152, 167 (1999).
Moreover, "insults, epithets, name-calling, and other forms of verbal abuse,
although offensive, are not defamatory." Ibid. (citation omitted). Here, the
various negative things that Procida said about Funsch after their relationship
devolved are fundamentally expressions of opinion.
Moreover, as an independent basis for rejecting the defamation claim, the
court reasonably determined that Funsch failed to identify any person who
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40
received Procida's communications and, as a result, thought less of him.
Plaintiff failed to show that a particular prospective employer or client was
aware of or affected by Procida's words. To be sure, certain slanderous
statements can be defamation per se and enable reputational damages to be
presumed, see W.J.A. v. D.A., 210 N.J. 229, 240 (2012). However, we are
unpersuaded that Procida's utterances conveying negative opinions about
plaintiff (and, for that matter, at times about other employees at his company)
comprise actionable false statements of fact.
To the extent we have not otherwise addressed them, the balance of
plaintiff's arguments, including his claim the trial court abused its discretion on
evidential rulings, lack sufficient merit to warrant discussion. R. 2:11-
3(e)(1)(E).
Affirmed.
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