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Schulman Wiegmann & Associates, Inc. v. S.E. Manno & Associates


May 27, 2008


On appeal from the Superior Court of New Jersey, Law Division, Middlesex County, L-3586-05.

Per curiam.


Submitted December 19, 2007

Before Judges Parker, R. B. Coleman and Lyons.

Plaintiff Schulman Wiegmann & Associates, Inc. (SWA) appeals from an order entered on September 29, 2006 granting summary judgment in favor of defendant Charles Manno,*fn1 dismissing with prejudice all claims asserted by plaintiff against defendant Charles Manno*fn2 . After reviewing the record in light of the contentions advanced on appeal and in light of applicable law, we affirm the dismissal of claims predicated on theories of breach of contract and unjust enrichment, substantially for the reasons articulated by the trial court, but we reverse the dismissal of plaintiff's claims based on allegations of fraud and fraud in the inducement. We remand such claims for trial or for other proceedings in the Law Division.

Plaintiff is a court reporting and litigation support services company. Defendant S.E. Manno & Associates, Inc. (SEMA) is a Pennsylvania corporation, now bankrupt, that engaged in the business of serving as an intermediary/liaison between entities that provide court reporting and litigation support services and entities or individuals who utilize such services. Defendant Susan E. Manno was the president and owner of SEMA. Her husband, defendant Charles Manno, was employed as a videographer for SEMA. According to the statement of material facts submitted to the court, Charles Manno is not an owner and not an officer of SEMA. He received a $900 weekly salary along with payment of car and household expenses, and he was afforded the use of a Mercedes station wagon and video equipment.

In late 2001, plaintiff SWA entered into an arrangement with SEMA whereby SWA agreed to provide court reporting and litigation support services to SEMA's clients, who were billed by SEMA, which in turn was to pay SWA the invoiced amount discounted by fifteen percent for the service or referral fee. According to the complaint, plaintiff provided services to various SEMA clients who paid SEMA, but SEMA failed to pay plaintiff as agreed. Although SEMA began having difficulty making timely payments to SWA, it continued to receive court reporting services from SWA. According to the October 2, 2005 certification of Barry Wiegmann, a principal of SWA, beginning in October 2003, both Susan and Charles Manno made repeated assurances to him that the Mannos were in the process of getting a home equity loan. The proceeds of that loan were to be used to pay SWA the money owed to it. Wiegmann certified that these assurances were made to induce SWA to continue providing services on behalf of SEMA.

In December 2003, SEMA made a partial payment of the monies owed to SWA in the amount of $7,800, but by January 2004, the outstanding balance owed to SWA totaled more than $227,000. Still, Wiegmann alleged that defendant repeatedly made assurances that the debt would be paid from the proceeds of the home equity loan, which the Mannos would be receiving shortly. Eventually, however, on April 22, 2004, Charles Manno informed Wiegmann that no payment would be made, and there would be no home equity loan.

At that time, plaintiff ceased doing business with SEMA on credit and expressed concern about doing business with them at all. However, on or about May 7, 2004, Susan Manno and SEMA executed a Non-Negotiable Promissory Note (Note) to SWA in which she agreed that SEMA owed SWA $212,507.64, which was to be repaid to SWA together with interest at a rate of eight percent. Under the terms of the Note, SEMA agreed to repay the loan in monthly installments beginning July 1, 2004 and ending May 1, 2006. SWA agreed not to take any legal action against SEMA or the Mannos. Susan Manno personally guaranteed the full amount of the loan. Although Wiegmann had asked both Susan and Charles to execute promissory notes, Charles Manno refused to sign any note, and he refused to state in writing that he would assume any debts owed by SEMA to SWA.

Between July and November 2004, SEMA made the monthly payments contemplated by the promissory note and SWA continued to provide court reporting services to SEMA. Then, in November 2004, SEMA ceased making payments to SWA. SEMA made a partial payment in late December, but a debt of over $190,000 remained outstanding. Thereafter, plaintiff filed its original complaint in the Law Division, Middlesex County, on May 14, 2005 against SEMA, Susan E. Manno and Charles Manno.*fn3 The complaint asserted claims against all defendants, including Charles, on theories of breach of contract (first count), reasonable value of services (second count), unjust enrichment (third count), fraud in the inducement (fourth count), fraud (fifth count) and theft of services (seventh count). The sixth count of the complaint, based upon the personal guarantee of Susan Manno, did not purport to assert a claim against Charles.

The record indicates that on April 13, 2006, the trial court entered an order granting partial summary judgment in favor of defendant Charles Manno that dismissed certain claims against Charles Manno, however, the appendices do not contain a copy of the April 13 order. We note that, according to defendants' subsequent August 16, 2006 memorandum in support of motion for summary judgment or for clarification, the April 13 order does not specify which counts were dismissed. Because the September 29, 2006 order dismisses all claims against defendant Charles Manno, we find any uncertainty regarding the scope of the April 13 order to be of no moment.

