October 24, 2012
GLOBE MOTOR CAR COMPANY, A CORPORATION OF THE STATE OF NEW JERSEY, PLAINTIFF,
G.X.R. AUTO BODY CORP., A CORPORATION OF THE STATE OF NEW JERSEY; ANTONIO RODANO, INDIVIDUALLY, DEFENDANTS/THIRD-PARTY PLAINTIFFS-RESPONDENTS,
ALBERT TURKMANY, THIRD-PARTY DEFENDANT-APPELLANT, AND ROBERT POWELL, THIRD-PARTY DEFENDANT.
On appeal from the Superior Court of New Jersey, Law Division, Passaic County, Docket No. L-4735-09.
NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION
Submitted September 20, 2012
Before Judges Simonelli and Lisa.
After a three day bench trial, Judge Thomas J. LaConte issued a comprehensive oral decision on October 20, 2011, and entered judgment on November 28, 2011, in favor of G.X.R. Auto Body Corp. (G.X.R.) and Antonio Rodano (Rodano) against Albert Turkmany*fn1 for the net amount of $68,540.27, plus post-judgment interest and costs of suit.*fn2
The basis for Turkmany's liability was his breach of fiduciary duty as an agent of Rodano and G.X.R., which also constituted equitable fraud. Because of Turkmany's conduct, litigation was instituted by Globe Motor Car Company (Globe) against Rodano and G.X.R. Turkmany and Powell were brought into the action, first by Rodano and G.X.R., and subsequently, by amended direct claims asserted by Globe. There were various cross-claims and counterclaims asserted between the parties, which we need not set forth in detail for purposes of our analysis. Prior to trial, Globe withdrew from the litigation. Rodano and G.X.R. were not obligated to pay any sums to Globe. However, Rodano and G.X.R. incurred substantial counsel fees in defending the action brought by Globe and in prosecuting and defending the various related claims involving Turkmany. Thus, Rodano's and G.X.R.'s counsel fees constituted their measure of damages.
The total amount of counsel fees was $88,540.27.*fn3 Turkmany has not disputed the reasonableness of these fees. The dispute regards only Rodano's and G.X.R.'s entitlement to the fees. The net judgment against Turkmany was $68,540.27 because Rodano and G.X.R. admittedly owed Turkmany $20,000. Accordingly, Turkmany received the benefit of a $20,000 offset.
Turkmany appeals. He argues that no agency relationship existed between him and Rodano and G.X.R., and, even if there was such a relationship, the trial court erred because the elements of equitable fraud were not met. Turkmany further argues that Rodano and G.X.R. should have been precluded from judgment in their favor because of their own negligence.
Finally, Turkmany argues that an award of counsel fees in this litigation violates the so-called "American Rule," which, subject to certain exceptions which Turkmany says do not apply here, requires litigants to each pay their own counsel fees. We reject these arguments and affirm.
This is a brief summary of the facts giving rise to the dispute. Rodano and his company, G.X.R., are in the business of purchasing used, damaged, or inoperable vehicles (junk cars), primarily for their parts, which are sold on the Internet, over the counter, or by shipment in containers to foreign countries. This operation has been ongoing since 1992 in Jersey City. It is a large-scale operation. Typically, the business has about 4,000 junk cars on its premises at any given time. All necessary permits for operating such a business have been in effect since 1992. Additionally, the business is licensed as a used car dealer. Historically, only one or two used cars were sold per month.
Turkmany was a friend and neighbor of Rodano. Turkmany had been a used car dealer in Paterson for about twenty years, before selling his business. In October 2006, the events involved in this litigation commenced. Turkmany transferred to Rodano $100,000 in cash. Neither party disputes this. On October 5, 2006, Rodano, signing as president of G.X.R., executed a handwritten receipt*fn4 evidencing the transfer and characterizing it as a loan, for one year interest-free. Turkmany claimed that Rodano needed this money for use in G.X.R.'s business and that it was, indeed, a loan for that purpose. Turkmany further contended that this interest-free loan was consideration for an arrangement to follow, which we will describe.
Rodano contended that this was not a loan at all, but that, because Turkmany was having some difficulties with his girlfriend, he wanted to get this $100,000 out of his possession, and Rodano accommodated him. According to Rodano, this transfer of money and the repayment of most of it had nothing to do with the subsequent events that are at the core of the dispute. In any event, over the next several months, Rodano transferred to Turkmany several payments totaling $80,000.
