There’s no business, like a family business.

The breakdown of a marriage results from many things.  The most dramatic is often the betrayal of one spouse by the other, in such a way where there’s no hope of reconciling after the trust is broken.  In the matrimonial context, it’s rare for me to be surprised by this anymore.  Where I still do a double-take is when I see the betrayal happen in other contexts – like a family business.  I don’t know why there should be any difference really – betrayal is betrayal.   To me, it’s personal in each case (notwithstanding Al Pacino’s classic line.)

I suppose that’s why it’s still encouraging to see courts utilize the concept of “equity” in cases, such as the Appellate Division did recently, in an unpublished case that came out this week called Benipal v. Singh, where one party’s alleged betrayal of the other, in setting up title to a property for a family business did not go unpunished.

In this case, the Plaintiffs went into business with the Defendant, a family member, by combining their financial resources to buy a commercial property that they ran as a gas station.  The Defendant was entrusted with setting up the jointly owned company and recording title to the property in the name of the jointly owned company.  However, Defendant took the money and instead titled the property into a company of his own.  The gas station still ran, apparently, and as he handled all the books, and Plaintiffs never suspected anything for 22 years, until they became suspicious –  around the time he started talking about selling the property.

Upon learning they did not actually have title to the property, Plaintiffs sued to quiet title.  Defendant countered that they were beyond the statute of limitations (twenty years.)  The trial court agreed with the Defendant and granted his motion to dismiss, finding that since the title was recorded, Plaintiffs were put on notice at the time of the recording as to ownership.  Twenty-two years, was two years too late.  Plaintiffs disagreed and cited to a concept called the “discovery rule.”  That rule, articulated in a case called Lopez v. Sawyer, holds that for equitable reasons, a statute of limitations can be tolled, until such a time as the plaintiff becomes aware of the harm suffered.

The Appellate Division agreed with the Plaintiffs.  Noting that while they were certainly complacent about the running of their business affairs, there was no proof on the record that they had become aware they did not actually have title to the property in dispute.  The recording statute cited by the trial court N.J.S.A. 46:26A-12(a) was designed to put future purchasers of property on notice of ownership, not current ones.  (Think about it, do you normally check to see if your title is recorded right?  That task is usually assigned to your attorney, or a title company before you buy something …  or in this case, regrettably, the person you entrusted as the CEO of your newly formed joint venture.) In this case, therefore the Appellate Division decided that the trial court’s reliance on this statute was misplaced.  While not commenting on the strength of the Plaintiff’s case, the Appellate Division found that the discovery rule, under these facts provided the best equitable remedy here, and remanded the matter to the trial court for a Lopez hearing.  That is, they would determine the extent of Plaintiff’s knowledge about the recording of the title in question, and allow discovery on the issue.

Courts don’t always get it right, but what I like to see, is a requirement that certain procedural components  be put in place to allow discovery and a hearing.  Why?  Because that is how the truth gets told.  That seems to be a fundamental requirement before any court can decide one person is right over the other.  Foreclosing that possibility by barring the courtroom to someone for being too late (when they didn’t even know they had been hurt yet) is unjust.  It’s also a cop out.  There will always be ways that court rules and cases narrow the options people have to seek redress, but where there is a place for equity, there is still hope for fairness.