GRASSANO, LEMPEL & CO., LLC. v. EDMUND HOMSANY, LYDIA HOMSANY AND HOMSANY ENTERPRISES, INC.

 

NOT FOR PUBLICATION WITHOUT THE

APPROVAL OF THE APPELLATE DIVISION

SUPERIOR COURT OF NEW JERSEY

APPELLATE DIVISION

DOCKET NO. A-3171-04T13171-04T1

GRASSANO, LEMPEL & CO., LLC.,

Plaintiff-Respondent,

v.

EDMUND HOMSANY, LYDIA HOMSANY

AND HOMSANY ENTERPRISES, INC.,

Defendants-Appellants.

 

Argued February 15, 2006 - Decided August 4, 2006

Before Judges Kestin, Hoens and R. B. Coleman.

On appeal from the Superior Court of New Jersey, Law Division, Bergen County, Docket No. L-375-03.

Robert E. Bartkus argued the cause for appellants (Dillon, Bitar & Luther, attorneys; Mr. Bartkus, Paul F. Campano, and Peter E. Moran, of counsel and on the brief).

Alan H. Bernstein argued the cause for respondent (Wolf, Block, Schorr & Solis-Cohen, attorneys; Mr. Bernstein, of counsel and on the brief; Stuart J. Polkowitz and David J. Klein, on the brief).

PER CURIAM

Defendants Edmund Homsany, Lydia Homsany and Homsany Enterprises, Inc. appeal from the January 21, 2005 final judgment entered against them and in favor of plaintiff Grassano, Lempel & Co., LLC. ("Grassano, Lempel"). We affirm.

Grassano, Lempel, an accounting firm, filed its two count complaint in January 2003 against defendants for unpaid accounting fees. Count One demanded the sum of $5,250 from Edmund and Lydia Homsany for tax preparation and other accounting services performed for them personally. Count Two sought judgment in the amount of $35,924.75 for accounting services performed for Homsany Enterprises, Inc. That count demanded relief both from the corporation and from Edmund Homsany, personally, in his capacity as the guarantor for payment of those bills. Following a five-day bench trial in May and June 2004, the judge set forth his findings and conclusions on the record. The final judgment, which is the subject of this appeal, embodies both the judge's initial findings and conclusions as well as his decisions on several post-trial applications. That final judgment awarded plaintiff the sum of $1,800 on Count One and the sum of $25,724.08 on Count Two.

We have derived the following facts that are relevant to the issues advanced on appeal from our review of the record. Plaintiff Grassano, Lempel performed accounting services for defendant Edmund Homsany and his company, Homsany Enterprises, Inc., for many years. Plaintiff also performed accounting services for defendants Edmund Homsany and Lydia Homsany, his wife, individually. In addition to that professional relationship, Homsany maintained a long-term personal friendship with Joseph Lempel, an accountant and a principal of Grassano, Lempel.

Edmund Homsany retired in 1994, but continued to be involved in the business affairs of Homsany Enterprises, Inc. following that time. After Edmund Homsany retired, however, a dispute arose between Homsany and Lempel about unpaid bills for accounting and tax preparation services that had been performed both for the corporation and for Edmund and Lydia Homsany, personally. In June 1997 Lempel and Homsany signed an agreement that set forth the undisputed amount of the unpaid balances due as of May 31, 1997. The June 1997 agreement also confirmed that Grassano, Lempel would continue to provide tax preparation and accounting services and fixed a payment schedule for the past due debt. Both the past due debt of $27,140 and any fees to be incurred in the future for those services were guaranteed by Edmund Homsany both individually and in his capacity as the president of Homsany Enterprises.

Grassano, Lempel continued to perform tax preparation and accounting services after 1997, submitting invoices on a quarterly basis. In 1999, Homsany signed a formal engagement letter in which Grassano, Lempel outlined the fee schedule for accounting and tax services and in which the terms of payment for these services were set forth. According to Joseph Lempel, it was because Homsany continued to be late in making payments and failed to adhere to the terms of the 1997 agreement concerning payment of past due amounts that the complaint was filed.

