On appeal from Superior Court of New Jersey, Chancery Division, Essex County.
Dreier, Bilder and Gruccio. The opinion of the court was delivered by Dreier, J.A.D.
Plaintiffs have appealed by leave granted from a Chancery Division order barring the testimony of plaintiffs' proposed expert, Dr. Douglas Carmichael. Defendants contended that Carmichael, an accounting professor and former vice president of The American Institute of Certified Public Accountants (AICPA), was precluded from testifying by reason of his earlier participation in ethics proceedings implicating defendants Margolin, Winer & Evens and Howard Kalb (the accounting defendants). The trial judge agreed, citing public policy reasons involving the confidentiality of professional ethics proceedings.
Plaintiffs Overlook Terrace Corporation and its sole shareholder, James Conforti, Jr., filed a complaint against Excel Properties Corporation and related entities and against the accounting defendants who performed accounting services for an urban renewal project known as the Overlook Terrace Project. Plaintiffs and the Excel defendants were each 50% partners in the development and management of the project. Plaintiffs alleged a breach of fiduciary duty and malpractice against the accounting defendants.
In February 1984 plaintiffs submitted Dr. Carmichael's 150 page expert report to the accounting defendants. The report
followed approximately 10 months of discovery and 80 days of depositions of approximately 60 witnesses, premised upon a generalized short report submitted by a different expert. Defendants moved to exclude Carmichael's report on two grounds: the violation of prior discovery orders and the alleged impropriety of Carmichael's appearance as a witness by virtue of his prior involvement with AICPA's earlier investigation of the accounting defendants and another project, Parkview Towers.
Our examination of the prior discovery orders indicates that Carmichael's testimony would in no way have violated the special master's discovery determinations or prior orders of the court. The question on this appeal, therefore, is whether the trial judge's determinations concerning Carmichael's participation in AICPA's hearing process and any concomitant need for confidentiality required the expert's exclusion.
Carmichael testified that he had no current association with AICPA but had been a vice president during its prior investigation. He had never served as a director of AICPA, nor was he involved with its Ethics Division or Trial Board. He explained that the usual manner in which an ethics complaint is handled is that the Ethics Committee assembles information and presents it to the Executive Committee which in turn determines whether to present the issue to a regional Trial Board. Proceedings before the Trial Board allow for a hearing and an opportunity to appeal. The hearing and complaint file are confidential, although the results are published.
The internal rules of AICPA require that "investigations of potential disciplinary matters are to be conducted in a confidential manner." The extent of Dr. Carmichael's interaction with the Ethics Committee had been to forward to it information that might come to his attention, which he did three to four times a year during his 14 years with AICPA He also had the duty to respond to technical questions posed by the media.
In July 1978, a reporter for the Trenton Times investigating the operation of Parkview Towers was referred to Carmichael.
Carmichael's initial testimony was that he told the reporter that he could not comment on the conduct of any AICPA member but would answer a hypothetical question without reaching a conclusion. Two articles followed the interview, one of which stated that Carmichael "has asked the AICPA Ethics Division to look into the case of Parkview Towers." Carmichael acknowledged that he would have let the reporter know that he had forwarded the information. A third article appeared August 6, 1978 disclosing that the Housing Finance Agency intended to replace the project accountant. An HFA officer was quoted as stating that "the agency has concluded, after consulting informally with the AICPA and our own auditors that there is a conflict." Although Carmichael testified that ...