July 10, 2013
SRINIVAS SUNKAVALLY, Individually and Derivatively, and on Behalf of VSK HOMES, INC., Plaintiff-Respondent/ Cross-Appellant,
KALYAN KOMMINENI and PADMA CHAVA, Defendants/Third-Party Plaintiffs-Appellants/ Cross-Respondents, and VENU MARRI and VMS CONSTRUCTION, LLC, Defendants/Third-Party Cross-Appellants.
NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION
Argued May 7, 2013
On appeal from Superior Court of New Jersey, Law Division, Bergen County, Docket No. L-7576-09.
Dennis J. Drasco argued the cause for appellants/cross-respondents (Lum, Drasco & Positan, LLC, attorneys; Mr. Drasco, of counsel and on the brief; Scott E. Reiser, on the brief).
Craig L. Levinsohn argued the cause for respondents/cross-appellants (Aronsohn Weiner & Salerno, P.C., attorneys; Mr. Levinsohn, on the briefs).
Before Judges Reisner, Yannotti and Harris.
Defendants Kaylan Kommineni and Padma Chava appeal from a portion of a January 17, 2012 final judgment, granting plaintiff Srinivas Sunkavally $246, 759 in damages, following a bench trial. Defendants also appeal from a March 16, 2012 order denying their reconsideration motion. Sunkavally, together with third-party defendants Venu Marri and VMS Construction, LLC (VMS), cross-appeal from a provision of the January 17, 2012 final judgment dismissing all remaining claims.
Having reviewed the record, we conclude that, except for the calculation of Sunkavally's damage award, the trial judge's decision is supported by sufficient credible evidence and is consistent with applicable law. We conclude that the trial judge miscalculated Sunkavally's damages, but that the correct sum can be readily calculated from the record evidence. Accordingly, we modify the judgment in favor of Sunkavally by reducing it from $246, 000 to $104, 000. We affirm the January 17, 2012 judgment as modified, but we remand for the limited purpose of entering an amended judgment reflecting that modification.
The evidence is set forth at length in the trial judge's comprehensive written opinion dated December 23, 2011, and need not be repeated here in the same level of detail. By way of background, the case arose from disputes over the construction of two large houses in Upper Saddle River, and the conduct of two construction companies, VSK and VMS. The main actors in the case, Sunkavally, Marri, and Kommineni, were either long-time friends or were acquainted through family members. Perhaps because they were dealing with friends and family members, they conducted their business dealings informally and with little or no documentation. They claim to have conducted significant transactions in cash. In addition, they litigated this case without expert accounting testimony.
Marri, who had considerable experience in the construction industry, agreed to help Kommineni, a financial analyst, with renovations to Kommineni's home on Sunrise Lane (the Sunrise project). Eventually, Kommineni decided instead to build a new house on the site. With Marri's advice, Kommineni decided to form a corporation for two purposes: first, to enable Kommineni to obtain a new home warranty for his house, which could only occur if the house were built by a corporation; and second, to invest in other real estate projects, which eventually included building a house on West Saddle River Road (the Saddle River project). Marri declined to invest in the corporation, but suggested asking his friend Sunkavally to invest. Sunkavally, a doctor living in Illinois, agreed to the proposal, and he and Kommineni formed a construction company called VSK. About two years later, when some tension developed between Marri and Kommineni, Sunkavally formed a separate construction company, VMS, as a vehicle for additional construction projects that Marri would carry out.
According to Sunkavally, he invested "[a]pproximately a hundred thousand" dollars of his own money in VSK. He testified that his role in the company was limited to providing funds. He relied on Marri and Kommineni to operate the company. Kommineni, in turn, primarily relied on Marri, because of his prior construction experience. Sunkavally admitted that he did not expect to invest money in the construction of Kommineni's house and did not expect to make a profit on that construction. That was consistent with Marri's testimony that neither he nor Sunkavally intended that VSK would make a profit on building Kommineni's residence.
Later in Sunkavally's testimony, when he addressed the investment property on West Saddle River Road, he stated that he invested "probably something in the neighborhood of two hundred thousand" dollars in the Saddle River project. He also testified that VMS contributed some funding to that project, but he did not know the amount. All parties agreed that VSK lost money on the Saddle River house, which was sold at a loss due to the falling real estate market.