The testimony at trial also revealed that after he retired in 1994, Edmund Homsany became ill, that in the years that followed he underwent several surgeries and that, over time, he suffered from a number of increasingly serious health setbacks. In 2002, Edmund Homsany signed a power of attorney in favor of his son, Lawrence Homsany, who thereafter undertook to conduct the affairs of the business. During that time, Lawrence Homsany concluded that the bills for accounting services, some of which had remained unpaid for an extended period of time, were either inaccurate or overstated. He testified that he met with Joseph Lempel and with Robert Lempel, who was Joseph Lempel's son, on several occasions in an unsuccessful attempt to work out a compromise.

During the course of the trial, Lawrence Homsany testified that he objected to the bills both on general and on specific grounds. The two general objections were his contention that the signature of Edmund Homsany on the 1999 engagement agreement was a forgery and his assertion that the bills were unreasonable. His claim that the 1999 agreement might have been forged was based on his comparison of Edmund Homsany's signature there with other examples of that signature. The trial judge, after noting that the signatures "looked different," did not conclude that the 1999 engagement letter was forged. Rather, it was admitted into evidence without objection. The challenge to the reasonableness of the bills was based, in part, on the fact that the bills themselves were not itemized. Instead, there were retainer bills that reflected a regular quarterly amount due for general corporate accounting and corporate tax preparation work ("the retainer bills") and there were also bills for specific additional tasks undertaken by the accountants for the corporation ("the specific task bills").

Defendants, in part through the testimony of Lawrence Homsany and in part through the testimony of an expert, asserted that both types of bills were unreasonable. They challenged the retainer bills as being excessive in light of the nature of the business of the corporation. They asserted that although originally there had been several separate corporations for which Grassano, Lempel performed its services, by the time the disputed bills were sent, Homsany Enterprises consisted of a single, unified corporation. In addition, by then, Homsany Enterprises, Inc. only owned two commercial premises that it was renting out to others. Lawrence Homsany reasoned that the only work that an accountant could be performing for the business consisted of keeping track of the rent checks received for each of the buildings, a total of twenty-four checks each year by his count. Because in his estimation the accounting work that the business required was minimal, he believed that the retainer fees were excessive. In addition, he objected to the retainer bills that related to any accounting work in 2002, contending that he had terminated plaintiff's services by that time.

Lawrence Homsany also objected to the specific task bills. Some of these objections arose from his review of time records and other internal billing records that were maintained by Grassano, Lempel in connection with these bills. In particular, he disputed Grassano, Lempel's charges for work on a water bill dispute relating to one of the corporation's buildings. Lawrence Homsany testified that it was he who identified the underlying factual error that led to the disputed water bill for the commercial premises in Brooklyn and that he created the strategy for resolving that bill with the water company. He objected to any charge by Grassano, Lempel for assisting with that resolution, asserting that Joseph Lempel had merely, acting as a friend, accompanied Edmund Homsany on the drive to Brooklyn and had not performed any accounting services in relation to the water bill.

In addition, Lawrence Homsany objected to the inclusion in any of the specific task bills of charges for lunches that Lempel or his employee Nat Cohen had had with Edmund Homsany, contending that these lunches were more in the nature of dining between social friends than business meetings of any kind. Lawrence Homsany objected as well to charges for computer software or computer usage, asserting that these sums should have been absorbed by Grassano, Lempel as part of its overhead.

