CHAPTER 14: MISTAKES, FRAUD, AND VOLUNTARY CONSENT 277
Kurstein would have brought approximately $2 million in commission business with him, but plaintiff’s
managers at A & A would not hire him.
While working for A & A, plaintiff tried to boost the morale of his staff by stating that rumors of a sale were unfounded
and started by the competition to bring A & A down. On many occasions, he repeated the phrase Zarb told him that A
that Aon’s interest in a transaction was revived in January 1996 because A & A’s stock price had dropped. Aon’s
Board minutes show that as of March 15, 1996, Aon was actively pursuing “a transaction” with A & A as reflected by
evaluations being performed by investment bankers from Lazard Freres of A & A’s financial condition. Those minutes
state that the general sense of the Board was that Aon should continue to explore “the transaction,” but a final
determination would not be made until due diligence had been completed and an actuarial analysis had been
transaction in which Aon would buy A & A in a partial or all-cash purchase of A & A’s stock. According to Zarb, A & A
had acquired a number of companies during the period from 1995 to 1996.FN9 Zarb further described a meeting with
Ryan in July or August 1996, where Ryan made a one-page offer for Aon to buy A & A which Zarb discounted out of
hand. The minutes of Aon’s Board meeting on September 20, 1996 noted that Zarb had refused to take an unsigned
letter from Aon mentioning a price pursuant to which Aon might proceed with further negotiations for the possible
purchase of A & A.
FN9. A & A purchased the American holdings of Jardine Insurance Brokers in September 1995; the
brokerage arm of the Lippo Group in the twelve months preceding October 24, 1995; the Australian assets of
AIBA Holdings in February 1996; and the Robert Brown firm in February 1996.
By November 1996, the price of A & A’s stock had fallen further, allegedly as a result of A & A losing its bid in
September 1996 to acquire Bain Hogg, a competing insurance brokerage firm which Aon had succeeded in acquiring.
159-page proxy statement stated in part: “From January to May of 1996” Aon’s Chairman and Zarb “discussed a
possible business combination,” including both a merger and a sale. With the exception of Aon, no company
“provided an indication of interest in … acquiring [A & A].”
The proxy statement provides a summary of Aon’s takeover of A & A:
During 1994, 1995 and 1996, the Chief Executive Officers of the Company [A & A] and of Aon discussed from time
and was formally retained by the Company on December 6, 1996.
The discussions between the Company and Aon began during the Spring of 1994, at which time the company was
also engaged in discussions with American International Group, Inc. (“AIG”) regarding the significant investment
that AIG ultimately made in the Series B Preferred Stock of the Company. At that time, the Board of Directors of the
Company concluded that the investment by AIG and the recruiting of a new chief executive officer were in the best
Greenberg had conversations from time to time.) The discussions concerning the possible transaction terminated in
May of 1995 when the Company and Aon concluded that the two companies were not likely to agree on financial
terms.
From January to May of 1996 and again in July and August of 1996, Mr. Ryan and Mr. Frank G. Zarb, former
Chairman, President and Chief Executive Officer of the Company, discussed a possible business combination,
the initial period of the meeting, Mr. Zarb met to discuss a possible transaction. Messrs. Zarb and Ryan, and
Messrs. Ryan and Greenberg, engaged in repeated conversations during the period of November 27 through
December 10, 1996 (the day preceding the date of execution of the Merger Agreement) relating to the possible
transaction.
On November 29, 1996, certain representatives of the Company and its legal advisors met with certain
recommended that discussions with Aon be continued and that the Board consider the possible transaction.
Representatives of the two companies and their legal advisors met on December 5, 1996 in New York City to
discuss the draft of the Merger Agreement.
On December 6, 1996, a special meeting of the Board of Directors of the company was held to consider the
possible transaction. The Board carefully considered the possible transaction together with the advice of its legal
offers to buy other companies and those offers were pending.
The deposition testimony of Stephen Meyers, a former financial officer with A & A, was read to the jury. Meyers was
also defendants’ “corporate representative” on the due diligence that took place between A & A and Aon. He stated
that the proxy statement was “correct” with respect to the events between January and May 1996. Specifically, he
affirmed that from January to May 1996, discussions did take place between Zarb and Ryan concerning “the
FN10. At the time of trial, Zarb was Chairman and Chief Executive Officer of NASD (National Association of
Securities Dealers), a non-profit organization.
