BEY SEDAGHAT v. HAMID JABBARY and WEST CALDWELL DENTAL GROUP II

 

NOT FOR PUBLICATION WITHOUT THE

APPROVAL OF THE APPELLATE DIVISION

SUPERIOR COURT OF NEW JERSEY

APPELLATE DIVISION

DOCKET NO. A-4998-03T14998-03T1

BEY SEDAGHAT,

Plaintiff-Appellant,

and

U.S. ALLIANCE CORP.,

Plaintiff,

v.

HAMID JABBARY and WEST

CALDWELL DENTAL GROUP II,

Defendants-Respondents,

and

ZOHRAH RASOLINEJAD,

Defendant.

_________________________________

 

Argued: November 9, 2005 - Decided:

Before Judges Skillman, Axelrad and Payne.

On appeal from the Superior Court of New Jersey, Law Division, Essex County, L-7303-01.

Stephen Turano argued the cause for appellant (Klingeman Turano, attorneys; Mr. Turano, of counsel and on the brief).

Alice Beirne argued the cause for respondents (Epstein Beirne, attorneys; Ms. Beirne, on the brief).

PER CURIAM

Plaintiff, a Florida businessman, appeals from summary judgment dismissal of his claims against two dentists and their dental group predicated on a trust agreement found violative of New Jersey law. He also appeals from the dismissal, at the conclusion of his case, of his claims predicated on a management contract found barred by the statute of limitations. We affirm.

Plaintiff Bey Sedaghat is not licensed to practice dentistry in New Jersey or any other state. Defendants Hamid Jabbary and Zohrah Rasolinejad are dentists licensed to practice in New Jersey and New York. Sedaghat is a relative of Jabbary. Plaintiff loaned Jabbary approximately $50,000 of the $1,175,000 purchase price of a dental practice in New Jersey. Jabbary formed Caldwell Dental Group, P.C. (Dental Group) to purchase the practice and provide dentistry services. Jabbary was president and sole shareholder, and Sedaghat was corporate secretary. Concurrently, on September 1, 1990, the parties executed a Declaration of Trust designating Dental Group as the trustee to hold the assets of the dental practice for the benefit of Sedaghat, Jabbary and Rasolinejad as beneficiaries. The trustee was to operate the dental practice and accrue profits for five years unless otherwise instructed by the beneficiaries, after which the assets were to be shared equally by them. The trust agreement further provided that the trustee had no power to sell or dispose of the trust property without written instructions from the beneficiaries or the termination of the trust.

At the same time, the parties formed Dental Management of West Caldwell, Inc. (Dental Management), a Florida corporation, of which plaintiff was president. On September 1, 1990 plaintiff and Jabbary, on behalf of their respective corporations, entered into a five-year agreement for Dental Management to provide to Dental Group personnel, services, and supplies at a fee of actual costs plus ten percent and to perform administrative and management duties at an annual fee of $120,000. The agreement further provided that Dental Management had the exclusive right to sell Dental Group.

By 1993 the relationship between plaintiff and Jabbary had deteriorated. Jabbary indicated dissatisfaction with plaintiff's performance of the management contract. By letter of May 17, 1993 Jabbary informed plaintiff he no longer wanted him involved as secretary of Dental Group. On May 9, 1994 plaintiff sent correspondence to Jabbary proposing that Dental Management be reinstated to perform the management contract or, alternatively, the parties liquidate their holdings in the business for a stated amount, and Dental Group pay plaintiff his one-half share in installments. Jabbary responded that he was not interested in continuing the relationship, noting that the management agreement had been cancelled by Dental Group because Dental Management had failed to perform its obligations.

In May 1995 Jabbary met with plaintiff in Florida, and the parties discussed an informal accounting. Jabbary gave plaintiff checks totaling $25,000, which he claimed were in satisfaction of any obligation due and owing to plaintiff. In November 1995 Rasolinejad and Jabbary assigned their shares of stock in Dental Management to plaintiff by way of a one-page preprinted document listing consideration as $100 to Jabbary and "value received" to Rasolinejad. The assignments contained no explanation for their purpose.