Lawrence Homsany also objected to the inclusion in the specific task bills of charges relating to refinancing the mortgage for the commercial premises. He testified that he became aware that one of the buildings had a mortgage that bore an interest rate in excess of ten percent. Realizing that another family member had just obtained a residential mortgage at a far lower rate, he concluded that his parents could obtain a mortgage, secured by their principal residence, at the lower rate and use the proceeds to pay off the higher rate commercial mortgage, all at a significant savings. He testified that, shortly after he came to the conclusion that this would be in their best interest, he happened to encounter Joseph Lempel. At the time, they were both in the hallway of the rehabilitation facility where Edmund Homsany was recuperating. According to Lawrence Homsany, he asked Joseph Lempel if this mortgage transaction would make sense and Lempel told him that he knew a bank officer who could arrange the deal quickly. Lawrence Homsany testified that he subsequently reviewed one of the specific task bills for accounting services and concluded that Joseph Lempel had charged him a fee for sending the mortgage papers to the bank officer. Lawrence Homsany concluded that this charge was inappropriate as it did not represent any professional services from the accountant under the circumstances. Finally, Lawrence objected to charges based on the Report of Profit Income and Expenses (RPIE) filings in New York, which he contended were overstated.

Joseph Lempel testified on rebuttal that there was no direct relationship between the time records, or the itemized charge records, and the actual bills. He asserted that many of the matters that were reflected on the internal time records, including computer charges, lunches, and the like, were not in fact included in the bills. He pointed out that the internal time records would have supported higher fees than the ones that were reflected in both the retainer fee bills and the specific task bills. He therefore contended that it would be inappropriate to reduce any of the bills sent to defendants based on any of the points that Lawrence Homsany had identified.

The analysis of these issues by the Law Division judge was hampered by the fact that the bills in dispute were a combination of the flat fee, retainer bills and the specific task bills. None, however, was truly an itemized statement. As a result, at the close of the testimony and following the summations of counsel, the judge issued an oral decision that he specifically intended to form the basis for a precise calculation by the parties and counsel of the sums actually due.

Those findings are as follows. The judge first found that Joseph Lempel's credibility was somewhat impaired. In part on that basis, he found merit in many of defendants' specific objections as voiced by Lawrence Homsany. In particular, the judge agreed with defendants' objections to inclusion in the bills of charges for computer usage, the water company bill dispute, preparation of corporate tax returns for the year 2002 and software or e-mail provider charges. In addition, he reduced the charges for tax audit work by $4,300, and he reduced the charges for the 2000 and 2001 RPIE filings by specific sums. The judge next concluded that the tax audit charges in general were excessive and he ordered that they be reduced, after the initial $4,300 reduction, by one-third. Finally, he concluded that the sums charged in connection with the mortgage application should be reduced by two-thirds.

Each of these rulings was directed to one or more of the specific task bills. The judge did not order that there be any adjustments for the retainer bills charged to the corporation for general accounting work. After a further hearing in response to motions for clarification or reconsideration and a total of four letter opinions, the judge entered the final judgment. In summary, the judge accepted virtually all of defendants' objections to the specific bills but rejected their generalized challenge to the retainer bills.

Neither party challenges on appeal any of the reductions or exclusions from the specific task bills. Rather, defendants argue on appeal that the judge erred by entering judgment in favor of Grassano, Lempel on its retainer bills without requiring Grassano, Lempel to affirmatively demonstrate that those bills were reasonable. In particular, defendants assert that the judge failed to appreciate that the parties had no contractual agreement between 1997 and 1999, as a result of which the judge should have addressed plaintiff's claim for services performed during that time frame in terms of quasi-contract. In addition, defendants argue that the judge improperly shifted the burden of proof from plaintiff to defendants by requiring them to demonstrate that retainer bills were unreasonable.

Our analysis of the issues requires that we utilize two separate and distinct standards of review. We give deference to the trial court's factual findings, in this case whether plaintiff's accounting fees were excessive and unreasonable, "when supported by adequate, substantial and credible evidence." Rova Farms Resort, Inc. v. Investors Ins. Co. of Am., 65 N.J. 474, 484 (1974); see also Bonnco Petrol, Inc. v. Epstein, 115 N.J. 599, 607 (1989); Leimgruber v. Claridge Assocs., Ltd., 73 N.J. 450, 455-56 (1977).