Kiessling, plaintiff’s supervisor at A & A in charge of the entire greater New York office, who remained in management
with Aon after the acquisition, testified that McConkey lost his position because of Aon’s acquisition of A & A and that
performance issues played no part in the decision, although there had been some negative reports from two of
According to McConkey, financial figures for his practice group showed that new business had increased 190.6%,
additional business from existing clients had increased 86.8%, and overall operating revenues had increased 6.1%
during 1996. Established business decreased 16%, so there was a retention rate of 84%, which was considered
“good,” with a target of 90%. However, the “bottom line” figures, or profit margin for the region was negative during
that year. Kiessling testified that most of the expenses contributing to the negative bottom line were outside
McConkey also testified that immediately upon hearing about the sale he experienced shock, causing him to pull his
car to the side of the road, where he sat, trembling, trying to gather himself. He stated that “I felt as if I had gotten a
helmet, a direct blow full speed right in my stomach. It knocked the wind out of me.” McConkey testified that he “felt
like a fool. [He] felt that the [subordinate employees] thought [he] lied to them. That [he had been] perpetrating the lie
for six months and [he] felt terrible.”
I.
624-25, 432
A.
2d 521 (1981)). “Fraud requires clear and convincing proof.”
Fox v. Mercedes-Benz Credit Corp.,
281
N.J.Super.
476, 484, 658
A.
2d 732 (App.Div.1995) (citing
Stochastic Decisions, Inc. v. DiDomenico,
236
N.J.Super.
388, 395, 565
A.
2d 1133 (App.Div.1989),
certif. denied,
121
N.J.
607, 583
A.
2d 309 (1990)).
FN11. In
Alexander,
the court set forth the same standard found in New Jersey cases for proving fraud.
See
Alexander v. CIGNA Corp.,
991
F.Supp.
427, 435 (D.N.J.),
aff’d,
172
F.
3d 859 (3d Cir.1998).
Plaintiff counters that he asked Zarb for an honest account of what was then occurring, namely, whether any
discussions were currently taking place that could alter the structure of the company so that he could assess the risk
of leaving Ross for a position at A & A. Plaintiff maintains that his fraud claim is not based on future events, but
(App.Div.1992),
aff’d in part, rev’d in part,
132
N.J.
278, 625
A.
2d 458 (1993).
Similarly, the California Supreme Court in
Lazar v. Superior Court of Los Angeles County,
12
Cal.
4th 631, 49
Cal.Rptr.
2d 377, 909
P.
2d 981, 985 (1996), recognized a cause of action for fraud where an employer falsely
represented that a company was “strong financially” and that the plaintiff’s job would be permanent, inducing him to
leave a secure position in New York to join defendant in California, when, in fact, defendant was planning an
282 CASE PRINTOUTS TO ACCOMPANY BUSINESS LAW
[4] In the circumstances here, a reasonable jury could conclude that the statements Zarb made to McConkey were
material misrepresentations about present facts, namely, that McConkey was not asking Zarb about future
possibilities concerning the restructuring of the company, but was asking Zarb about the present status of the
company and that Zarb misrepresented that status. McConkey wanted to know whether at that particular time A & A
other evidence plaintiff presented, namely, the contemporaneous discussions by Aon’s Board of Directors, as
reflected in its minutes from January through April 1996; the voluntary sharing by A & A of its confidential financial
documents and information with Aon, its arch competitor; Aon’s continued “due diligence” with respect to the debts A
& A had incurred after acquiring the London company that had become a “black hole” for A & A, and which would
become a possible liability for Aon if it determined to acquire A & A; and the $23 million package the then sixty year
Defendants misapprehend the issue. McConkey did not treat Zarb’s representations as a guarantee of future
employment, for he was aware that he was an at-will employee. He also never claimed that he thought the company
would never be sold. Rather, his claim was that he met with Zarb to get an accurate reflection of current facts
concerning the status of the company in order to decide whether a position with A & A was in his best interests.
In
Meade,
the Ninth Circuit rejected a similar argument, observing that “[a]lthough Plaintiffs had no reasonable
fraud in the inducement of a contract is possible.” We apply that principle here.
CHAPTER 14: MISTAKES, FRAUD, AND VOLUNTARY CONSENT 283
[7] We also reject defendants’ contention that plaintiff’s future economic damage award of $400,000 was not the result
of his reliance on Zarb’s misrepresentations, but on other intervening causes.
[8] In a case involving the fraudulent inducement of an employment contract, under “the benefit–of-the-bargain”
FN12. We discuss the issue of whether the benefit-of-the-bargain damages theory of recovery is viable in a
fraud case more fully later in this opinion. For purposes of this discussion, however, we have assumed that it
is.