On August 16, 2006, defendant Charles Manno filed his notice of motion for summary judgment on the remaining counts after his earlier motion. The trial court heard oral arguments on September 29, 2006, and rendered its decision from the bench. The court found the Statute of Frauds, N.J.S.A. 25:1-15, and the absence of any ownership interests in SEMA on the part of Charles Manno were dispositive. As to the Statute of Frauds, the court observed: "The statute of fraud exists and it says, again, very succinctly that, unless there is a writing as it concerns oral promises and money, that that promise cannot be enforced." Regarding Charles' relationship to SEMA, the court stated, in pertinent part:

[t]he argument by the plaintiff is that there are issues of fact because there are disputes with regard to, he said one thing one time and he said something else another time. But I believe that the law says, there must be substantial genuine issues of material fact. And in light of the fact that there is no opposition or no dispute with regard to Mr. Manno being an owner of this company, it would appear to this Court that there is no genuine issue of fact with regard to his being liable for the debts of that company.

So, as a matter of law, I find that there has been no prima facie showing that Manno has any direct or indirect ownership of SWA [sic] that would require the Court to attach responsibility for SEMA debts and, therefore, the motion is granted as it concerns Mr. Manno.

Based on that general rationale, with which we agree, the court entered an order granting summary judgment in favor of defendant Charles Manno and dismissing all the remaining claims against him. While we agree with the general rationale of the court and affirm its decision as it applies to the contractual and quasi contractual claims, we conclude that the ruling and the implementing order were overly broad to the extent they dismissed plaintiff's claims for fraud in the inducement and common law fraud.

On its appeal, plaintiff argues that summary judgment was improperly granted by the motion judge on behalf of defendant, Charles Manno because genuine issues of material fact existed which would have precluded such a judgment. As to the claims of fraud in the inducement and common law fraud, we agree. We are satisfied that the motion for summary judgment was appropriately granted on all other counts.

This court applies a de novo standard of review in regard to summary judgment motions. Trinity Church v. Atkin Olshin Lawson-Bell, 394 N.J. Super. 159, 166 (App. Div. 2007); see Brill v. Guardian Life Ins. Co. of Am., 142 N.J. 520, 540 (1995); Prudential Prop. & Cas. Ins. Co. v. Boylan, 307 N.J. Super. 162, 167 (App. Div.), certif. denied, 154 N.J. 608, 713 (1998). In making a determination, the court must consider "'whether the evidence presents a sufficient disagreement to require submission to a jury or whether it is so one-sided that one party must prevail as a matter of law.'" Liberty Surplus Ins. Corp. Inc. v. Amoroso, P.A., 189 N.J. 436, 445-46 (2007) (quoting Brill, supra, 142 N.J. at 536).

An issue of fact is genuine only if, considering the burden of persuasion at trial, the evidence submitted by the parties on the motion, together with all legitimate inferences therefrom favoring the non-moving party, would require submission of the issue to the trier of fact. The court shall find the facts and state its conclusions in accordance with R. 1:7-4.

[R. 4:46-2(c).]

To establish a prima facie case of common law fraud, plaintiff must allege the following elements, "(1) a material misrepresentation of a presently existing or past fact; (2) knowledge or belief by the defendant of its falsity; (3) an intention that the other person rely on it; (4) reasonable reliance thereon by the other person; and (5) resulting damages." Gennari v. Weichert Co. Realtors, 148 N.J. 582, 610 (1997) (citing Jewish Ctr. of Sussex County v. Whale, 86 N.J. 619, 624-25 (1981)). The party asserting the fraud bears the burden of proving that fraud through clear and convincing evidence. Stochastic Decisions, Inc. v. DiDomenico, 236 N.J. Super. 388, 395 (App. Div. 1989), certif. denied, 121 N.J. 607 (1990).

Generally, "the alleged fraudulent representation must relate to some past or presently existing fact and cannot ordinarily be predicated upon matters in futuro." Ocean Cape Hotel Corp. v. Masefield Corp., 63 N.J. Super. 369, 380 (App. Div. 1960); Chrisomalis v. Chrisomalis, 260 N.J. Super. 50, 56 (App. Div. 1992); Comfort Spring Corp. v. Brooks Equip. Corp., 13 N.J. Super. 564, 566 (App. Div. 1951). There is, however, an exception to this rule in the case of a false representation of an existing intention. Ocean Cape Hotel Corp., supra, 63 N.J. Super. at 380.

"A promise to pay in the future is fraudulent if there is no present intent ever to do so." Van Dam Egg Co. v. Allendale Farms, Inc., 199 N.J. Super. 452, 457 (App. Div. 1985). As we have previously observed:

This [fraudulent] intention may be derived from circumstantial evidence such as: the recklessness or implausibility of the statement in light of later events; showing that the promisor's intentions were dependent upon contingencies known only to the promisor; or simply from evidence indicating that the promisor would not or could not fulfill the promise. [Stochastic, supra, 236 N.J. Super. at 396.]