However, our determination about whether the trial judge incorrectly shifted the burden of proof and persuasion to the defendants is a question of law that we address de novo. Balsamides v. Protameen Chems., Inc., 160 N.J. 352, 372 (1999) (stating that "matters of law are subject to a de novo review"). We owe no special deference to the trial judge's decision on matters of "law or the legal consequences that flow from established facts." Manalapan Realty L.P. v. Twp. Committee of Manalapan, 140 N.J. 366, 378 (1995); see also Prudential Property & Cas. Ins. Co. v. Boylan, 307 N.J. Super. 162, 167 (App. Div.)(citing Brill v. Guardian Life Ins. Co. of America, 142 N.J. 520, 539-40 (1995)), certif. denied, 154 N.J. 608 (1998).

We first reject defendants' assertion that any of the fees were subject to analysis based on quasi-contract theories. The 1997 letter agreement, which fixed the sums then due and owing for services performed for the corporations prior to that time, is a contract. We are therefore bound to enforce it according to its unambiguous terms. See Schor v. FMS Fin. Corp., 357 N.J. Super. 185, 191 (App. Div. 2002); Levison v. Weintraub, 215 N.J. Super. 273, 276 (App. Div.), certif. denied, 107 N.J. 650 (1987). We may not, in analyzing the dispute between the parties, make a better contract for either than the one to which they agreed. See Kampf v. Franklin Life Ins. Co., 33 N.J. 36, 43 (1960)(citing Schneider v. New Amsterdam Cas. Co., 22 N.J. Super. 238, 243 (App. Div. 1952)). Seen in this light, there can be no debate about the sums due for periods prior to 1997 or the agreement that defendants would pay them. We can only conclude, as did the trial judge, that the 1997 letter is an enforceable contract both as to the amounts due for services rendered and as to the terms on which defendants would pay those sums.

Similarly, the 1997 agreement, at a minimum, evidences an implied contract between the parties to continue their relationship in accordance with their past practices, entitling plaintiff to claim the benefit of a contractual right continuing thereafter. Although plaintiff asserts on appeal that the document represents an express contract, we need not reach that question. Rather, defendants' continued acceptance of the services, without objection, that plaintiff performed after 1997 bespeaks assent, in this case, to the terms implied in the contract based on the prior course of dealings. See Winslow v. Corporate Express, Inc., 364 N.J. Super. 128, 143 (App. Div. 2003); Silverstein v. Dohoney, 32 N.J. Super. 357, 362 (App. Div. 1954), aff'd, 19 N.J. 1 (1955); Corbin on Contracts, 3.21, 3.30.

Similarly, the 1999 engagement letter represents an express contract that forms the basis for plaintiff's billings thereafter. That agreement is both valid and enforceable, notwithstanding defendants' suspicion that the document was forged. Our review of the record reveals that defendants' challenge to the authenticity of Edmund Homsany's signature on that document was mere speculation, unsupported by any admissible evidence. The record further reveals that this document was admitted into evidence without objection and that the judge, after making his observation about the appearance of the signatures, accepted it nevertheless as genuine. We defer to that factual finding and conclude that we must enforce it according to its terms.

We consider, then, defendants' several arguments relating to reasonableness of the charges reflected in the retainer bills and the burden of proof. On appeal, defendants contend that, rather than requiring plaintiff to prove that the bills were reasonable, the judge shifted the burden of proof to them to demonstrate that the bills were unreasonable. They point to the trial judge's comments on the burden of proof as evidence that he erred as a matter of law by applying the incorrect standard. In relevant part, the judge stated:

I spoke earlier of the burden of proof. I did not mean to leave the wrong impression and, I therefore, should speak a little bit more about burden of proof. From the nature of the discussion counsel might conclude that I had somehow shifted the burden of proof from the defendant to the plaintiff. I did not. It is the plaintiff's burden to prove the outstanding bill. The numbers that the plaintiff has to prove are exactly those numbers set forth in the point--in the complaint, and those are the numbers to which I previously adverted. The burden of proof then shifts, it shifts to the defendant to prove that some or all or a portion of the charges are inappropriate. And in that regarding where I'm providing credits I have specifically concluded that the defendants have satisfied that burden by the greater weight of the believable evidence.