Jabbary contended the assignment was for plaintiff's release of all potential claims. Plaintiff contended the assignments were given to him as an inducement to forbear bringing suit for breach of contract. In opposition to defendants' motion for summary judgment, plaintiff submitted Jabbary's certification of September 23, 2002, which stated that he and Rasolinejad had assigned their shares in Dental Management to plaintiff "in return for, among other things, his forbearance to sue on the Contract." Plaintiff certified that the assignment was intended as a temporary reprieve to Jabbary "partly to have [him] forbear suit at that time in 1995, not for [him] to forever forbear from filing suit."

Around November 1995, Jabbary formed West Caldwell Dental Group II, P.C. (Dental Group II), of which he was the sole shareholder and director. Jabbary then sold that practice in or about 2001, a fact learned by plaintiff later that year.

On August 3, 2001 plaintiff filed suit against Jabbary, Rasolinejad and Dental Group II. He alleged breach of fiduciary duty and breach of the trust agreement by: (1) the failure to pay him any of his share of the trust assets or accrued income, profits, interest or dividends from the trust estate on September 1, 1995, the expiration date of the trust, or anytime thereafter; (2) the unauthorized sale of Dental Group II; and (3) the improper possession of the proceeds by either or both of the dentists. More specifically, plaintiff's complaint asserted causes of action for fraudulent conveyance (count one), breach of the trust agreement (count two), breach of fiduciary duty under the trust agreement (count three), and conversion (count four). The complaint also alleged the right to proceed under a theory of quasi-contract (count five), and sought an accounting (count six). Plaintiff also claimed breach of the management contract (count seven), asserted a quasi-contractual claim relating to the management contract (count eight), and asserted tortious interference by Jabbary and Rasolinejad with Dental Management's right to sell the dental practice (count nine).

On November 18, 2002 Judge Bernstein granted summary judgment to defendants on counts one through four and nine of the complaint, holding the trust agreement to have been void ab initio as violating New Jersey law. See N.J.S.A. 14A:17-10(a) (prohibiting a professional corporation from issuing its shares to anyone other than a person licensed in the profession) and N.J.A.C. 13:30-8.13 (prohibiting dentists from entering into an agreement for the provision of space, facilities, equipment, personnel, marketing services or management services that offers compensation on the basis of the income or receipts derived from the practice of dentistry). The court preserved counts five and six asserting quantum meruit and seeking an accounting, as well as counts seven and eight relating to the management contract. The court found there were issues of fact as to the parties' intent in the November l995 assignment of the stock, which would affect whether the statute of limitations barred enforcement of claims asserted under the management agreement.

On April 4, 2003 plaintiff filed an amended complaint adding as a party plaintiff U.S. Alliance Corp., a company owned by him, retaining the claims that survived defendants' summary judgment, and adding a fraud claim arising out of the termination by Jabbary of UCC-1 statements providing security to U.S. Alliance. The fraud claim was dismissed on motion for summary judgment on August 8, 2003, and that dismissal has not been appealed.

The matter was tried to a jury for several days in February 2004. At the conclusion of plaintiff's case, Judge Bernstein granted defendants' motion to dismiss the remaining contractual claims as barred by the six-year statute of limitations, N.J.S.A. 2A:14-1, finding nothing in the evidence that would support "an allegation that merely the transfer of stock at that particular stage would be some type of forbearance agreement that would give rise to a tolling of the statute of limitations." A settlement was reached between plaintiff and Rasolinejad, and an unanimous jury verdict was rendered in Jabbary's favor on the remaining claims. The court entered an order for final judgment on April 2, 2004.

On appeal, plaintiff argues that his claims derived from the declaration of trust were valid and enforceable, and as beneficiary of the trust he was entitled to a share of the proceeds from the sale of Dental Group II. He contends the trust agreement did not violate New Jersey law, rules or public policy. Alternatively, he argues that Jabbary should be estopped from asserting the illegality of the trust agreement because Jabbary used this business structure to receive much- needed funding from plaintiff, and he relied on Jabbary's representation that the trust agreement would protect his investment. We are not persuaded by either of these arguments.