At trial, Turkmany further alleged that he transferred an additional $100,000 cash to Rodano, and that none of it had been repaid. Rodano denied receiving any additional money from Turkmany. There was no written documentation to support Turkmany's claim. The judge credited Rodano and discredited Turkmany. Accordingly, Rodano's total indebtedness to Turkmany was $20,000.
Because Turkmany had sold his used car business, he approached Rodano to see if there was something he could do working for G.X.R. Rodano agreed that Turkmany might be useful to him to go to used car auctions to purchase junk cars for use in G.X.R.'s business. Rodano accompanied Turkmany to auctions for this purpose, and purchases were made. These junk cars were typically purchased for less than $500.
Rodano then authorized Turkmany to make such purchases without Rodano being present. To accomplish this, according to Rodano, he designated Turkmany as a signatory on a G.X.R. bank account that was relatively inactive, and also provided Turkmany with a copy of G.X.R.'s used car dealer's license, insurance card, title reassignment book, used dealer's license plates, and a checkbook. This was necessary because these transactions had to be completed on the spot. There was no written agreement between the parties regarding these arrangements. According to Rodano, this was the full extent of the authorization he extended to Turkmany. Indeed, Turkmany made some purchases of junk cars under this arrangement for G.X.R. Rodano contended that the verbal agreement between the parties was that Turkmany would receive a commission on any profits arising out of purchases he made on G.X.R.'s behalf.
Turkmany claimed Rodano authorized him to start his own business of buying and selling cars, using the G.X.R. documents, used car dealer's license, and bank account and checkbook. Acting in concert with Powell, and an entity known as New York Star Motors, Turkmany bought and sold numerous vehicles purportedly acting on behalf of G.X.R. The chain of title to the vehicles ran through G.X.R. No money from Rodano or G.X.R. was used in these transactions. All of the money came from the third-party purchasers or from Turkmany. Profits went to Turkmany and Powell. No profits went to Rodano or G.X.R.
As we have stated, Rodano insisted that he never knew of these transactions. He acknowledged that he did not look at his bank statements for the account he had turned over to Turkmany covering the four to six months during which the transactions that precipitated this litigation occurred. He gave two reasons. First, during that time, the G.X.R. business was engaged in moving certain aspects of the business operation from one side of the street to the other.*fn5 Second, because Turkmany had purchased only a few junk cars, Rodano felt there was little or no activity by Turkmany, as a result of which there was no need to inspect the bank statements.
Again, the judge found Rodano's testimony credible and Turkmany's incredible. Accordingly, the judge found that a principal-agent relationship existed, and that the scope of the relationship authorized Turkmany only to purchase junk cars for use by G.X.R., and did not authorize Turkmany to engage in this business of his own.
Turkmany and Powell conducted these activities between November 2007 and April 2008. Part of their operation involved a scheme by which Turkmany and Powell purchased eight Mercedes Benz vehicles from Globe, a Mercedes Benz dealership in Fairfield. Each of these transactions required the purchaser to sign a non-export agreement, which prohibited exporting the vehicle outside of North America, "directly or indirectly," by the purchaser or any third-party acting on behalf of the purchaser. The agreements provided for liquidated damages of $10,000 in the event of a breach.
In an effort to evade the non-export agreements, Turkmany and Powell purchased these vehicles from Globe purportedly for G.X.R. Thus, G.X.R.'s name was entered in the transaction documents as the transferee from Globe. Turkmany or Powell signed the documents, including the non-export agreements, purportedly on behalf of G.X.R. They would then drive the cars around for several days, in order to put some mileage on them and convert them to "used cars," after which they would deliver them to their third-party purchaser, New York Star Motors. New York Star Motors would then export them to Turkey for resale to ultimate buyers. Thus, G.X.R. was being used as a straw party or intermediary in this scheme to evade the non-export agreements.
All of these steps were intended to avoid the export restriction, and needed to execute the scheme for several reasons. First, the specific vehicles involved were diesel sport utility vehicles, which were manufactured in limited quantities and were in high demand. Turkmany and Powell had a contact at Globe, someone named Joe, to whom they paid a $1000 kickback on each of the vehicles for directing the sale to them rather than other customers, and he would sell to them at a lower price. Second, as we have stated, an intermediary was needed to convert the new car into a used car, as a device to attempt to evade the non-export agreements. Third, Turkmany and Powell needed someone to front the money and export the cars for sale overseas, which was apparently very lucrative. This is where New York Star Motors came in. It typically wired its money into the G.X.R. account that had been provided to Turkmany for his use. The amount transmitted in each case was equal to the sticker price. However, Turkmany and Powell paid a lower price through their arrangement with Globe. The difference represented Turkmany's and Powell's profit.
