Justia Contracts Opinion SummariesArticles Posted in New Jersey Supreme Court
Cast Art Industries, LLC v. KPMG LLP
Defendant-Appellant KPMG already was in the process of auditing Papel Giftware's 1998 and 1999 financial statements when merger discussions began with Plaintiff Cast Art. In a November 1999 letter to Papel’s audit committee, KPMG explained that the audit was planned "to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether caused by error or fraud. Absolute assurance is not attainable . . . ." The letter cautioned that there is a risk that "fraud" and "illegal acts may exist and not be detected by an audit performed in accordance with generally accepted auditing standards," and that "an audit is not designed to detect matters that are immaterial to the financial statements." In September 2000, KPMG delivered completed audits to Papel. KPMG's accompanying opinion letter, addressed to Papel's audit committee, stated that the audits were conducted in accordance with generally accepted auditing standards. The letter concluded by observing that as of December 31, 1999, Papel was not in compliance with certain agreements with its lenders, which raised "substantial doubt" about Papel's "ability to continue as a going concern." Three months later, Cast Art and Papel consummated their merger. Soon, Cast Art had difficulty collecting accounts receivable that it had believed Papel had outstanding prior to the merger. Cast Art investigated and learned that Papel's 1998 and 1999 financial statements were inaccurate and that Papel had accelerated revenue. Cast Art sought to recover from KPMG for the loss of its business. Cast Art alleged that KPMG was negligent; that if KPMG had performed a proper audit, it would have uncovered the fraudulent accounting activity that was taking place at Papel; and that Cast Art would not have proceeded with the merger if it had been alerted to the fraud. KPMG argued, among other things, that Cast Art had not retained KPMG and was not its client, and thus Cast Art's claim was barred by the Accountant Liability Act, N.J.S.A. 2A:53A-25. Upon review, the Supreme Court found that because Cast Art failed to establish that KPMG either "knew at the time of the engagement by the client," or later agreed Cast Art could rely on its work for Papel in proceeding with the merger, Cast Art failed to satisfy the prerequisites of N.J.S.A. 2A:53A-25(b)(2).
Gonzalez v. Wilshire Credit Corp.
Plaintiff Blanca Gonzalez, and Monserate Diaz purchased a home as tenants in common. Diaz borrowed the downpayment from Cityscape Mortgage Corporation (Cityscape) and executed a note. Plaintiff did not sign the note. Plaintiff and Diaz secured that loan by mortgaging their home to Cityscape. Over time, Plaintiff fell behind on the payments and U.S. Bank obtained a foreclosure judgment. The trial court ordered that the home be sold to satisfy the judgment. Before the sheriffâs sale, Plaintiff entered into a written agreement with Defendant Wilshire Credit Corporation (Wilshire), U.S. Bankâs servicing agent. Plaintiff was represented by a Legal Services attorney who helped negotiate the agreement. Plaintiff missed four payments to Wilshire. A scheduled sheriffâs sale was cancelled when the parties entered into a second agreement. Plaintiff was contacted and dealt with directly; neither Wilshire nor U.S. Bank notified the Legal Services attorney. Although Plaintiff had not missed a single payment required by the second agreement, instead of dismissing the foreclosure action as promised, Wilshire sent a letter to Plaintiff noting that the second agreement was about to expire and that a new agreement needed to be negotiated to avoid foreclosure. Plaintiff contacted the Legal Services attorney. When the attorney questioned Wilshire, it could not explain how it had come to the arrears amount set in the second agreement, or why Plaintiff was not deemed current on the loan. Plaintiff filed a complaint alleging that Wilshire and U.S. Bank engaged in deceptive and unconscionable practices in violation of the CFA. The trial court granted summary judgment in favor of Wilshire and U.S. Bank, finding that the CFA did not apply to post-judgment settlement agreements entered into to stave off a foreclosure sale. The Appellate Division reversed and reinstated plaintiffâs CFA claim. Upon review, the Supreme Court held that the post-foreclosure-judgment agreements in this case constituted stand-alone extensions of credit. In fashioning and collecting on such a loan, a lender or its servicing agent cannot use unconscionable practices in violation of the CFA.