Jabbary and Rasolinejad are licensed dentists who are legally authorized to render dentistry services and derive economic benefits from the practice as a result of their efforts. Plaintiff does not hold a professional license in the field of dentistry. The trust agreement provided that Dental Group would act as trustee and hold the assets of the dental business in trust for the benefit of the individual parties in this action. The stated purpose and term of the trust were as follows:

Section II

Purpose of Trust

Trustee shall operate the Dental Practice and receive and collect the income, profits, interest, and dividends therefrom and, after first paying all reasonable and necessary expenses of the business and making such capital improvements as it deems necessary, shall accrue same until instructed in a writing signed by all three beneficiaries or their successors in interest or until the termination of the trust whichever occurs first.

Section III

Term

This trust shall terminate and the assets and all accrued income, profits, interest and dividends from the trust estate shall be paid over to the Beneficiaries in equal shares, five (5) years from the date of this instrument, or upon the written demand of all three (3) Beneficiaries, their successors, or assigns.

The trial court correctly concluded that the parties' trust agreement violated N.J.S.A. 14A:17-10(a) and N.J.A.C. 13:30-8.13. N.J.S.A. 14A:17-10(a) prohibits a professional corporation from issuing its shares to anyone other than a person licensed in the profession, providing in relevant part:

No professional corporation may issue any of its shares to anyone other than an individual who is duly licensed or otherwise legally authorized to render the same professional service as that for which the corporation was incorporated. No shareholder of a professional corporation shall enter into a voting trust agreement or proxy or any other type of agreement vesting another person not a shareholder of the corporation with the authority to exercise the voting power of any or all of his shares.

Neither plaintiff nor the trustee Dental Group holds a legal license to practice dentistry. Therefore, neither may hold shares, de facto or otherwise, in a professional corporation established to practice dentistry. It is immaterial that Jabbary retained all of the shares of Dental Group I or II and did not issue any shares to plaintiff. The trust agreement conferred on plaintiff a right to a one-third share of the net profits of the dental practice, and thus he had an equity interest in the professional corporation.

N.J.A.C. 13:30-8.13, entitled "permissive business structures, prohibition on referral fees and fee splitting," provides in pertinent part:

Dentist shall not participate in any arrangement or agreement, with any person other than an associate, whereby any remuneration received by that person in payment for the provision of space, facilities, equipment, personnel, marketing or management services used by the dentist is to be determined or calculated as a fixed percentage of, or otherwise dependent upon, the income or receipts derived from the practice of dentistry.

As the distribution to plaintiff as trust beneficiary was dependent upon and ultimately derived from the services performed by Jabbary and Rasolinejad in their dental practice, the trust agreement is also contrary to the intent and purpose of this regulation.

An agreement or contract that is contrary to public policy is void and unenforceable as a matter of law. Allstate Ins. Co. v. Skolny, 86 N.J. 112, 118 n.5 (1981); Data Informatics Inc., v. Amerisource Partners, Inc., 338 N.J. Super. 61, 78 (App. Div. 2001); Wolfersberger v. Borough of Point Pleasant Beach, 305 N.J. Super. 446, 452-53 (App. Div. 1996), aff'd o.b., 152 N.J. 40 (1997). As the trust agreement conferred on plaintiff, a non-dentist, derivative benefits from a dental practice, it was violative of the clearly stated public policy of New Jersey. Accordingly, the trial court properly granted summary judgment dismissing all of plaintiff's claims arising out of the declaration of trust.

Although the trial court ruled in the summary judgment motion that the trust agreement was void as against public policy and hence unenforceable, it did not permit defendants to hide behind the unenforceable agreement. Plaintiff had full opportunity to testify and present evidence about his investment in the dental practice, representations made by Jabbary, and his understanding of the business arrangement, as well as to argue that he was owed a return of that investment under a theory of quasi-contract or quantum meruit. This theory was charged by the court and was set forth as a specific question on the jury verdict sheet, i.e. "Does the defendant, Hamid Jabbary, owe any money to the plaintiff, Bey Sedaghat, in connection with the dental practice?" After hearing and assessing all the evidence in accordance with the judge's instructions, the jury answered the question in the negative, unanimously rejecting plaintiff's quantum meruit claim.

It was undisputed that performance of the management contract ceased in 1993, when it was cancelled by Jabbary and plaintiff stopped performing the services, claiming the agreement was breached. Thus plaintiff's causes of action under the management agreement accrued on that date, and the six-year limitations period in which to file suit expired in l999. N.J.S.A. 2A:14-1. Plaintiff, however, did not file suit until 2001. Plaintiff argued at trial and reasserts on appeal that Jabbary's promise to make him whole and plaintiff's promise to forbear, as evidenced by the written assignment in November 1995, was an acknowledgement or promise to pay an existing debt, which constituted a new contract and tolled the statute of limitations. Burlington County Country Club v. Midlantic Nat'l Bank South, 223 N.J. Super. 227, 234-35 (App. Div. 1987).

