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Coast Automotive Group, Ltd v. Withum Smith & Brown


May 30, 2012


On appeal from Superior Court of New Jersey, Law Division, Ocean County, Docket No. L-2464-06.

Per curiam.


Argued April 16, 2012

Before Judges Grall, Alvarez and Skillman.

This litigation was commenced in July 2006. It involves a dispute between litigants who retained an accounting firm to provide expert services in connection with a lawsuit they filed alleging bad faith on the part of the insurer of a premises used as a car dealership that was damaged by fire. The plaintiffs are the dealership, Coast Automotive Group, Ltd.; its landlord, Shansab Realty, Inc.; and Shansab's president, Tamim Shansab (collectively plaintiffs). The defendant accounting firm is Withum Smith & Brown (WSB) and the individual defendants are members or employees of WSB.

Plaintiffs' complaint and amendment to that complaint against WSB include nine counts, all related to a dispute about the sufficiency of WSB's billing records. That dispute arose after WSB provided its report on the damages plaintiffs should recover in the action against their insurer. Following extensive unsuccessful discussions about the bill, WSB notified plaintiffs that they would not provide additional services unless they were paid for work completed. Thereafter, plaintiffs settled the suit with the insurer without notice to WSB. In this action, plaintiffs sought to avoid paying WSB for its services and to recover consequential damages based on what they viewed as an inadequate settlement with their insurer.

Plaintiffs' nine-count complaint asserts eight theories for recovery: breach of contract; breach of the duty of good faith and fair dealing; fraud; tortious interference with economic advantage; estoppel; breach of fiduciary duty; consumer fraud; and malpractice. It also includes a request for a declaration that WSB is not entitled to any fee. WSB filed a counterclaim charging plaintiffs with breach of their agreement to arbitrate, false and fraudulent misrepresentation, unjust enrichment and estoppel. WSB also filed a third-party complaint against plaintiffs' attorney, and the attorney filed a fourth-party complaint against WSB's attorney.

Pursuant to a clause in the retainer agreement providing for "binding arbitration to resolve any and all fee-related disputes," all claims related to the fee dispute, including claims for reduction of the fee, were dismissed to be addressed by the arbitrator. Coast Auto. Group, Ltd. v. Withum Smith & Brown, 413 N.J. Super. 363, 370-71 (App. Div. 2010). Affirmative claims for consequential damages attributable to the quality of performance, lack of good faith and fair dealing and malpractice were left for resolution by the trial court. Ibid. We recently affirmed the trial court's order confirming the arbitrator's award. Withum, Smith & Brown v. Coast Automotive Group, Ltd., No. A-2026-10 (App. Div. Feb. 16, 2012).

This third appeal concerns the claims not resolved in arbitration. Plaintiffs appeal from an order entered on May 5, 2007 dismissing counts of their complaint alleging fraud and tortious interference with economic advantage.*fn1 They also appeal from an order of September 21, 2010 granting WSB summary judgment and dismissing their claims for consequential damages based on malpractice and breach. WSB cross-appeals from an order entered on October 29, 2010 denying its application for counsel fees based on N.J.S.A. 2A:15-59.1. In addition, WSB urges us to reverse the dismissal of its third-party complaint if plaintiffs prevail on any issue, and fourth-party plaintiff urges us to reinstate its complaint if the third-party complaint is reinstated.


We first consider plaintiffs' objections to the trial court's dismissal of counts alleging fraud and tortious interference with economic advantage. Those claims were dismissed on WSB's motion for failure to state a claim. R. 4:6-2(e). Our review is limited to determining whether the facts alleged are sufficient to establish those claims. Printing Mart-Morristown v. Sharp Elec. Corp., 116 N.J. 739, 746 (1989). Where the complaint fails to state a claim, dismissal with prejudice is appropriate if amendment would be futile. Johnson v. Glassman, 401 N.J. Super. 222, 246-47 (App. Div. 2008). These claims rest on nothing other than allegations subsumed in the fee dispute, the alleged breaches of contract and the covenant of good faith and fair dealing - alleged misrepresentations of WSB's intention to provide detailed billing records and minimize hours spent, charges for work not done and WSB's demand of payment for services performed. The factual allegations do not support these tort claims.

