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Cowan, Gunteski & Co. v. Macrae


May 3, 2010


On appeal from the Superior Court of New Jersey, Law Division, Ocean County, Docket No. L-2035-06.

Per curiam.


Submitted April 19, 2010

Before Judges Rodríguez and Reisner.

Defendant Arthur D. Macrae, Sr. appeals from a judgment in the amount of $32,305.10, plus $3,637.20 in pre-judgment interest, against himself, and in favor of plaintiff Cowan, Gunteski & Company (CG&C), a certified public accounting firm. This judgment was entered at the conclusion of a bench trial.

We affirm based substantially on the findings, reasons and analysis expressed by Judge Steven F. Nemeth in his October 17, 2009 written opinion.

Defendant, who is legally blind, and his son Arthur Macrae, Jr. (Arthur, Jr.), incorporated A.D. Mac Consulting Group, Inc. (A.D. Mac). Defendant intended to utilize the corporation as an intermediary for telecommunications work. However, the corporation remained a shell.

Arthur, Jr. and his partner were approached by Tekemark Global Solutions (Tekemark) and offered a $2 million line of credit to provide telecommunications infrastructure. Subsequently, defendant transferred his interest in A.D. Mac to Arthur, Jr. for $1. Arthur, Jr., however, had significant financial difficulties and was forced to sell his assets to Tekemark in exchange for Tekemark assuming corporate debts. Around this time, New York state claimed that A.D. Mac owed $750,000 in unpaid sales taxes as a consequence of the sale of assets to Tekemark.

Thereafter, Arthur, Jr. and defendant sought the advice of Edward Dimon, Esq. to determine whether Arthur, Jr. had a cause of action against Tekemark. Dimon contacted Joseph Guntesky, C.P.A., a principal of the CG&C firm, to represent A.D. Mac in a New York state sales tax audit and potential claims against Tekemark. On August 11, 2004, Gunteski met with Dimon, and the next day with Dimon, Steve Leone, Esq., defendant and Arthur, Jr. The participants at the meeting discussed the New York state sales tax audit and issues involving potential litigation against Tekemark. The Macraes indicated that they wanted to retain CG&C as their accounting expert. Gunteski testified that his various services were discussed. Gunteski asked for a $10,000 retainer. Defendant denied that he agreed to accept full responsibility for Gunteski's fees.

Gunteski sent a retainer agreement to Arthur, Jr. The retainer agreement was returned to Gunteski containing signatures above the lines for Arthur, Jr. and defendant. A $10,000 check, issued on the joint account of defendant and his fiancé, Lynne Bryant, accompanied the retainer.

The parties again met in September. Gunteski indicated that he would need an additional $15,000 in fees to complete the agreed services. There was another meeting in October at which Arthur, Jr. voiced his anger over the costs for the sales tax audit. The parties were unable to reach an agreement regarding the fees. Gunteski's services terminated at the completion of the New York state sales tax audit. The Macraes and counsel informed Gunteski in October 2004 that they were not going to file a lawsuit against Tekemark, although according to Gunteski, his review of the financial records indicated that there were "significant discrepancies" pertaining to A.D. Mac's debt. CG&C sent A.D. Mac an invoice for the outstanding balance, $28,456.50, dated January 6, 2005. The due date was February 5, 2005.

CG&C sued defendant for the unpaid bill. Arthur, Jr. was not named as a defendant because he filed for bankruptcy in October 2005 and was therefore discharged of any personal liability for Gunteski's claim pursuant to 11 U.S.C. § 524(a)(2).

Judge Nemeth conducted a three day bench trial. Gunteski testified that at the initial meeting, he believed that defendant and Arthur, Jr. owned the company, which had been sold to Tekemark. The parties reached a "verbal agreement" to retain his firm's services. This agreement was later set forth in the retainer agreement. However, Gunteski was unable to recollect the exact language defendant used to express his assent. The retainer stated that "[i]t is our understanding that [defendant] and [Arthur, Jr.] accept full financial responsibility for our fees[.]" The signatures of defendant and Arthur, Jr. appeared above their respective names.

Gunteski presented letters written by Dimon to the New York tax auditor dated August 17 and 18, 2004. The first letter stated that his firm represented A.D. Mac and "the two principals in the company, [defendant] and [Arthur, Jr.] with regard to the sales tax audit . . . [A.D. Mac] has hired [Gunteski] to do the accounting for this audit." The third letter is addressed to Chuck Miller, Tekemark's CFO, and provides that "[t]he State of New York conducted their sales tax audit of [A.D. Mac] for one week at the accounting firm of [CG&C]. The records you provided were most helpful as [was] the guidance of [Gunteski]." Defendant and Arthur, Jr. were copied on each letter.