According to Sunkavally, after a series of negotiations concerning how to allocate the losses and returns on investments for the Saddle River project, he received a check for $132, 629.81 from Kommineni, payable to VMS and marked "final payment." Knowing it was marked "final payment, " Sunkavally authorized Marri to cash the check and use it for VMS's expenses. In his trial testimony, Sunkavally admitted that in an email to Kommineni dated February 1, 2009, he stated that his "total investment" in VSK and VSM was $225, 000.
Marri testified that, at Kommineni's request, he funneled money through VSK, from other construction and renovation projects he was working on, in order to make it appear that VSK had construction experience. This included a $45, 000 payment from Mahesh Yalavarti for renovations to Yalavarti's home. As of the end of 2005, Kommineni had paid VSK $43, 000 for construction expenses on his house, and Marri had funneled almost $300, 000 into the company from his other construction projects. Thereafter, Kommineni deposited funds into VSK periodically to fund construction expenses on the Sunrise project. Meanwhile, when Kommineni applied on behalf of VSK for a construction loan to build the Saddle River house, he listed the Yalavarti project, and two of Marri's other projects, on the application to demonstrate that VSK had prior construction experience.
According to Marri, Sunkavally only began investing funds into VSK "when we started building the investment property." However, Marri, to whom Kommenini gave check-writing authority for VSK, did not segregate the funds for the two projects. He testified, "I was writing checks and if the money is there I used to write [checks that] would go to [Sunrise] or it would go to [Saddle River]." On the third day of the trial, the parties stipulated that a series of checks from VMS, totaling $160, 000, constituted a portion of Sunkavally's and Marri's investments in the Sunrise project and the Saddle River project.
Sunkavally's testimony was almost devoid of specifics concerning his investment. Marri's testimony concerning the finances of the companies and expenditures on the Saddle River project consisted largely of his approximations of what was invested and spent, with no documentation, and his recollections of the parties' negotiations over how to allocate the losses for the Saddle River project. However, he admitted believing that VMS was owed $160, 000 for its investment in the Saddle River project, and he admitted receiving Kommineni's check for $132, 629.81 with the notation "final payment." He testified that he believed the check represented the final payment due to VMS for its contribution to the Saddle River project.
On cross-examination, Marri admitted that the $160, 000 that VMS paid to VSK included money that VSK spent on the Sunrise project as well as the Saddle River project. He estimated that $100, 000 went to the Saddle River project and $60, 000 went to the Sunrise project. He then admitted that the approximately $132, 000 check marked "final payment" exceeded VMS's payments to VSK for the Saddle River project. Marri also admitted that Sunkavally authorized him to instruct Yalavarti, who was acting as an intermediary in the settlement negotiations, to tell Kommineni to make the check payable to VMS, because VMS needed an infusion of funds. Marri further stated that Sunkavally authorized him to deposit the check to VMS's account, knowing that the check was marked "final payment."
Marri testified on cross-examination that he spent VSK's money to buy supplies for his own construction projects, and also deposited payments from those customers into the VSK account. But he had no idea whether those jobs produced any profits for VSK. He claimed he took no payment for himself from the proceeds of those projects.
Sunkavally also presented testimony from Yalavarti, another investor in the Saddle River project. According to Yalavarti, Marri convinced him to invest $55, 000 in the project, with no documentation. When the house was eventually sold, the investors met to try to determine how much money each investor would receive. They all recognized that, due to the low sale price of the house, each investor would get back less than his initial investment. Yalavarti confirmed that the negotiations only concerned the Saddle River project. He acted as an intermediary during the negotiations, taking numbers provided by the other parties and creating a spreadsheet showing their investments and projected losses. At some point, Kommineni told Yalavarti the amount he was prepared to pay each of the other investors to settle the matter on a "take it or leave it" basis. Yalavarti confirmed that he informed Marri that this was Kommeninei's final offer; Marri instructed him to ask Kommineni to make out a check payable to VMS. Accordingly, Kommineni wrote one check, payable to VMS, to cover the settlements for Marri and Sunkavally.
