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Aurora Associates, Inc. v. Bykofsky

April 06, 2000

AURORA ASSOCIATES, INC., APPELLANT,
V.
MARSHALL A. BYKOFSKY, APPELLEE.
MARSHALL A. BYKOFSKY, CROSS-APPELLANT,
V.
AURORA ASSOCIATES, INC., CROSS-APPELLEE.



Before Steadman and Reid, Associate Judges, and King, Senior Judge.

The opinion of the court was delivered by: Reid, Associate Judge

Appeals from the Superior Court of the District of Columbia

(Hon. Lee F. Satterfield, Trial Judge)

Argued March 2, 1999

This matter involves a dispute between appellant/cross-appellee Aurora Associates, Inc. ("Aurora"), *fn1 a District of Columbia corporation specializing in government consulting contracts, and appellee/cross-appellant Marshall A. Bykofsky, a former employee, officer and shareholder of Aurora. After his termination as an employee of Aurora, Bykofsky filed a seven count complaint against Aurora and two of its officers. Aurora filed three counterclaims against Bykofsky. *fn2 During a jury trial on the complaint and counterclaims, the trial judge directed a verdict for Bykofsky, as to the principal, on his claim for 1978 deferred compensation, and Aurora's counterclaim relating to conversion of a negotiable instrument. The jury returned a split verdict on the remaining claims and counterclaims. *fn3 The trial judge initially issued an order setting aside two of the jury's awards: (1) $15,000 in punitive damages to Bykofsky for conversion of personal property (count 6); and (2) $10,000 in punitive damages to Aurora for conversion of the Mercedes (counterclaim 1). Aurora then moved for judgment notwithstanding the verdict, or in the alternative, for a new trial. Bykofsky filed a motion to alter or amend the judgment. Before ruling on these motions, the trial court entered an amended judgment reinstating both the awards of punitive damages --$15,000 to Bykofsky as to count 6 and $10,000 to Aurora as to counterclaim 1. Subsequently, the trial court denied Aurora and Bykofsky's post-trial motions. Both Aurora and Bykofsky noticed appeals.

In their respective appeals, Aurora and Bykofsky challenge the post-trial rulings of the trial court. Aurora asserts that the trial court committed error by denying its motions for judgment notwithstanding the verdict and, in the alternative for a new trial, as they concerned the awards to Bykofsky based on the promissory note, the deferred compensation, the Aurora stock, and punitive damages for conversion of personal property. Aurora also assigns error with respect to the directed verdict in favor of Bykofsky on its conversion of negotiable instrument (check) and fraud and misrepresentation counterclaims. Bykofsky contends that the trial court erred by denying his motion to alter or amend judgment as to the promissory note, *fn4 and the punitive damages awarded to Aurora for conversion of personal property.

Since the jury did not award compensatory damages either to Aurora or Bykofsky with regard to their respective conversion of personal property claim (count 6) and counterclaim (counterclaim 1), and because we see no basis in the record for awards of actual damages, we reverse the trial court's reinstatement of the awards of punitive damages. In all other respects we affirm the judgment of the trial court.

FACTUAL SUMMARY

The record on appeal shows the following facts. In 1978, Aurora hired Bykofsky, initially as a contract employee, to provide legal services. Soon he became a full-time employee of the corporation, and was designated project director for one of Aurora's government contracts. An employment contract was executed on March 3, 1979. A duly executed agreement, signed on March 13, 1978, provided that Bykofsky would receive an additional sum of $16,250 as deferred compensation for the period of March 13, 1978 through September 30, 1978, payable within five years from September 30, 1978. The 1986 minutes of Aurora's Board of Directors show that the obligation to pay Bykofsky the 1978 deferred compensation, and the deferred compensation for subsequent years, was reaffirmed. In addition, Aurora's deferred compensation obligations to Bykofsky and others were reflected each year on the corporation's tax returns and its financial statements.

Under its articles of incorporation, Aurora was authorized to issue one hundred shares of common stock. The initial shareholders were Robert Walker, James Statman, and Donald Abel. When Abel surrendered his twenty-one shares of stock in 1981, in exchange for $1,500, Bykofsky purchased the shares for $1,500. His ownership of Aurora stock is evidenced by a 1981 financial statement prepared by an accounting firm; the testimony of Aurora's Directors; the shareholders' minutes for the years 1986 through 1991; and Aurora's stock record book. Furthermore, Aurora's federal corporation tax returns for the period of 1985 through 1993, as well as Aurora's 1993 Citibank application for a loan, show that there was a realignment of Aurora's stock ownership, giving Bykofsky twenty-three shares, compared with fifty-one for Walker and twenty-six for Statman.

With respect to the management of the corporation, Bykofsky assumed more responsibility when he was appointed Executive Vice President for Finance and Administration in 1981, a position which he held until his termination on June 21, 1994. During his tenure, Aurora experienced financial problems and, periodically, was unable to pay the salaries of its officers and employees. As a result of its financial difficulties, Aurora became indebted to Bykofsky for work he performed in 1985, 1992, 1993, and 1994. This indebtedness appeared in Aurora's financial statements and its tax returns.

Aurora's financial situation did not improve. In 1989, Aurora discovered a problem with its 1987 financial records. The indirect rates on its government contracts were paid at a lower rate than billed, thus leaving a shortfall in funds to be paid to the corporate officers. The sum of $250,000 was needed to cure the problem. In 1989, Bykofsky drafted three $80,000 promissory notes, each designed as a "bonus" to the three corporate officers, for a total of $240,000. The corporate minutes, prepared belatedly for July 1987, stated that: "As the current cash flow situation of the company makes it impossible for the bonus to be paid at this time, it is to be recorded as deferred compensation and is to be paid as specified in the attached [promissory] Notes." The principal due on each note was $80,000, and the interest was to be paid in accordance with a schedule attached to the promissory note. Aurora made payments on the notes to Bykofsky and the others on December 7, 1992 ($5,500) and December 6, 1993 ($7,500). In 1994, Bykofsky and the two other corporate officers demanded full payment of the remaining sums due under their respective promissory notes. However, a government audit of contracts awarded to Aurora initially disallowed the $240,000 earmarked for bonus money, but an appeal allowed $120,000 of that sum to be used for bonuses.

Partly due to its financial problems, relationships within Aurora began to fall apart and disputes broke out. Disagreements surfaced concerning the authorization and distribution of Aurora stock. In addition, accusations of impropriety were made by one employee or officer against another regarding, inter alia, failure to complete time sheets, and misrepresentations as to Aurora's minority contractor status. In 1994, Bykofsky was accused of improperly making out a $17,000 check to himself. Furthermore, there were disagreements concerning guarantors for Aurora's line of credit. The corporate disputes and tensions resulted in Bykofsky's termination, and charges by Bykofsky that he was "locked out" of his office, and unable to retrieve his personal property, including his stock certificate. Eventually he left the ...


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