See Zeliff v. Sabatino,
15
N.J.
70, 74, 104
A.
2d 54 (1954).
We also reject defendants’ argument that Zarb’s misrepresentation was not the cause of plaintiff’s losses because
McConkey was terminated for poor performance. Defendants rely on
Johnson v. Chesebrough-Pond’s USA Co.,
918
his future economic loss. Defendants maintain that New Jersey courts do not recognize benefit-of-the-bargain
damages based on claims of misrepresentation, especially where the misrepresentation amounts to fraud. We
disagree.
New Jersey clearly recognizes benefit-of-the-bargain damages in fraud cases.
See Lipsit v. Leonard,
64
N.J.
276, 285
n. 4, 315
A.
2d 25 (1974);
see also Zeliff v. Sabatino,
15
N.J.
70, 74, 104
A.
2d 54 (1954);
Gardner v. Rosecliff Realty
Moreover, despite the problem in measuring damages in a fraud case, so long as the amount of the lost benefit can
be established by the proofs with sufficient certainty, a court will award damages equal to that which a plaintiff would
have received had the representation been true.
Gardner, supra,
41
N.J.Super.
at 10-11, 124
A.
2d 30.
[10][11] In
Zeliff, supra,
15
N.J.
at 74, 104
A.
2d 54, the Supreme Court addressed benefit-of-the-bargain damages for
fraudulent misrepresentation, indicating that “flexibility” and “proximity” must be employed in developing an
value of the property had it conformed to the representations, the court will award damages equal only to the loss
sustained; and (4) where the damages under the benefit-of-the-bargain rule are proved with sufficient certainty, that
rule will be employed.
[
Id.
at 75, 104
A
.2d 54.]
[12] Nonetheless, defendants contend that
Zeliff
requires a finding that the fraudulent representation also amount to a
true.”
[13] Hence, even though McConkey was an at-will employee, it was still possible to calculate his damages based on
the premise that he would have continued working for A & A for a reasonable period of time, here alleged to be 4.6
years.FN13
Interstate, supra,
835
S.W.
2d at 875. A rational jury could conclude that 4.6 years was a reasonable period
of projected employment had the representations by Zarb been true.
See Interstate, supra,
835
S.W.
2d at 875-76;
see also Berger, supra,
795
P.
2d at 1385.
FN13. Plaintiff was awarded $400,000 in future damages. He maintains that sum corresponds to roughly two
years of employment from the date of trial, and an additional 2.6 years between his termination and the date
of trial, or a total of 4.6 years.
Equally unavailing is defendants’ reliance on
Bell Atl. Network Servs., Inc. v. P.M. Video Corp.,
322
N.J.Super.
74,
101, 730
A.
2d 406 (App.Div.),
certif. denied,
162
N.J.
130, 741
A.
2d 98 (1999). There, we concluded only that as a
FN14. The relevant statute,
N.J.S.A.
2A:15-5.12a, provides: “Punitive damages may be awarded to the
plaintiff only if the plaintiff proves, by clear and convincing evidence, that the harm suffered was the result of
the defendant’s acts or omissions, and such acts or omissions were actuated by actual malice or
accompanied by a wanton and willful disregard of persons who foreseeably might be harmed by those acts or
omissions. This burden of proof may not be satisfied by proof of any degree of negligence including gross
willful disregard toward McConkey; Mr. McConkey might be harmed by that fraud, we must remember from the top
officer of Alexander & Alexander.
We agree with the court that Zarb’s conduct was sufficiently egregious to justify an award of punitive damages. Zarb’s
lying to a prospective employee to induce him to leave secure employment for a position immediately threatened by
the sale of the company which he was actively negotiating shows “wanton and wilful disregard of persons who
Defendants maintain the punitive damage award was “unlawful” because plaintiff’s injury was “purely economic,”
consisting only of the loss of a contractual benefit. They further assert that because there was no risk to health or
safety, no premeditated scheme to defraud, and no violation of criminal or regulatory law, the amount of the award
286 CASE PRINTOUTS TO ACCOMPANY BUSINESS LAW
was excessive. We disagree.
necessary constituent of the appraisal.
See id.
at 72, 693
A
.2d 917 (citing
Herman v. Sunshine Chem. Specialties,
Inc.,
133
N.J.
329, 339-42, 627
A.
2d 1081 (1993)). Here, the record shows that A & A’s operating revenues were
$1,282,000,000, with a net income of $89,400,000 and net worth of $402,600,000.