Kommineni was the only witness in support of the defense and cross-claim. He confirmed that he initially formed VSK as a vehicle to build the Sunrise house and to invest in other properties. He denied that Sunkavally invested any money in the construction of the Sunrise house. He insisted that Sunkavally was "basically a storefront for Marri, " who wanted to work on VSK's projects but did not want his name associated with the corporation for personal reasons. Kommineni testified that from time to time, he gave Marri cash or checks "to be deposited in VSK" to pay for construction expenses.
According to Kommineni, the contracts for the construction of the houses were created only for the purpose of applying for new home warranties, and the cost figures set forth in the contracts bore no relationship to the actual construction costs. He testified that he spent about a million dollars to build the Sunrise house. When Marri located the Saddle River property, he convinced Sunkavally and Yalavarti to join Kommineni in that investment project. Kommineni and his wife bought the property in their own names, for $765, 000, with a mortgage loan they obtained from Countrywide. However, Sunkavally and Yalavarti contributed half of the down payment. At the same time, VSK obtained a $600, 000 line of credit to construct a house on the property. Kommineni testified that $507, 000 of the line of credit was used for the construction.
After considerable delay, due to the soft real estate market, the house was sold for $1.82 million, leaving $559, 315 in proceeds after paying off the construction loan and closing costs. Meanwhile, Kommineni and his wife were paying the mortgage and collecting rent from a tenant. When the parties began discussing allocation of losses on the investment project, they accepted Sunkavally's figure of $225, 000 as his investment.
According to Kommineni, he drew down an additional $90, 000 for his personal use when he converted the construction loan into a personal mortgage loan in his own name. He also insisted that he did not include the $90, 000 in the allocation of project costs used to determine each investor's share of the losses on the project. He claimed his fellow investors knew about the $90, 000 draw-down when they were negotiating the settlement of the Saddle River project losses. He testified that Yalavarti was acting as the intermediary in the negotiations, and Yalavarti conveyed Marri's instructions to make the settlement check payable to VMS. Kommineni specifically admitted on cross-examination that the negotiations that led to the settlement were only about the Saddle River project, and that the $132, 000 check was only to settle the dispute over Saddle River. However, he denied that VSK or VMS paid any money toward the construction of the Sunrise house.
Kommineni also identified several emails to Marri in June 2007, notifying Marri that he intended "to close VSK." He denied having any knowledge that Marri was performing additional work through VSK, even though VSK's 2005 tax returns, which Kommineni signed, listed $355, 500 in "customer deposits."
Based on the foregoing evidence, Sunkavally asserted breach of contract and unjust enrichment claims against Kommineni, claiming that he "failed to pay the contract price of $675, 000.00 . . . for  Sunrise Lane, and owe[d] $365, 698.68 for its construction." He likewise claimed breach of contract and unjust enrichment for the Saddle River project, asserting that "Kommineni owes $437, 417.90 to VSK" for the construction of the Saddle River house. Sunkavally additionally claimed that "Kommineni breached his fiduciary duty to Sunkavally and VSK . . . by unilaterally dissolving VSK without notice to Sunkavally, without Sunakvally's consent, and without formally seeking dissolution by judicial decree as mandated by New Jersey's Limited Liability Corporation Act."
In response, Kommineni claimed that he "fully funded the construction of  Sunrise Lane himself with a loan and personal funds, and therefore owes VSK Homes, LLC nothing." And, for Saddle River, Kommineni claimed that "a $400, 000.00 plus loss was incurred by the investors and that after meetings and negotiations his cashed check payment of $132, 629.81 to plaintiff, marked as 'final payment' constituted an accord and satisfaction."
In a lengthy written opinion, the trial judge found:
Although there was no written operating agreement for VSK . . . nor any other writing that explicitly stated the rights and obligations of the members of VSK, it was understood through verbal communications and informal written correspondence that Sunkavally and Kommineni were at all times each 50% members in VSK. The parties had several enforceable agreements regarding the completion of the [Saddle River] project and  Sunrise.
Addressing Sunkavally's breach of contract claim for Saddle River, the judge found "[t]here was no written agreement as to how loss, if any, would be apportioned." But, the judge found that "the exact amount of loss is of no moment because the parties settled the dispute in 2009, " and "the existence of an accord and satisfaction is evident." Moreover, he rejected Sunkavally's claim for unjust enrichment on Saddle River because of the accord and satisfaction.
