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Finderne Management Co., Inc. v. Barrett

November 20, 2002

FINDERNE MANAGEMENT COMPANY, INC.; ROCQUE DAMEO; AND DANIEL DAMEO, PLAINTIFFS,
v.
JAMES W. BARRETT, DEFENDANT/APPELLANT, AND CIGNA FINANCIAL ADVISORS, INC.; TRI-CORE, INC.; RONALD REDFEARN; AND EPIC WELFARE BENEFIT AND TRUST, DEFENDANTS, AND GERARD T. PAPETTI AND U.S. FINANCIAL SERVICES CORPORATION, DEFENDANTS/THIRD-PARTY PLAINTIFFS/APPELLANTS,
v.
JOHN ROSSI, C.P.A., THIRD-PARTY DEFENDANT/ RESPONDENT, AND MONUMENTAL LIFE INSURANCE COMPANY D/B/A COMMONWEALTH LIFE INSURANCE COMPANY; KENTUCKY COMMONWEALTH LIFE INSURANCE COMPANY; FULBRIGHT & JAWORSKI, ESQUIRES; HOPKINS & SUTTER, ESQUIRES; DONALD R. WILLIAMS, ESQUIRE; HENRY DE VOS LAWRIE, JR., ESQUIRE; JEPSON, FRENCH & BROOKE, ESQUIRES; AUER & SYLVESTOR ASSOCIATES; GLENN C. GUERIN; AND STEVEN G. SHAPIRO, ESQUIRE, THIRD-PARTY DEFENDANTS.



On appeal from the Superior Court of New Jersey, Law Division, Somerset County, L- 851-99.

Before Judges Skillman, Lefelt and Winkelstein.

The opinion of the court was delivered by: Winkelstein, J.A.D.

NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION

Argued October 1, 2002

This appeal addresses claims of accounting malpractice against third-party defendant John Rossi, a certified public accountant, by defendant James W. Barrett and third-party defendants Gerard T. Papetti and U.S. Financial Services Corporation. We affirm the July 7, 2001, order of the trial judge dismissing all claims against Rossi because we find Rossi owed no duty to Barrett, Papetti or U.S. Financial.

I.

To understand the context of the claims against Rossi, we must first briefly review the underlying allegations plaintiffs have made against defendants. Plaintiffs Finderne Management Company and Alloy Cast Products, small business entities, and their respective principals, assert they were fraudulently induced to establish a welfare benefit plan by defendants James W. Barrett, Gerard T. Papetti and Ronald Redfearn and the entities they represented. The plan, known as the EPIC Plan (or Plan), called for the employers to fund both pre-retirement and post-retirement death benefits for their employees through the purchase of life insurance.

Plaintiffs claim that prior to establishing the Plan, and during the life of the Plan, defendants represented to them that plaintiffs' contributions to the Plan, which were to be used to pay the life insurance premiums, would be tax deductible. *fn1 In 1997 the Tax Court, in Booth v. Comm'r. of Internal Revenue, 108 T.C. 524 (1997), concluded that plans similar to the EPIC Plan did not qualify for favorable tax treatment. Subsequently, the Internal Revenue Service disallowed both Finderne's and Alloy Cast's deductions for Plan contributions. Plaintiffs assert that defendants misrepresented the tax benefits of the Plan, causing plaintiffs damages. *fn2

In this appeal we consider whether the motion judge erred when she dismissed Barrett's claim for contribution and indemnification and Papetti's and U.S. Financial's third-party complaint against Rossi. They assert Rossi was negligent because (1) he failed to reinstate the life insurance policies which funded Finderne employees' participation in the EPIC Plan; (2) caused them to forfeit the conversion privilege afforded by the policies; (3) negligently allowed the policies to lapse; (4) failed to recommend that Finderne appeal certain deficiency determinations made by the IRS; and (5) negligently advised plaintiffs to enter into a settlement with the IRS that was detrimental to plaintiffs' interests. Since this case arises out of the same facts as Finderne I, which we incorporate by reference, we will review only the facts and procedural posture relevant to the claims against Rossi.

Rocque Dameo and Daniel Dameo are principals of Finderne which established the EPIC Plan at the behest of defendants Barrett, Papetti and Redfearn. Papetti was an agent of U.S. Financial Services. Monumental Life Insurance Company was the insurer under the Finderne EPIC Plan.

Rossi and his accounting firm had been retained by Finderne in 1996. One of Rossi's responsibilities was to oversee and facilitate plaintiffs' participation in the EPIC Plan which took effect in 1991. When the IRS issued a notice of deficiency to Finderne, Rossi reviewed Finderne's participation in the Plan and advised Finderne not to continue to contribute to the Plan. Finderne, on the advice of Rossi, ceased paying its life insurance premiums. In March 1998, Barrett sent Rocque Dameo a letter warning him that a failure to pay the premium would cause a lapse in coverage. The following December, a representative of the Plan sent Finderne a notice that the company had not paid its annual premium. In February 1999 Rossi sent Tri-Core, Inc., an entity established by Redfearn to administer the Plan, applications for reinstatement and conversion of the policies for Rocque and Daniel Dameo, along with the appropriate checks to cover the cost of the premiums. The insurance policies contained a provision which would permit the insureds to convert them to individually owned policies with tax-free income generated by borrowing against the policies. In an April 23, 1999, letter, Monumental Life informed Tri-Core that the policies could not be reinstated or converted because the policies were only paid-up through September 1, 1997, and conversion could not take place more than thirty-one days after the termination date. As a result, the Dameos lost the death benefit and conversion privileges under the policy.

II.

Papetti and U.S. Financial filed a third-party complaint against Rossi alleging he was liable for negligence, contribution and indemnification, while Barrett cross-claimed against Rossi for contribution and indemnification. They claimed plaintiffs' loss of benefits, resulting from the cancellation of the insurance policies, contributed to plaintiffs' damages. In the Law Division, Rossi moved pursuant to R. 4:6-2(e) to dismiss Papetti and U.S. Financial's third- party complaint and Barrett's claim for contribution and indemnification on the grounds that Rossi is immune from suit based on the statutory accountant's immunity established in N.J.S.A. 2A:53A-25. The motion judge granted the motion on July 7, 2000.

Barrett claims N.J.S.A. 2A:53A-25 is not applicable because Rossi's services as they pertain to the EPIC Plan were not professional accounting ...


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