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Financier Perelman Seeks $11.5 Million in Estate Fight but Gets $177,808
New Jersey Law Journal
August 14, 2009
Billionaire investor Ronald Perelman has lost a multimillion-dollar lawsuit over how much money the estate of ex-wife Claudia Cohen should receive for her share in a family partnership.
The court opted to enforce a formula in the partnership agreement that fixed the buyout at $177,808, rather than the $11.5 million sought by Perelman, the executor of the estate.
Bergen County Chancery Division Judge Robert Contillo found the buyout price, though "radically" below fair-market value, was not unconscionable, but he remarked that "the disparity offends my inner scale."
Contillo's decision in Estate of Claudia Cohen v. Booth Computers, BER-C-135-08, released Monday, resolved a lawsuit Perelman filed in 2008 against the partnership and Claudia's brother, James Cohen.
Claudia, who died of cancer in 2007, was a gossip reporter for newspapers and television and, after her 1985-to-1994 marriage to Perelman, had a romance with then-U.S. Senator Alphonse D'Amato of New York.
Booth Computers was a New Jersey partnership formed in 1978 by Robert Cohen, president of the Hudson County News Company, a newspaper and magazine distributor, for the benefit of his three children, Claudia, James and Michael. It was meant to be a computer business but its sole assets are two warehouses in Egg Harbor and a 45 percent interest in HCMJ Realty, a New Jersey limited partnership, also formed in 1978, to hold title to the Cohen family's vacation home in Palm Beach. The parents owned the other 55 percent interest.
The partnership agreement mandated the buyout of a partner's interest in the event of his or her death or divorce.
When Michael died in 1997, his estate was paid $34,503 for his one-third interest, leaving Claudia and James each with a 50-50 stake.
Michael's buyout was calculated based on a provision that set the buyout purchase price at $50,000 above the book value of the partnership. The book value was so low because the interest in HCMJ was not based on the fair market value of the Palm Beach property.
Instead, it reflected the initial $90,000 paid to acquire the interest, plus capital contributions, and, owing to HCMJ being a single, nonincome-producing asset, losses and withdrawals. The result was a negative book value.
Contillo was not troubled by the accounting method. It was "not ... some long-term plan to cheat one or more of the siblings, or their estates, but rather the bookkeeping was in accordance with the way the overwhelming number and types of businesses carry assets, and liabilities, on their books."
When Claudia died 10 years after Michael, the partnership used the same formula to offer her estate $177,808, which Perelman rejected.
One of the main issues at trial was the fair market value of the Florida property.
Contillo agreed with Perelman that it was worth $45 million, rather than $30 million as the defendants argued, but he ruled that the buyout amount should be based on the negative book value.
The judge said he could probably come up with a fairer arrangement but it was not his job to rewrite the agreement. The partnership began as an equal gift to all three Cohen children, who appeared not to have put any money into it, and any one of them could have wound up the sole owner by virtue of being the "last person standing," after buying out the others' interests at well below fair market rates, a factor that weighed heavily against a finding of unconscionability, he wrote.
Also weighing strongly in that direction was that the same formula was used when Michael's interest was bought out, said Contillo.
He rejected an argument that the buyout provision had been waived because it was also supposed to apply in the event of divorce, but Cohen's interest was not bought out when she and Perelman divorced in 1994.
The purpose of the buyout-on-divorce provision was to shield partnership assets in divorce proceedings, but Cohen had a prenuptial agreement that did the job, so her father decided it was not necessary to exercise the buyout clause against her. Contillo found no general waiver of the buyout requirement.
The beneficiary of the estate is Cohen's and Perelman's daughter, Samantha, a minor.
The lawyers for James Cohen and Booth Computers emphasized Perelman's wealth in their trial brief to suggest that a buyout of $177,000, compared with more than $10 million, would result in no hardship to Samantha.
Contillo brushed off the suggestion, stating, "I have been provided no authority for the proposition that I should delve into the financial wherewithal of those advocating a strict book value buyout versus those advocating a market or fair value buyout, and so I decline to consider the wealth of the Executor, or the wealth of the surviving sibling, for that matter, as a factor in my analysis."
"We are pleased the buyout was consistently applied in 2007, as it was applied in 1997," says Frank Huttle III, of Teaneck, N.J.'s DeCotiis, FitzPatrick, Cole & Wisler, who represents James Cohen and the partnership. The firm's Russell Passamano and Benjamin Clarke were co-counsel.
Perelman's lawyers are Michael Griffinger, Guy Amoresano and Lan Hoang, all of Gibbons in Newark, N.J. Hoang says the ruling will be appealed.
Cohen was the second of Perelman's four wives. The fourth was actress Ellen Barkin, from 2000 to 2006.