Addressing the Sunrise project, the court found that, although Kommineni claimed he and his wife were the sole contributors, "Kommineni's proofs as to the amount actually contributed are not sufficiently reliable to support his claim." The court additionally found that "the cost of construction for  Sunrise totaled $734, 264.50, " rather than the over $1 million that Kommineni alleged. Ultimately, the court concluded that Sunkavally advanced $103, 470.59 "in order to cover the construction costs of  Sunrise." The trial court further found that VSK "had incurred $246, 759.00 in costs for materials, supplies, landscaping costs, and contract labor which is inclusive of the aforementioned $103, 480.59." Although Kommineni claimed he reimbursed VSK for those payments, the court found that "[w]ithout objective evidence demonstrating such reimbursement, " Kommineni's claim was unpersuasive. The court found that "Kommineni was unjustly enriched by his retention of both the $103, 480.59 provided by Sunkavally and the $143, 278.41 contributed by VSK." Based on those findings, the court ordered Kommineni to "reimburse Sunkavally a total of $246, 759.00 for his personal contributions to the construction of  Sunrise."
On Sunkavally's claim of breach of fiduciary duty, the court found that "none of the statutory premises for dissolution were satisfied prior to Kommineni's dissolution of VSK." The court also found that Kommineni did not "properly wind up the entity's affairs . . . 'make reasonable provision for the . . . liabilities, and distribute to the members any remaining assets.'" Rather, Kommineni "simply withdrew all of the funds for the VSK's bank account and never provided a thorough accounting to Sunkavally." Thus, "Kommineni violated the New Jersey Limited Liability Corporation Act when he unilaterally dissolved VSK and wound up its accounts without notice or obtaining the consent of Sunkavally."
However, the court determined that, because VSK did not have an operating agreement, "Sunkavally's loss from Kommineni's unilateral dissolution of VSK is limited to his contributions for VSK for which he was not reimbursed." But, "the parties have provided insufficient evidence for the Court to determine the precise extent of Sunkavally's unremunerated contributions." Because the court could not "determine the extent of Sunkavally's damages . . . if any" the court "decline[d] to impose damages" attributable to VSK's improper dissolution. And, the court held that, "because VSK has already been dissolved, Sunkavally's claim for the dissolution of VSK . . . is moot."
On this appeal, we will defer to the trial judge's factual findings so long as they are supported by sufficient credible evidence. Rova Farms Resort, Inc. v. Investors Ins. Co. of Am., 65 N.J. 474, 484 (1974). We "exercise [our] original fact finding jurisdiction sparingly, " and findings on which a judgment is based "should not be disturbed unless 'they are wholly insupportable as to result in a denial of justice.'" Id. at 483-84. We engage in de novo review of a trial judge's interpretation of the law. Manalapan Realty v. Manalapan Twp. Comm., 140 N.J. 366, 378 (1995). We review a trial court's denial of a motion for reconsideration for abuse of discretion. Cummings v. Bahr, 295 N.J.Super. 374, 389 (App. Div. 1996).
In reviewing a trial court's award of damages, we consider the following established legal principles. Our courts "do permit considerable speculation by the trier of fact as to damages." V.A.L. Floors, Inc. v. Westminster Cmtys., Inc., 355 N.J.Super. 416, 424 (App. Div. 2002). "If the evidence affords a basis for estimating the damages with some reasonable degree of certainty, it is sufficient." Tessmar v. Grosner, 23 N.J. 193, 203 (1957). As the Court has explained, "[t]he rule relating to the uncertainty of damages applies to the uncertainty as to the fact of damage and not as to its amount, and where it is certain that damage has resulted, mere uncertainty as to the amount will not preclude the right of recovery." Ibid.; see Patel v. Soriano, 369 N.J.Super. 192, 256 (App. Div.), certif. denied, 182 N.J. 141 (2004). Moreover, if the damages imposed by the trial court "are not excessive, and there is some reasonable basis for the finding in the proofs, " the reviewing court "will not disturb the result."
Tessmar , supra, 23 N.J. at 204.