"[M]ere proof of nonperformance does not prove lack of intent to perform." Ibid. However, "[w]here subjective states of mind are an issue, i.e., fraud, intent, motive, our courts deal cautiously with motions for summary judgment." N. Jersey Sav. and Loan Ass'n v. Fid. and Deposit Co. of Md., 283 N.J. Super. 56, 70 (Law Div. 1993).

Although he may not have been legally responsible, defendant allegedly made several promises to pay the debt of SEMA out of the proceeds of a home equity loan. These promises obviously never came to fruition. The question of fraud centers around defendant's intent at the time he made the promises. As the record stands, a court could not reliably determine defendant's intent. Rather, the totality of the circumstances present a genuine issue of material fact for jury consideration.

The trial court reasoned that because Charles Manno was not an owner or officer of the corporation, he could not be responsible for the corporate debt. The sole focus on defendant's legal responsibility is misplaced. The issue is whether his statements and promises were false and, if they were, whether they were made for the purpose of inducing a particular reaction on the part of the promisee. Assuming the truth of the facts alleged in plaintiff's complaint, as one is obliged to do on a motion for summary judgment, Charles Manno made personal assurances that payment would be made to SWA and made from identified sources. If he knew at the time he gave those assurances that the fulfillment of his promises was implausible or that they would not or could not be fulfilled, he may be held liable for damages, if any, that may have been caused by the inaction or other reliance induced by his fraudulent promises. See generally, Tara Enters. Inc. v. Daribar Mgmt. Corp., 369 N.J. Super. 45, 58-59 (App. Div. 2004) (describing a Pennsylvania case wherein an individual agreed to take on corporate debt in the event of default). Thus, whether defendant's representations concerning his intent to pay down or satisfy SEMA's corporate debt were fraudulent would be a question for a jury.

The trial court appropriately recognized that "[a] promise to be liable for the obligation of another person, in order to be enforceable, shall be in writing signed by the person assuming the liability or by that person's agent." N.J.S.A. 25:1-15. An oral statement will normally fall within the Statute of Frauds when the "'leading object of the promise or agreement is to become [a] guarantor . . . to the promisee for a debt for which a third party is and continues to be primarily liable . . . .'" Howard M. Schoor, Assocs., Inc. v. Holmdel Heights Constr. Co., 68 N.J. 95, 102 (1975) (quoting 2 Corbin on Contracts § 366 (1950)). On the other hand, "when the leading object of the promisor is to subserve some interest or purpose of his own . . . his promise is not within the statute." Ibid. In applying this rule, the trier of fact must consider all circumstances impacting the transaction, the parties' relationship to one another and must then attempt to discern the promisor's intent, purpose and object. Id. at 105. Thus, "it becomes important, and probably decisive, to determine what interest, purpose or object was sought to be advanced by defendant's promise . . . ." Id. at 102.

In its decision, the trial court does not recite the circumstances or factors -- other than the Statute of Frauds --taken into account in dismissing plaintiff's claims of fraud. It appears to have regarded the Statute of Frauds as conclusive, indicating that "unless there is a writing as it concerns oral promises and money, that . . . promise cannot be enforced." In considering the alleged promises to pay by Charles, the trial court made no determination as to defendant's main purpose, interest or object sought. Plaintiff alleges the promises were intended to and did induce it to continue providing services that would have yielded additional income to the business of defendant's wife, by which defendant was employed. Plaintiff alleges further that the services it provided allowed defendant SEMA to remain in business despite its financial fragility.

It is obvious that Charles Manno could certainly have been serving some personal interest or purpose when making the allegedly fraudulent misrepresentations about his intent to pay via the acquisition of a home equity loan. Defendant was a company employee who received numerous benefits. These included a weekly salary, a luxury company car and payment of expenses. A jury could reasonably conclude that Charles, by inducing plaintiff to forestall enforcement of the SEMA debt, would continue to derive personal benefits that flowed to him from the corporation. The revenue generated from the services provided by plaintiff would allow defendant to maintain his employment as well as the employee benefits he had become accustomed to receiving.

Plaintiff's complaint alleged and the certification of its principal covered all of the required elements of the common law tort of fraud: (1) defendant allegedly made a material misrepresentation of SEMA's ability and intent to pay SWA; (2) defendant had knowledge of the falsity of his statements; (3) there was an intention by defendant that SWA rely on it; (4) SWA alleges its reliance was reasonable; and (5) SWA incurred damages as a result. See Gennari, supra, 148 N.J. at 610. Taking into consideration all the reasonable inferences owed to plaintiff on a defense summary judgment motion, we find there were sufficient facts alleged to sustain a claim of fraud against defendant. Issues of credibility and persuasion should have been reserved for the trier of the facts.

We, therefore, reverse the trial court's September 29, 2006 order granting summary judgment on the fourth and fifth counts of the complaint in favor of defendant and remand the matter for further proceedings in the trial court. As to the dismissal of all other counts of the complaint, the trial court's order is affirmed.

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