Defendants contend on appeal that this represents an error of law and that it led to an unjust result requiring reversal. Plaintiff asserts that the judge did not err, that the burden of proof never shifted, and that the judge's comment referred to the burden of coming forward. Moreover, plaintiff asserts that the retainer fees were agreed upon and enforceable as a matter of contract, that there is no requirement that an accountant prove that his or her fees are objectively reasonable and that the decisions on which defendants rely are inapposite. Finally, plaintiff argues that the evidence demonstrates that the fees were reasonable and that defendants offered no evidence to the contrary.

We have analyzed the record in detail in evaluating the arguments raised by the parties on appeal. Plaintiff's witnesses testified that the retainer-based charges to the corporation for general accounting services were based on work performed at defendants' business premises. That work included regular accounting services for the business and preparation of corporate tax filings. Plaintiff also introduced evidence and testimony about internal Work in Progress reports that supported the retainer billings and justified the amounts in these invoices.

Defendants offered testimony from an expert challenging these invoices. Significantly, defendants' expert did not offer an opinion that the bills were unreasonable. Instead, he testified that he could only reach an opinion on the reasonableness of the charges if he performed an independent analysis of plaintiff's work papers. He stated that such an analysis would, of course, require his professional time and would result in a bill to defendants. He testified that he had not performed that analysis and was not authorized by defendants to do so.

Although the trial judge referred to the "burden of proof," our rules have more recently replaced that terminology with the phrase "burden of persuasion." See N.J.R.E. 101(b)(1). Nevertheless, the basic concept remains unchanged. See Biunno, Current N.J. Rules of Evidence, comment 1 on N.J.R.E. 101(b)(1)(2006). Our Supreme Court has held that the burden of persuasion "can vary depending upon the type of proceedings, the comparative interests of the parties, the relative litigational strengths or weaknesses of the parties, the access of the parties to proof, and the objectives to be served by the evidence in the context of the particular proceeding." Romano v. Kimmelman, 96 N.J. 66, 89 (1984).

Normally, the allocation of the burden of proof or persuasion is a matter to be decided by the court. Matter of Will of Smith, 108 N.J. 257, 264 (1987). Allocating this burden is not insignificant, and we have recognized that the failure of the trial judge to allocate it clearly, or to make rulings that suddenly change its allocation, may prejudice the affected party. See Blitz v. Hutchinson, 252 N.J. Super. 580, 590-94 (App. Div. 1991). See also Mamolen v. Mamolen, 346 N.J. Super. 493, 496 (App. Div. 2002).

The burden of persuasion is distinct, however, from the burden of producing evidence, also referred to as the burden of coming forward. See N.J.R.E. 101(b)(2). Although these two concepts are occasionally confused, see Biunno, supra, comment on N.J.R.E. 101(b)(2), the two concepts are distinct. See Baures v. Lewis, 167 N.J. 91, 118-20 (2001); Hall v. St. Joseph's Hosp., 343 N.J. Super. 88, 108-09 (App. Div. 2001), certif. denied, 171 N.J. 336 (2002).

Although the burden of producing evidence normally falls on the party charged with carrying the burden of persuasion, see Esteves v. Esteves, 341 N.J. Super. 197, 202-03 (App. Div. 2001), this is not invariably so. See African Bio-Botanica v. Leiner, 264 N.J. Super. 359, 365-66 (App. Div.), certif. denied, 134 N.J. 480 (1993). In general, a plaintiff asserting a claim based on a contract has the burden of proof to demonstrate the existence of the contract, the defendant's breach and the damages sustained. See Monsen Engineering Co. v. Tami-Githens, Inc., 219 N.J. Super. 241, 250 (App. Div. 1987); Snyder v. I. Jay Realty Co., 53 N.J. Super. 336, 347 (App. Div. 1958), aff'd in part and rvs'd in part on other grounds, 30 N.J. 303 (1959). However, it is thereafter defendant's burden to demonstrate any affirmative defenses by a preponderance of the evidence. See Citibank, N.A. v. Estate of Simpson, 290 N.J. Super. 519, 533 (App. Div. 1996); In re CAFRA Permit No. 87-0959-5, 290 N.J. Super. 498, 510 (App. Div. 1996), rvs'd on other grounds, 152 N.J. 287 (1997); African Bio-Botanica, supra, 264 N.J. Super. at 365.