Having reviewed the record, we conclude that it overwhelmingly supports the trial judge's finding that there was an accord and satisfaction with respect to all claims pertaining to the Saddle River project. After the parties' extensive negotiations and exchanges of financial claims concerning their respective investments and losses in the project, Kommineni made a "take it or leave it" offer in the form of a check marked "final payment, " with a reference to the "WSR" (West Saddle River Road) project. Sunkavally accepted the offer by directing Marri to deposit the check in the VMS account. For the reasons cogently stated in his opinion, we agree with the trial judge that the accord and satisfaction barred Sunkavally's claims and Komminenini's counterclaims with respect to the Saddle River project. See Zeller v. Markson Rosenthal & Co., 299 N.J.Super. 461, 463-64 (App. Div. 1997). We also concur with the judge's finding that the accord and satisfaction applied only to the Saddle River project, a proposition Kommineni essentially admitted in his trial testimony.
This brings us to the trial court's award to Sunkavally of $246, 000 in connection with the construction of the Sunrise house. We conclude this award must be modified for several reasons. First, all witnesses who testified on the issue, including Sunkavally, agreed that VSK was supposed to build the Sunrise house at cost, and Sunkavally did not expect to receive any profit from that project. Consequently, the most Sunkavally could have expected to realize from the Sunrise project would have been the return of his contributions, if any, to the cost of construction. On the other hand, if some of Sunkavally's funds were used to build the Sunrise house, Kommineni would be unjustly enriched if he did not repay Sunkavally for those funds. See VRG Corp. v. GKN Realty Corp., 135 N.J. 539, 554 (1994) ("To establish unjust enrichment, a plaintiff must show both that defendant received a benefit and that retention of that benefit without payment would be unjust.")
Sunkavally's testimony on the issue of his contributions was equivocal. He first testified that he initially invested one hundred thousand dollars in VSK. Later, he testified that he made a total investment of $225, 000 in VSK. During the Saddle River negotiations, he claimed his investment in that project was $225, 000, a number all parties accepted for purposes of allocating his share of the losses from the project.
However, Marri testified that some of the money that Sunkavally invested in VSK was used for the Sunrise project, although Marri failed to keep careful records of what funds were used for which project. Marri also testified that when VSK ran short of funds to finish Sunrise, VSM contributed funds for that construction. The record contains checks from VSM to construction suppliers, with notations that the money was for the Sunrise house.
In an email dated January 25, 2009, Kommineni acknowledged that Marri gave him an accounting of about $104, 000 contributed by Sunkavally for what Kommineni's email described as "my house." The email further stated, "I thought that number was high." Significantly, Kommineni did not deny that Sunkavally had contributed to the Sunrise project, only that he thought the claimed amount was "high." After an additional exchange of emails, Kommineni sent Sunkavally an email dated February 3, 2009, stating: "My accounts . . . match with your numbers [Yalavarti]'s and 103K (approx) I owe on  Sunrise. . . . I didn't challenge the $103K number for  [S]unrise for the past 1 year, as I thought it was some what [sic] close if not accurate."
That admission contradicted Kommineni's trial testimony, asserting that he had paid for all the expenses of constructing his house and that Sunkavally had contributed nothing. Bearing in mind the deference we owe to the judge's evaluation of witness credibility, we conclude there is sufficient credible evidence to support an award to Sunkavally of $104, 000 for his contribution to the Sunrise house construction.
However, the trial court awarded Sunkavally an additional $143, 278.41, based on a finding that VSK "incurred" a total of "$246, 759.99 in costs for materials, supplies, landscaping costs, and contract labor, which is inclusive of the aforementioned $103, 480.59." We conclude this award cannot be sustained, because there is no evidence that the additional sum of approximately $143, 278 came from Sunkavally's funds.
Moreover, the sum of $246, 759 is larger than the amount Sunkavally testified that he contributed to VSK overall. Bearing in mind that it was Sunkavally's burden to prove what he contributed to the Sunrise project we cannot find he sustained his burden of proof with respect to any sum beyond $104000 We conclude that the trial court's finding as to a larger sum represented a miscarriage of justice Therefore we modify the award and remand this matter to the trial court for the limited purpose of entering an amended judgment in the reduced amount of $104000 In all other respects the January 17 2012 judgment is affirmed In light of the modification noted no further relief is warranted and the March 16 2012 order is affirmed
The parties' respective additional arguments concerning the appeal and cross-appeal are without sufficient merit to warrant discussion in a written opinion R 2:11-3(e)(1)(E)
Affirmed in part modified in part and remanded to enter an amended judgment.