The court denied summary judgment on plaintiff's contract claims predicated on the management agreement, noting it had questions regarding the understanding of the parties with regard to the assignment of shares and whether that action either revived the debt or stayed the strict application of the statute of limitations. At trial, plaintiff relied solely upon his testimony and the written assignments to support his claim of forbearance.

Plaintiff testified that the assignment "came at the suggestion of Jabbary, that he said that [Rasolinejad] will give her shares as well, and they were given as a forbearance for loss of temporary, forbearance of lawsuit against the Caldwell Dental Group and the whole picture. That they needed time to be able to borrow money or sell the practice . . ." When asked what he meant by forbearance, plaintiff gave the following vague response:

To me it meant they needed time to be able to either go to the bank [to] borrow money or sell the practice to such a time that they can do this. It was not forever. I didn't take this that I will leave you forever. This was a guarantee to me that they will deliver what they owed. They kept saying -- especially [Jabbary] on numerous -- he didn't have the money . . . I knew that when I was there, the practice was what it was, and that unless you sell it there is not much money in it. You have hundred thousand dollars coming out and hundred thousand dollars going in every month. It's the same revolving door. There is no money that they can take out of pay. So the value was in equity of the practice, and they had to sell it and find a seller or borrow money.

Plaintiff further testified that after the assignment, he got very busy with his life, was involved in other businesses and got married. He intermittently spoke with defendants and claimed Jabbary told him they were speaking with other people to purchase the dental practice but had not yet found viable buyers. In mid-2001 he found out that defendants had sold the practice, and a few months later he filed suit.

The only documentary proof of the forbearance presented by plaintiff at trial was the assignment of shares. This one page, pre-printed document set forth no terms of the purported agreement between the parties and was silent about any specifics of the alleged forbearance.

"To constitute a promise to pay sufficient to remove the bar of the statute of limitations the promise must be unconditional and unqualified." Evers v. Jacobsen, 129 N.J.L. 89 (1942). Such acknowledgements must also be in writing. N.J.S.A. 2A:14-24.

Neither the payment made by Jabbary in 1995 nor the written assignments was legally sufficient to constitute a new contract and avoid operation of the six-year statute of limitations under the case law or N.J.S.A. 2A:14-24. There was no testimony or documentary evidence of the terms, amount due or duration of the alleged forbearance. As Judge Bernstein stated:

Unfortunately, the testimony, even by the plaintiff is vague, at best, as to what the intent was of this . . . assignment of the stock interest. I could not find any specific agreement from - from his testimony alone as to what the purpose of the transfer of the stock was or what it was meant to do, for what period of time any forbearance, whether there was any acknowledgement of any amounts due.

There certainly weren't any specific claim letters, agreements, anything else in writing that would specify particularly what the amounts were due, what was being claimed, whether there even was a claim being made at that particular time on behalf of the Management Company.

I'm satisfied that there is nothing in the evidence before me that would support an allegation that merely the transfer of stock at that particular stage would be some type of forbearance agreement that would give rise to a tolling of the statute of limitations.

 
We agree with the trial court's conclusion that plaintiff presented insufficient evidence that the 1995 assignments of stock served as an acknowledgment or promise to pay any obligation arising out of the management contract. Accordingly, plaintiff's claims under the management contract were properly dismissed by the court on statute of limitation grounds prior to submission of the case to the jury.

Affirmed.

Shortly thereafter, Jabbary changed the name to West Caldwell Dental Group, P.C. because of a similarly-named practice in the area.

We note that Jabbary's September 23, 2002 certification submitted by plaintiff in opposition to summary judgment was not introduced or referenced in any way by plaintiff's counsel during trial. Thus, this evidence was not considered by the trial court in support of plaintiff's claim of forbearance and it is not properly before us on appeal. Regardless, we note that the certification contains no specific terms of forbearance.

(continued)

(continued)

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A-4998-03T1

December 2, 2005