Gunteski presented two other letters addressed to defendant, Arthur, Jr. and A.D. Mac dated January 6 and 19, 2005. The letters provided a status report regarding New York's position in the audit. In a letter from Dimon to Gunteski dated April 28, 2006, Dimon stated that:

[t]he Macraes are contemplating a lawsuit against Tekemark. The basis for the lawsuit would be the fraudulent activities of Tekemark with regard to [A.D. Mac]. These fraudulent activities would include their 'bookkeeping' for A.D. Mac and the amount of debt at the time of the asset assumption agreement with the Macraes. . . .

The Macraes would like you to participate in the analysis of their claim against Tekemark and in the litigation if they proceed . . . . They would like you to proceed on a contingency basis, the percentage of the contingency would be agreed upon by you and the Macraes before the litigation commenced.

Gunteski testified that he informed the Macraes that he was going to need an additional $15,000 to complete his services. Defendant indicated that he would write a check immediately. However, Gunteski instructed defendant to wait until he received the bill.

According to Arthur, Jr., the signatures appearing on the retainer agreement and the $10,000 check were not his father's signature. Further, Arthur, Jr. denied that he or Bryant signed the retainer agreement or check on behalf of his father. He borrowed $10,000 from defendant to pay the retainer amount. Defendant had previously provided Arthur, Jr. with blank checks to cover his expenses. Arthur, Jr. had no assets at the time he borrowed the money. The signature on the check matched the signature contained above defendant's name on the retainer agreement.

Defendant testified that he accompanied Arthur, Jr. to the meetings because Arthur, Jr. becomes "nervous" and forgets details. Defendant further testified that Gunteski was hired on behalf of A.D. Mac. Thus, defendant did not authorize Gunteski to do any work on his behalf. Defendant denied that there was any discussion during the meeting that he would be involved in the lawsuit. The $10,000 retainer was not discussed. Defendant denied that he accepted full responsibility for Gunteski's fees at the meeting. He provided Arthur, Jr. with checks due to Arthur, Jr.'s financial problems. Arthur, Jr. requested to write a check for $10,000 and defendant authorized Arthur, Jr. to sign his name. According to defendant, he was unaware to whom the check was payable. Defendant did not carry checks. Moreover, he was not informed of a letter mailed from Gunteski to him detailing CG&C's retention as the forensic accountant. Defendant's fiancé and his step-sons were responsible for reading his mail to him.

Regarding the October meeting, defendant testified that Arthur, Jr. requested to meet with Gunteski to discuss the bill. Gunteski informed Arthur, Jr. and defendant that the tax audit was the basis of the bill. However, Arthur, Jr. was angry and questioned why Gunteski spent so much time conducting the tax audit. As a consequence of this meeting, the attorneys recommended that Arthur, Jr. not go forward with litigation due to Gunteski's finding that the corporation owed Tekemark for the sales tax liability. Finally, defendant testified that Dimon was his attorney in a previous matter, but he did not authorize Dimon to represent him in the Tekemark matters.

Following the testimony of Gunteski, defendant and Arthur, Jr., the judge issued a written decision. The judge found Gunteski's testimony more credible than defendant's and Arthur, Jr.'s testimony. The judge found that defendant agreed verbally to retain Gunteski during the August 12 meeting. The judge also found that either Arthur, Jr. or Bryant exercised their specific, general authority and signed the retainer agreement and retainer check on behalf of defendant. The judge awarded judgment against defendant for the unpaid fees.

The judge issued a written opinion, reviewing all the proofs and making the following findings:

Based upon my review of the testimony and demeanor of the witnesses, and the exhibits in evidence, I find that plaintiff has proven by a preponderance of the credible evidence that: . . .

At all times relevant to this lawsuit, defendant was in close contact with his son, living with him "off and on," and he was very knowledgeable about and was kept apprised of the operation and status of A.D. Mac at all times by his son. This was demonstrated by defendant's detailed knowledge of the history of [Arthur, Jr.'s] and A.D. Mac's interaction with [Tekemark]. Defendant was not at all credible when he stated, late in his testimony, that [Arthur, Jr.] did not discuss "specific details of [Arthur, Jr.'s] business" with defendant, in light of his previously stated comprehensive knowledge about the business. Defendant was also present at all of the meetings with Gunteski, Dimon, Leone and [Arthur, Jr.], and he said he was there at [Arthur, Jr.'s] request. Even, assuming arguendo, he was only there for [Arthur, Jr.], and not also for himself, there would be no point in attending if he was unfamiliar with details of the business. However, it was clear that he was in fact very familiar with the particulars, history, and status of A.D. Mac.

Defendant was a party to and executed the asset assumption agreement of July 2003 by which [Tekemark] acquired A.D. Mac.