Lombardi v. Masso
In 2002, Defendants decided to purchase, renovate, and resell a home located in Medford Lakes. According to their plan, Defendants Christopher Masso and John Torrence would finance the purchase; Defendant James Githens would perform the renovations; and Defendant real estate agent Jennifer Lynch would serve as the listing agent. Plaintiff Debra Lombardi viewed the home and made an offer. The sales contract, which was signed by Masso and Torrence, indicated that the house was being sold to Lombardi âas isâ and that any guarantees, unless set in writing, would be void. However, handwritten into the contract was a notation to âsee construction addendum attached.â That addendum reflected at least seventy repairs and renovations. At the closing, the house was nowhere near completion. Masso agreed to place money in escrow to ensure completion of the renovations. The escrow was to be held until which time the renovations would be completed. Against her realtorâs advice, Lombardi went ahead with the closing. Thereafter, the house remained unfinished and Plaintiff filed suit. The trial court granted summary judgment to the Defendants, finding that Lombardi accepted the property âas is,â Defendants did not breach the contract, Defendants could not be held liable under the Consumer Fraud Act, and they made no misrepresentations. Later the trial judge would write a letter to the parties, including the dismissed defendants, informing them that he was going to reconsider his order granting summary judgment and was scheduling a new hearing on the issue. The judge ultimately vacated the grant of summary judgment in favor of Defendants. The Appellate Division granted defendantsâ motion for leave to appeal, remanded to the trial court for further findings of fact and conclusions of law, and ultimately reversed the trial court. The Supreme Court concluded after its review that the Appellate Division correctly determined that the trial courtâs original summary judgment order dismissing several of the defendants was issued in error, the trial judge was well within his discretion in revisiting and vacating the summary judgment order.
Pomerantz Paper Corp. v. New Community Corp.
Defendant New Community Corporation appealed judgments in favor of Plaintiff Pomerantz Paper Corporation stemming from a breach of contract claim. Pomerantz appealed a judgment in favor of New Community on a counterclaim that held that Pomerantz engaged in unconscionable business practices as defined by the state Consumer Fraud Act (CFA) stemming from the same contract. According to New Community, items regularly were missing from shipments. In 2000, New Community began to question the invoices and prices Pomerantz charged. By 2004, Pomerantz claimed that New Community had failed to pay invoices totaling approximately $700,000, and it filed a claim for breach of contract. New Community filed a counterclaim asserting that Pomerantz engaged in unconscionable business practices in violation of the CFA. Upon review of the contract, the parties' business dealings and the trial court's record, the Supreme Court concluded that the trial courtâs findings that were central to its evaluation of the New Community's Consumer Fraud Act counterclaim failed for want of sufficient credible evidence in the record, and that the appellate panel erred in deferring to those findings and, by extension, in affirming the trial courtâs conclusions. Furthermore, the appellate panel erred in its analysis of the sellerâs breach of contract claim by imposing a duty of written notice of non-delivery on the buyer that is found neither in the Uniform Commercial Code nor in the course of dealing between the parties. The Court remanded the case for further proceedings.
Allen v. V & A Bros., Inc.
Plaintiffs William and Vivian Allen contracted defendant V and A Brothers, Inc. (V&A) to landscape their property and build a retaining wall to enable the installation of a pool. At the time, V&A was wholly owned by two brothers, Defendants Vincent DiMeglio, who subsequently passed away, and Angelo DiMeglio. The corporation also had one full-time employee, Defendant Thomas Taylor. After V&A completed the work, Plaintiffs filed a two-count complaint naming both corporate and individual defendants. The first count was directed solely to V&A and alleged that the corporation breached its contract with Plaintiffs by improperly constructing the retaining wall and using inferior backfill material. The second count was directed to the corporation and Vincent's estate, Angelo, and Taylor individually, alleging three "Home Improvement Practices" violations of the state Consumer Fraud Act (CFA). Before trial, the trial court granted the individual defendants' motion to dismiss the complaint against them, holding that the CFA did not create a direct cause of action against the individuals. Plaintiffs' remaining claims were tried and the jury returned a verdict in favor of plaintiffs on all counts, awarding damages totaling $490,000. The Appellate Division reversed the trial court's order dismissing the claims against the individual defendants under the CFA. The panel remanded the matter to determine whether any of the individual defendants had personally participated in the regulatory violations that formed the basis for Plaintiffs' CFA complaint. The panel precluded relitigation of the overall quantum of damages found by the jury in the trial against the corporate defendant. Upon review, the Supreme Court held that employees and officers of a corporation might be individually liable under the CFA for acts they undertake through the corporate entity. Furthermore, individual defendants are not collaterally estopped from relitigating the quantum of damages attributable to the CFA violations. The Court remanded the case for further proceedings.
Perrelli v. Pastorelle
Plaintiff Denise Perrelli appealed a trial court decision in favor of Defendants Bridget and Paul Pastorelle. Plaintiff believed the last time she sent her car insurance company a check for coverage was in 2005. She believed she had coverage on August 4, 2006, the day she got into an accident with Defendants. Geovanni Velverde, a friend, was driving at the time of the accident. He died of his injuries, and Plaintiff suffered serious injuries. Plaintiff sued Defendants alleging that her injuries were caused by Defendants' negligence. Defendants moved for summary judgment, arguing that as an uninsured motorist, Plaintiff had no right to sue. Upon careful consideration of the arguments and the applicable legal authority, the Supreme Court affirmed the lower court's decision. The Court found that under the state's "No Fault Act," a person injured while a passenger in her on uninsured vehicle was barred from suing for her injuries.