It is in this context that the judge made his observation about the burden of proof that forms the basis for defendants' appeal. We discern no error of law in the judge's explanation or in his application of the burden of persuasion in the context of the proofs. It is clear from the record that the trial judge meant to refer only to a shift in the burden of production rather than to a shift in the burden of persuasion, also referred to as the burden of proof.

Here, once plaintiff proved that there was an express or implied-in-fact contract, the burden then shifted to defendants to demonstrate, that is, to come forward with evidence, that the contract did not exist, or that the terms of the contract were not adhered to, or that the contract was not performed. The record shows that in each instance where defendants did so, the judge eliminated, modified or reduced the fees that had been charged. However, the record also establishes that defendants offered no significant evidence with respect to the general accounting and tax preparation work, which was substantiated by the annual retainers and invoices. Although the trial judge might have articulated his understanding of the burdens he assigned to each party more precisely, his explanation was not inaccurate. More important, however, his application of the burden of persuasion and of production to the facts in the record were entirely appropriate. We discern no error in his allocation of these burdens.

In large measure, defendants' arguments on appeal about the reasonableness of the retainer fees are based on their references to decisions or criteria that are not relevant. Their citations, for example, to decisions arising from disputes in Chancery about receivers, see Eisler v. Interstate Title Examiners, Inc., 106 N.J. Eq. 88 (E. & A. 1930); Franklin Lumber Co. v. Harold Anderson, Inc., 105 N.J. Eq. 542, 543 (E. & A. 1930), fail to recognize the different principles of law at play in that forum. Their reliance on decisions based on the rules governing attorneys in their fees agreements, see Cohen v. Radio-Electronics Officers Union, 146 N.J. 140, 156 (1999); Gruber & Colabella, P.A. v. Erickson, 345 N.J. Super. 248, 251-52 (Law Div. 2001); Gruhin & Gruhin, P.A. v. Brown, 338 N.J. Super. 276, 280 (App. Div. 2001), similarly fail to recognize that the rules governing attorneys are unlike those that govern other professionals, including accountants. Compare R. 1:21-7 (attorneys' contingent fees) and R.P.C. 1.15 (governing attorneys' fees) with N.J.A.C. 13:29-1.1 to -6.13 (regulations governing accountants in general). Similarly, defendants' reliance on requirements that sums to be paid for medical services as part of a tort recovery must be reasonable, see Garafola v. Rosecliff Realty Co., Inc., 24 N.J. Super. 28, 43 (App. Div. 1952), is inapposite to our analysis.

Rather, because these parties entered into a contract for the performance of services represented by the retainer bills, because the services were in fact performed, and because defendants' objections to the retainer bills were not supported by any testimony or evidence, we find no basis on which to interfere with the judge's finding, as a matter of fact, that the sums represented by the retainer bills are due and owing. Nor do we find any error, as a matter of law, in his explanation of the shift in the burden of production to defendants under the circumstances.

Affirmed.

 

Based on the proofs at trial, the judge reduced the amount owed by Edmund and Lydia Homsany for personal tax accounting services to $1,800 from the sum demanded in the complaint. As no party has challenged that aspect of the judgment, we need not discuss the evidence or the judge's reason for entering judgment in this reduced amount.

Joseph Lempel testified at trial that Homsany signed similar engagement letters prior to 1999. He testified that although the 1999 letter was not the first formal fee agreement between the parties, it was the only one that he could locate.

Homsany was reportedly quite ill by the time of the trial and did not testify. According to the briefs filed on appeal, he passed away in May 2005.

Although the judge also directed that the charge for preparation of the individual tax returns should be reduced to a total of $600 for each year, no party has challenged that finding on appeal.

(continued)

(continued)

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A-3171-04T1

August 4, 2006