Defendant and [Arthur, Jr.] hired the law firm of Carluccio, Leone, Dimon, Doyle and Sacks ("law firm"), to represent them and A.D. Mac in all matters concerning A.D. Mac, including but not limited to the New York tax audit and potential litigation against [Tekemark]. The letter of Dimon, Exhibits P-3a and P-3b, clearly and unequivocally demonstrate this fact, and they corroborate Gunteksi's testimony. The law firm eventually filed a lawsuit on behalf of defendant and [Arthur, Jr.] and A.D. Mac against [Tekemark], Exhibit J-2 in evidence. Neither defendant nor [Arthur, Jr.] gave any convincing explanation as to why the statements in the relevant letters were not accurate. Defendant's explanation that Dimon was just referring to him as a "principal" of A.D. Mac in an attempt to get information was unconvincing in the extreme . . . . Defendant's further claim that he was trying to "distance" himself from A.D. Mac is at variance with all of the Dimon letters and, most significantly, the lawsuit wherein he is named as a plaintiff. All of the facts and circumstances in this matter lead to the conclusion that defendant in fact authorized Dimon to make all of the statements regarding defendant's role and status in the letters, and ultimately authorized the law firm to file suit against [Tekemark] on his behalf. All of the facts and circumstances lead to the conclusion that Gunteski was believable and accurate in his testimony that Dimon was stating the same things about defendant's role and status at the meeting with the Macraes and Gunteski.

Neither [Arthur, Jr.] nor defendant were credible in their testimony about the initial meeting with Gunteski. Defendant originally said he attended the meeting because his son "gets nervous" at meetings and has a bad memory, and he was there to support his son at [Arthur, Jr.'s] request. Later, he testified that he really was not paying much attention to the conversation, because it had "nothing to do with me." This is totally inconsistent with his earlier testimony, and makes no sense in light of his encyclopedic knowledge of and interest in the business of A.D. Mac. It makes no sense in light of his testimony that he is a father who loves his son and was concerned about his son's business dealings with [Tekemark], and who gave his son access to his checks since [Arthur, Jr.] was "in crisis."

In contract to his father, [Arthur, Jr.] had no recollection of his father even being present at the first meeting with Gunteski, much less any recollection as to why he was present. [Arthur, Jr.] admitted that a ten thousand dollar retainer was discussed at the first meeting; his father denied any such discussion. These are but two of a number of inconsistencies and contradictions between the testimony of [Arthur, Jr.] and the defendant. Another example is defendant's testimony that he never really discussed Gunteski's lawsuit with [Arthur, Jr.], and [Arthur, Jr.'s] directly contradictory testimony that he and his father discussed plaintiff's action "lots of time." It should also be noted that [Arthur, Jr.'s] demeanor throughout his testimony was that of a person who appeared to be nervous and uncomfortable, shifting in his seat, and with his voice sometimes trailing off as he answered.

Notably missing from the trial was the testimony of Dimon and of Leone. Both attorneys could have been brought into court by their former (and perhaps present) clients, the Macraes, and at that time the attorneys could have corroborated what defendant and [Arthur, Jr.] said occurred at the meetings with Gunteski. But the attorneys were not called, and they did not support defendant's and [Arthur, Jr.'s] statements that only [Arthur, Jr.] was hiring Gunteski, and that only [Arthur, Jr.] had a claim against [Tekemark], and that Gunteski was not retained to defend the New York audit, and so forth . . . . I infer from the non-production of Dimon or Leone that their testimony would have been unfavorable to the part expected to produce them, i.e., the defendant.

[Arthur, Jr.] signed the retainer agreement. Defendant authorized someone to sign the retainer agreement and ten thousand dollar retainer check on his behalf, and this was done. The executed retainer agreement and check were returned to Gunteski.

Gunteski's practice of following up a meeting with new clients with a written retainer agreement is certainly reasonable and appropriate, and his testimony on this point was credible. He forthrightly admitted that every item contained in the retainer agreement was not discussed at the August 2004 meeting. Although he had only a superficial understanding of the actual ownership of A.D. Mac, he was certain that defendant was an incorporator of the business, and he noted defendant was present at the meeting and interested in the audit and potential lawsuit against [Tekemark] . . . . Simply put, I believe Gunteski, and I do not believe defendant.

Defendant was not credible in his claim he was unaware of Exhibit P-1, nor was he believable in his explanation that his son asked him for a ten thousand dollar "loan" to pay the retainer. No such loan was listed in his son's bankruptcy filing.