With respect to fraud, plaintiffs must establish "(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." Banco Popular N.A. v Gandi, 184 N.J. 161, 172-73 (2005) (quoting Gennari v. Weichert Co. Realtors, 148 N.J. 582, 610 (1997)). Their factual allegations do not suffice. Plaintiffs assert fraud based on WSB's intentional misrepresentation of its intention to perform as required by the terms of the retainer agreement. The only factual allegation supporting that claim is a failure to perform as promised, but it is well-settled that proof of intention "not to perform an agreement cannot be established solely by proof of its nonperformance . . . ." Restatement (Second) of Torts cmt. d § 530 (1977). Plaintiffs also assert fraud based on billing for services not rendered. But plaintiffs cannot show that they were damaged by relying on the billing statement because they did not pay the bill, and they could not establish reliance on receiving a lesser bill because the amount is within the range specified in WSB's retainer agreement.

Plaintiffs' claim of tortious interference with prospective economic advantage was properly dismissed because this cause of action requires them to prove that they lost an economic advantage that they reasonably expected to obtain. Patel v. Soriano, 369 N.J. Super. 192, 242 (App. Div.), certif. denied, 182 N.J. 141 (2004). Plaintiffs asserted no facts indicating that they would have obtained a more advantageous settlement from the insurer but for WSB's alleged interference. They do not include the amount of the settlement they received or state the amount they should have received if WSB had acted differently.


We turn to consider plaintiffs' objection to the grant of summary judgment in favor of WSB on their claims of breach of contract and the covenant of good faith and fair dealing and professional malpractice. We begin by summarizing the facts, viewed in the light most favorable to plaintiffs.

The parties' retainer agreement specifies the services WSB was to perform. It provides:

1. Analyze documents, pleadings, depositions, insurance records, etc. and interview Mr. Shansab so as to comment or opine on the Business Interruption Coverage . . . in the approximate amount of $2.7 [million] that was memorialized by Universal Underwriters' agent on the Universal Underwriters' Order Sheet.

2. Analyze the insurance company's adjustor/agent records, correspondence, depositions and analyze and comment upon Universal Underwriters' calculations of the amounts to be paid under the coverages in question.

3. Analyze the progression of damages from the date of the fire including, but not limited to, fire loss, debris removal, business interruption, lost profits, rental coverage loss, entire loss of business, loss on disposition of property, loss from failure of insurance company to act promptly to mitigate damages and any other matters still to be determined.

4. Respond, comment upon or opine on various questions raised by counsel and the above situation . . . .

WSB also agreed to attend settlement conferences and meetings to assist in structuring a settlement if requested.

The agreement notes that although it would be "difficult [for WSB] to specify the exact nature and extent of the contemplated services and the time involved[,]" WSB would "make every effort to proceed with this matter in the most efficient and expeditious manner possible."

WSB agreed to bill "at a minimum of one-tenth of an hour intervals," and estimated that its pre-trial costs would range between $20,000 and $40,000. WSB also promised to advise the client if it expected "pre-trial billings could or [would] exceed this range." WSB also agreed to "keep detailed records of time and expenses[, which would] be made available . . . for . . . inspection at any time upon reasonable notice" and "to explain [its] charges" upon request.

The agreement called for a $7500 retainer and specified that fees for pre-trial work must be paid in full prior to deposition or trial. WSB reserved the right to terminate or discontinue services if bills were not paid.

After signing the agreement, plaintiffs provided documentation including depositions taken and background information prepared by their attorney. WSB reviewed the voluminous records to prepare its report. Upon completion of its report, WSB billed for 130 hours of work. The charge was $38,143, less the $7500 retainer fee, totaling $30,643. The bill summarized defendants' services as "[a]attorney/client conference; analysis of attorney documents, pleadings, electronic documents, deposition testimony and exhibits; discussions with client and attorney; preparation of damage report," but did not specify how many hours were devoted to each task.