Turkmany claimed he did not know that New York Star Motors was exporting these cars out of North America. In light of the ongoing relationship, the purposes for which an intermediary was necessary, and the ongoing wire transmittal by New York Star Motors of very large sums of money to Powell and Turkmany in advance of completion of the transactions, the judge found this denial unbelievable. He was satisfied that Turkmany was knowingly participating in this scheme to defraud Mercedes-Benz U.S.A. under the non-export agreements. All of this was done without Rodano's authorization or knowledge, using his company, G.X.R., as the intermediary.
When Mercedes-Benz U.S.A. discovered that these vehicles had been exported to Turkey, Globe brought the initial action against Rodano and G.X.R. It sought $80,000 in liquidated damages and other relief. Documentation in the record clearly established the chain of title through G.X.R. to New York Star Motors and the export of the vehicles to Turkey.
Based upon these events, Judge LaConte reached certain legal conclusions. Relying on Bohlinger v. Ward & Co., 34 N.J. Super. 583 (App. Div. 1955), aff'd, 20 N.J. 331 (1956), he found that Turkmany's activities constituted "a perversion of his agency relationship with G.X.R. in that he conducted his own business utilizing the license reassignment book, insurance cards for his own purposes, unbeknownst to his principal." And, in reliance on Ramos v. Browning Ferris Industries of South Jersey, Inc., 103 N.J. 177 (1986), he found that the principal-agent relationship constituted a special legal relationship that will support a claim for indemnification.
Judge LaConte then concluded that under the equitable doctrine of common law indemnity, in circumstances such as these, no express indemnity agreement is required, but the right of indemnity arises "by operation of law to prevent a result which is regarded as unjust or unsatisfactory." Promaulayko v. Johns Manville Sales Corp., 116 N.J. 505, 511 (1989) (quoting W. Keeton, D. Dobbs, R. Keeton, & D. Owens, Prosser & Keeton on The Law of Torts § 51 at 341 (5th ed. 1984). The judge reasoned that "[c]learly the fact that Turkmany and Powell's activities caused G.X.R. and Rodano to incur legal fees in the Globe lawsuit, for them to have to bear those expenses would be unjust or unsatisfactory."
The judge did not find the scienter element of legal fraud satisfied. However, he did find that all elements of equitable fraud were proven under the guidelines laid down in United Jersey Bank v. Kensey, 306 N.J. Super. 540, 550-51 (App. Div. 1997), certif. denied, 153 N.J. 402 (1998). He found "that there was a principal[-]agent relationship, that there was a fiduciary duty and that the silence of Mr. Turkmany [in failing] to make his dealings known to G.X.R., thus resulting in his being dragged into the Globe Motor Car case[,] entitled G.X.R. and/or Rodano to indemnification."
We reject Turkmany's argument that Rodano and G.X.R. should be precluded from recovery because of their own negligence and because a counsel fee award in this case violates the "American Rule." One who engages in deliberate fraudulent concealment "may not urge that his victim should have been more circumspect or astute." Pioneer Nat'l Title Ins. Co. v. Lucas, 155 N.J. Super. 332, 342 (App. Div.), aff'd o.b., 78 N.J. 320 (1978). Under the totality of the circumstances, we do not view Rodano's failure to examine the bank statements as negligent conduct. However, even if it were, he violated no duty toward Turkmany in the context of this case. See ibid.
Likewise, the "American Rule" does not bar the recovery awarded here. The attorney's fees incurred by Rodano and G.X.R. constituted the very damages to which they were entitled by way of common-law indemnity. We concur with Judge LaConte's conclusion that requiring Rodano and G.X.R. to bear the legal fees incurred as a result of Turkmany's and Powell's activities would be unjust.
Judge LaConte's factual findings, which we have summarized, are amply supported by adequate, substantial and credible evidence in the record, and are therefore considered binding on appeal. Rova Farms Resort, Inc. v. Investors Ins. Co. of Am., 65 N.J. 474, 484 (1974). We therefore defer to those findings. We also have no occasion to interfere with Judge LaConte's legal conclusions. He identified the relevant legal principles and controlling authorities, and he applied them correctly to the facts he found. We affirm substantially for the reasons expressed by Judge LaConte in his thorough and well-reasoned oral decision, as supplemented in this opinion.