See Mehlman v. Mobil Oil Corp.,
291
N.J.Super.
98, 676
A.
2d 1143 (App.Div.1996),
aff’d,
153
N.J.
163, 707
A.
2d 1000 (1998) and
Velop, supra,
301
N.J.Super.
at 70, 693
A
.2d 917 (where the percentage awards were even greater than in this case).
FN15. Plaintiff accepted the remittitur to avoid a new trial. Because defendants decided to appeal, plaintiff can
challenge economic damages despite having accepted the remittitur.
Mulkerin v. Somerset Tire Serv., Inc.,
110
N.J.Super.
173, 177, 264
A.
2d 748 (App.Div.1970).
The court vacated the past economic damages award because it found the evidence was too speculative to support
the conclusion that plaintiff would have met the levels required under the long-term incentive plans provided in his
speculative whether plaintiff would have received the high bonuses he claimed he would have received had he
continued his employment at A & A. Plaintiff’s argument that all inferences had to be resolved in his favor is unavailing
because it is pure conjecture whether any of the bonus requirements would have been met. In such an instance,
there are no inferences to be resolved in plaintiff’s favor. Accordingly, there is no merit to plaintiff’s claim that the trial
court misapplied the standard applicable to a motion for a new trial.
insurance industry, he soon found new employment after leaving his position with Aon. Acknowledging that plaintiff
was understandably upset by the circumstances, the court nevertheless determined that plaintiff’s distress did not
constitute compensable “emotional distress” and that plaintiff did not submit sufficient evidence, together with all the
proper inferences, to sustain such a claim.
Preliminarily, we note that intentional infliction of emotional distress is a separate and independent cause of action,
interest ordinarily protected in such cases is purely an economic interest and does not include interests in
personality. Accordingly the usual rule is that the plaintiff must show pecuniary loss in misrepresentation cases and
the damages are limited to such pecuniary loss, with no recovery for emotional distress.
[Dan D. Dobbs,
Law of Remedies
§ 9.2(4) at 559-60 (2d ed.1993) (footnote omitted).]
Professor Dobbs also points out that most cases where courts have allowed emotional distress damages are not
65.
See also Morris v. MacNab,
25
N.J.
271, 135
A.
2d 657 (1957).
No judicial consensus exists on the propriety of awarding damages for emotional distress in fraud cases.
See
Andrew
L. Merritt,
Damages for Emotional Distress in Fraud Litigation: Dignitary Torts in a Commercial Society,
42
Vand.
L.Rev.
1, 2-3 (1989) (urging courts to recognize such damages). However, it has been observed that “the usual rule”
appears to be that there is no right to recover for emotional distress in a fraud case.
See Lapides v. Trabbic,
134
tortious conduct be committed in a wanton or malicious manner, requiring that bodily illness or injury be highly
foreseeable, and allowing emotional distress damages as part of exemplary or punitive damages.
[
Id.
at 868 (footnote omitted).]
In Connecticut, emotional distress damages are only recoverable in fraud cases when “the defendant should have
realized that its conduct involved an unreasonable risk of causing emotional distress and that that distress, if it were
FN16. Likewise, plaintiff relies on
Mehlman, supra,
153
N.J.
at 178, 707
A.
2d 1000, but that reliance is
misplaced because the emotional distress award in that employment case was never challenged on appeal.
In
Spragg,
a jury returned a verdict of $42,500 as damages for emotional distress to the plaintiff. This court set the
award aside because the plaintiff’s proofs were “extremely thin, if not superficial.”
Id.
at 62, 679
A
.2d 685. There, as in
this case, the plaintiff’s emotional distress award was based on “personal humiliation or indignity.”
Ibid.
In recognizing
damages in a common law economic tort case has not been addressed by our Supreme Court or any intermediate
appellate court of this state. Indeed, it is not altogether clear that the Supreme Court would even recognize emotional
CHAPTER 14: MISTAKES, FRAUD, AND VOLUNTARY CONSENT 289
distress damages in an economic tort case. That being so, as an intermediate appellate court, we are wary of
establishing a new basis for such recovery.
Cf. Proske v. St. Barnabas Med. Ctr.,
313
N.J.Super.
311, 316, 712
A.
2d
an economic tort case,
[i]t would be anomalous to relax the severity requirement in economic torts where emotional distress is an
unintended by-product of the wrong, while maintaining it in intentional infliction of emotional distress cases where
such emotional distress is the only element of damage. Imposing a threshold severity requirement is thus consistent
with our case law and the trial court did not err in so ruling.