[Arthur, Jr.'s] testimony was unclear and unconvincing regarding the execution of the retainer check. [Arthur, Jr.] admitted that the writing and signature on the check matches the signature above his father's signature line on the retainer agreement, but had no explanation. [Arthur, Jr.] denied signing the check or the retainer agreement on behalf of his father, and claimed that Lynn Bryant did not sign either the retainer or the retainer check. However, only three people could have signed the check, i.e., defendant, [Arthur, Jr.] or Lynn Bryant. Ms. Bryant lived with the defendant in August of 2004. The check itself was in [Arthur, Jr.'s] possession before it was provided to Gunteski, since [Arthur, Jr.] admits that fact. In any event, it is clear that Gunteski certainly did not sign the check and retainer agreement. Therefore, defendant authorized someone to sign the check. Defendant admitted that he gave Lynn Bryant and [Arthur, Jr.] general authorization to sign checks, not just limited to this or another specific check. Like Dimon and Leone, Ms. Bryant was not called as a witness by defendant.

The work performed was for the benefit of both defendant and [Arthur, Jr.] and A.D. Mac, and Gunteski's credible testimony was that the work was necessary. His testimony that the charges were fair and reasonable was unrebutted. The bill for the work performed by plaintiff totals $32,305.10.

Since I have concluded that a contract was entered into directly by defendant with plaintiff, or in the alternative, defendant would be bound by the actual authority exercised by his agent, even if unauthorized, . . .

On appeal, defendant contends that: (1) no valid contract existed between the parties; (2) no apparent authority existed for defendant to enter into a contract with Gunteski; (3) Gunteski is not a credible witness based on his testimony; and (4) evidence was improperly introduced. We reject these contentions. The first two arguments are a challenge to the judge's factfinding. However, if findings are supported by the record, they are binding upon on review. Rova Farms Resort, Inc. v. Investors Ins. Co. of Am., 65 N.J. 474, 484 (1974). It is "improper for the Appellate Division to engage in an independent assessment of the evidence as if it were the court of first instance." State v. Locurto, 157 N.J. 463, 471 (1999). Here, Gunteski's testimony and the signed retainer agreement provide ample support for the judge's findings.

The third contention is a challenge to the trial court's credibility assessment. However, credibility is always for the factfinder to determine. Ferdinand v. Agric. Ins. Co. of Watertown, N.Y., 22 N.J. 482, 491-92 (1956). Where the trial court has made credibility determinations, even without specifically articulating detailed findings of credibility, and where the reasons for its determination may be inferred from the record, the Appellate Division is not free to make its own credibility determination. Locurto, supra, 157 N.J. at 472-75. Here, the factfinder specifically articulated that Gunteski was more credible than defendant and Arthur, Jr. We have no warrant to deviate from his findings.

The fourth contention focuses on the admission of the letter by Dimon. Defendant argues that CG&C did not comply with defendant's request for admissions and answers to interrogatories. In particular, defendant argues that an interrogatory question requested defendant to list all documents that constituted "admissions against interest."

The discovery rules were intended "to eliminate, as far as possible, concealment and surprise in the trial of lawsuits to the end that judgments rest upon real merits of the causes and not upon the skill and maneuvering of counsel." Abtrax Pharms v. Elkins-Sinn, 139 N.J. 499, 512 (1995) (quoting Oliviero v. Porter Hayden Co., 241 N.J. Super. 381, 387 (App. Div. 1990)). Consequently, the "procedures for discovery are designed to eliminate the element of surprise at trial by requiring a litigant to disclose the facts upon which a cause of action or defense is based." McKenney v. Jersey City Med. Ctr., 167 N.J. 359, 370 (2001); see also Liquori v. Elmann, 191 N.J. 527, 550-51 (2007).

Here, Judge Nemeth permitted Gunteski to testify regarding the statements made by Dimon that constituted statements against interest made by an agent of defendant. Further, the judge found that the introduction of Dimon's letters into evidence as statements against interest did not constitute a "surprise." The potential prejudice to CG&C's ability to present its case outweighed the potential prejudice to defendant after balancing the respective interests. Defendant had an opportunity to review the letters and was aware of their content.

We provide substantial deference to the trial judge's discretion on evidentiary rulings. Bd. of Educ. v. Zoning Bd. of Adjustment, 409 N.J. Super. 389, 430 (App. Div. 2009). Generally, the trial court's ruling will not be disturbed unless there is a clear abuse of discretion. Dinter v. Sears Roebuck & Co., 252 N.J. Super. 84, 92 (App. Div. 1991). Thus, reversal is only appropriate when the trial judge's ruling was "so wide of the mark that a manifest denial of justice resulted." Bd. of Educ., supra, 409 N.J. Super. at 430 (quoting State v. Carter, 91 N.J. 86, 106 (1982)).

Judged against this standard, we conclude that the evidentiary rulings challenged do not amount to an abuse of discretion. Defense counsel acknowledged that CG&C forwarded the letters towards the end of the extended discovery period and provided defendant with the timely opportunity to review the letters.



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