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Belani v. Grover

November 25, 2009


On appeal from the Superior Court of New Jersey, Law Division, Middlesex County, Docket No. L-4640-06.

Per curiam.


Argued September 15, 2009

Before Judges Skillman, Gilroy and Simonelli.

Plaintiff Deepak Belani appeals from those parts of the May 19, 2008 order that: 1) dismissed his complaint; and 2) entered judgment against him on the counterclaim in the amount of $236,000, together with $23,957.52 in pre-judgment interest. Defendant Sudheer Grover cross-appeals from that part of the same order denying his request for attorney's fees and costs. We affirm on the appeal. We reverse on the cross-appeal and remand for further proceedings consistent with this opinion.


Plaintiff is the former owner and operator of Softech Corporation,*fn1 an entity that engaged in the sale and distribution of adult entertainment material, consisting principally of videos, digital versatile/video discs (DVDs) and adult magazines (the business). Prior to 2005, plaintiff and his wife socialized with defendant and his wife. In late 2005, plaintiff's wife informed defendant that plaintiff had received an offer for employment from plaintiff's brother in India, and that plaintiff needed to sell the business to return to India. Plaintiff's wife suggested that if defendant had an interest in purchasing the business, he should speak directly to plaintiff.

Following discussions, wherein plaintiff had represented to defendant that the business earned a net profit of $160,000 per year, defendant agreed to purchase the business for $400,000. On December 12, 2005, the parties executed a deposit letter that provided in part: "Subject: $5,000 (Five Thousand Dollars) check # 1317 good faith deposit given to Deepak Belani on December 12th, 2005 for [s]ale of DVD business . . . ." The letter also provided that "[t]he sale price of the business $400,000 was arrived at by multiplying 2.5 years of $160,000 assured net income per year by Deepak Belani. Further terms of the [contract for the sale of the business are] to be finalized within the next fifteen days."

Following payment of the deposit monies, plaintiff permitted defendant to inspect certain business records at plaintiff's home. The records included Excel spreadsheets that summarized the business's financial information relating to the purchase and sale of the corporation's inventory. Those spreadsheets supported plaintiff's representation that the business earned a net profit of $160,000 per year. The records also included United Parcel Service documents pertaining to some of the business's sales. However, the corporation's most recent tax returns were not available for inspection. Nor were the records underlying the information contained on the spreadsheets, plaintiff having advised defendant that the corporation's books and records were in the possession of plaintiff's tax accountant.

Following negotiations, including the exchange of draft contracts, the parties executed a contract for the purchase and sale of the business on January 9, 2006, the same day the parties closed the transaction. The contract designated the seller as Softech Video, Inc., and the buyer as defendant.

Paragraph 1 of the contract provided that seller would transfer to buyer on closing, a business known as "Softech Video," including those designated assets on Exhibit A to the contract. Exhibit A contained two Internet domain names, and two toll-free telephone numbers. Exhibit A also contained: the seller's promise to provide defendant with seller's unspecified marketing plan; a list of seller's business customers, estimated at 1,060 in number; and a list of seller's suppliers. Lastly, Exhibit A contained a promise that plaintiff would be available to assist defendant in the day-to-day conduct of the business for one month following closing. Elsewhere in the contract, plaintiff represented that he would provide to defendant on closing: the corporation's credit card machine, marketing plan, copies of the Excel spreadsheets, and a full disclosure of the corporation's expenses.

Paragraph 2 of the contract set forth the purchase price as $400,000, with defendant paying $250,000 down and executing and delivering a promissory note to plaintiff in the amount of $164,355, payable over thirty-six months with interest at the rate of 6% per annum.*fn2 In addition, defendant agreed to pay to plaintiff the sum of $38,069.49 for the acquired inventory, by paying an additional $23,714.49 outside of closing. The balance of $14,355 was included in the promissory note.

Paragraph 9 of the contract contained the following provision:

Financial Terms

The [b]uyer has conducted an independent financial analysis of the business and has found same satisfactory. Buyer is relying on his business knowledge and that of his consultants in the determination of the value of the enterprise[,] and [s]eller expressly denies providing any representations with respect to the business and any terms thereto.

Seller must provide the [b]uyer with the Excel spreadsheets for 2006, 2005, 2004 used for financial analysis after the closing.

Paragraph 11 provided that the seller "represents that the gross sales for 2004 was $375,405.00 and [for the] year 2005 was $366,775.00. Further, [s]eller's principal represents that he will provide a marketing plan and a list of approximately 1,060 customers at the time of closing."

Paragraph 13 provided that the warranties, covenants and promises of the contract would not merge but would survive the closing. Lastly, the contract contained a provision governing payment of legal fees and expenses on default. Exhibit A of the agreement provided in part: "Seller and his/her agent will be liable for legal fees and all other reasonable expenses if the terms of this contract are violated by the [s]eller." That provision contained a reciprocal obligation requiring buyer to indemnify seller for legal fees and other reasonable expenses if the buyer violated the contract.

Immediately following execution of the contract, the parties closed the transaction, with defendant executing the promissory note, a personal guarantee, and a security agreement. Plaintiff executed the bill of sale for the business that contained a restrictive covenant, prohibiting not only the seller but also plaintiff, individually, from competing with the business for a period of five years. On January 17, 2006, the parties executed a separate bill of sale for the inventory which contained defendant's acknowledgement that the balance owed on the inventory of $23,714.49 remained unpaid.

After closing, plaintiff sporadically assisted defendant in the management of the business. During his assistance, plaintiff, who had retained possession of the credit card machine, unilaterally processed some of the sales and applied the monies received against that which was owed to him by defendant. On June 6, 2006, after defendant failed to make payments on the promissory note and on the balance owed for purchase of the inventory, plaintiff filed a complaint against defendant and Softech Video, Inc., seeking $188,069, and for enforcement of plaintiff's security interest in the collateral. The complaint alleged causes of action for breach of contract, breach of the covenant of good faith and fair dealing, and unjust enrichment.

On August 23, 2006, defendant filed an answer and counterclaim against plaintiff seeking rescission; compensatory and punitive damages; and attorney's fees, alleging causes of action in legal fraud, equitable fraud, breach of ...

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