Plaintiffs requested defendants' time sheets, and WSB provided them together with a memorandum explaining that the work took 130 hours because WSB had to do an independent review and could not solely rely on the attorney's synopses. The time sheets included a daily account of tasks performed by the various accountants, including time spent and hourly rates. It did not include a listing of specific items reviewed. Plaintiffs were not satisfied and demanded more detail. They asked for "hourly billing materials." Nevertheless, WSB reduced its bill to $24,000 because the accountant who billed at the highest rate had spent more time on the project than WSB anticipated due to the unavailability of others. WSB further explained that it did not have more detailed records listing each item reviewed.

The parties proceeded to exchange correspondence in an effort to negotiate a fee. Eventually, WSB advised plaintiffs that they would not provide additional services unless they received an immediate payment of $20,000 for previously provided services, and an additional $4000 upon completion of trial.

Plaintiffs rejected that offer and threatened to sue WSB for $12,669,664.88 (the estimated amount of damages caused by the insurer) if defendants discontinued their services.

During subsequent efforts to settle the fee dispute, WSB indicated its willingness to compromise on its bill, execute mutual releases, and continue as plaintiffs' expert. Although plaintiffs settled their litigation with Universal on June 21, 2006, they did not respond to WSB's final proposal until July 24, 2006.

The judge reviewed the evidential materials submitted on the motion and determined plaintiffs could not establish their claims. The judge found no breach of the retainer agreement that would permit the recovery of consequential damages. The judge determined that the materials WSB supplied in response to plaintiffs' request for an explanation of the bill were sufficiently detailed to meet WSB's obligations under the terms of the retainer agreement and that it was proper for WSB to review the documentation in order to formulate its expert opinion on damages. The judge further noted that plaintiffs had not presented any evidence that would support a finding that WSB failed to work efficiently.

The judge concluded that plaintiffs could not prevail on their claim for breach of the covenant of good faith and fair dealing because they were provided with an expert report, and, under the terms of the contract, WSB had a right to refrain from providing additional services upon plaintiffs' failure to pay for services performed. Its exercise of that contractual right after providing the required explanation of its bill cannot establish a breach of the implied covenant.

The judge also determined that WSB was entitled to summary judgment on plaintiffs' malpractice claim. Here, the judge recognized that plaintiffs were required to show a breach of a professional standard of care and not a mere failure to comply with a contract. Saltiel v. GSI Consultants, Inc., 170 N.J. 297, 310 (2002). Consequently, the judge concluded that plaintiffs' expert opinion asserting a breach of professional standards related to billing and a professional obligation to forego "personal advantage" were inadequate to establish malpractice.

Having considered the record in light of the arguments presented, we affirm substantially for the reasons stated by the trial judge in his oral decision of September 21, 2010.


In its cross-appeal, WSB urges us to reverse the order denying their motion for counsel fees as a sanction for frivolous litigation pursuant to N.J.S.A. 2A:15-59.1 and Rule 1:4-8. Reversal is warranted only if the judge's determination is based on inappropriate factors or clearly erroneous. Ferolito v. Park Hill Ass'n, 408 N.J. Super. 401, 407 (App. Div.), certif. denied, 200 N.J. 502 (2009).

A claim is "'frivolous' within the meaning of the statute if filed or pursued 'in bad faith, solely for the purpose of harassment, delay or malicious injury,' N.J.S.A. 2A:15-59.1(b)(1), or if '[t]he non-prevailing party knew, or should have known, that the [claim or defense] was without any reasonable basis in law or equity and could not be supported by a good faith argument for an extension, modification or reversal of existing law,' N.J.S.A. 2A:15-59.1(b)(2)." Ferolito, supra, 408 N.J. Super. at 407-08. The judge found that plaintiffs truly believed they were entitled to a strict accounting, that WSB had done unnecessary work and that WSB breached professional standards, as their expert opined. On those findings, we cannot conclude that the judge abused his discretion.


Because we have affirmed the trial court's determination in all respects, there is no reason to address the parties' objections to the trial court's dismissal of the third-party and fourth-party complaints. As noted above, we were asked to consider these arguments only if we reversed other determinations, which we have not done.


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