FIKE CORPORATION et al. v. ACTUATED DEVICES, INC.

 

 
NOT FOR PUBLICATION WITHOUT THE

APPROVAL OF THE APPELLATE DIVISION

SUPERIOR COURT OF NEW JERSEY

APPELLATE DIVISION

DOCKET NO. A-2895-04T12895-04T1

FIKE CORPORATION and CARTRIDGE

ACTUATED DEVICES, INC.,

Plaintiffs-Appellants,

v.

FLEET NATIONAL BANK, BANK OF AMERICA, N.A.,

WACHOVIA BANK, NATIONAL ASSOCIATION,

VALLEY NATIONAL BANK, PROVIDIAN BANK, FCNB,

CAPITOL BANK, MERRICK BANK, MODA FURNITURE,

AFFORDABLE FURNITURE & CARPET, INC.,

Defendants,

and

JACK KHOROZIAN, LISA KHOROZIAN and

RAFFI SHOES & LEATHER, INC.,

Defendants-Respondents.

___________________________________________

 

Argued: January 18, 2006 - Decided September 14, 2006

Before Judges Kestin and Lefelt.

On appeal from the Superior Court of New Jersey, Law Division, Civil Part, Hudson County, L-4593-02.

Steven Menaker argued the cause for appellants (Chasan Leyner & Lamparello, attorneys; Mr. Menaker, on the brief).

Antranig Aslanian, Jr., argued the cause for respondents (Aslanian & Khorozian, attorneys; Mr. Aslanian, of counsel and on the brief).

PER CURIAM

Plaintiffs, Fike Corporation (Fike) and Cartridge Activated Devices, Inc. (CAD), respectively a corporate principal and its wholly-owned subsidiary, appeal from a judgment, following a bench trial, of no cause for action in favor of Jack Khorozian, Lisa Khorozian and Raffi Shoes and Leather, Inc. (collectively, defendants). Plaintiffs' claims against other persons and entities named in the complaint were settled or dismissed prior to trial.

The causes of action against defendants were for negligence and conversion. The claims stemmed from a series of transactions Diane Sexton had initiated with the Khorozians and their business entity, Raffi Shoes and Leather, Inc. (Raffi). Sexton was in charge of the financial records of CAD. The third amended complaint stated that she "was CAD's chief bookkeeper and had authority to issue checks drawn on CAD's bank accounts in furtherance of CAD's business." Sexton had been entrusted with those duties on a full-time basis in 1998 by her father, Ralph Dodd, who owned CAD. Judge Messano, in his letter decision disposing of the matter, aptly observed: "What transpired can only be described as a text-book example of defalcation by a trusted employee who, in this case, was a loved family member."

Judge Messano found from Sexton's unrefuted testimony at trial that:

Commencing in July of 2000, Sexton began to pilfer the company's account, first through petty cash accounts, and then in more ambitious ways. She described how she would write company checks, which she had the authority to make and cash, using the proceeds to line her own pockets. Since she was also in charge of rectifying the accounts at CAD, she insured that she would not be caught. Ultimately, she stole over [one] million dollars from CAD, pled guilty to those offenses, and was sentenced in criminal court. She maintained at least two personal money market accounts with checking features that allowed her to launder the proceeds of her defalcation.

Beginning in the summer or fall of 2000, CAD's independent accountant detected bookkeeping irregularities. He told Dodd that inventory was higher than normal and appeared to be rising. Apart from meeting with his purchasing and quality control personnel to check for anything unusual, Dodd did nothing to remedy the situation. He testified at trial that he believed the accountant had erred and had used the wrong formula to reach the conclusion. Eventually, because of pressures brought to bear by an in-depth review of CAD's operations conducted by Fike, which had purchased CAD a few years earlier and had consolidated bank accounts for the two entities, Sexton was forced to admit her defalcations and Dodd was obliged to acknowledge them.

Judge Messano found that, several months after the accountant had initially detected irregularities and had called them to Dodd's attention, Sexton paid her first visit to Raffi, a store in a strip mall in Edgewater. She purchased $5,000 worth of shoes, which she charged to her credit card. According to Jack Khorozian, the credit card company vouched for Sexton's standing. Days later, she purchased nearly $20,000 in merchandise for which she paid in several ways, including CAD checks payable to "cash". Thereafter, over the next five months, Sexton spent about $560,000 at Raffi using a combination of CAD checks, personal checks and credit cards.

The total amount of the sales were extraordinary by Raffi's own standards, doubling the average gross sales in the store during the six-month period. Sexton had told Jack Khorozian that she was the controller of CAD and had full authority to write the company's checks and use its funds. She also told the Khorozians that she was opening her own retail establishment and that the purchases were for merchandise to stock that venture.

According to the trial judge:

In general, [Khorozian's] demeanor [at trial] evidenced a level of discomfort and evasion. His testimony made it clear that he never sought to find out whether Sexton was utilizing her legitimate money, or some ill-gotten gains. He did not see it as his obligation to do so. And, as he testified, he did not wish to offend a customer who was spending so much money and proving to be so profitable.

Judge Messano determined that plaintiffs could not prevail on their cause of action in negligence against the Khorozians and Raffi because they were unable to establish a duty owed to a claimant, whose legally drawn check ends up in the hands of a business, by the person or entity that received the check.

Indeed, were such a duty to be imposed, the entire relationship between customer and seller would be significantly altered and would run afoul of other laws, e.g., the Uniform Commercial Code. Significantly, plaintiff here never pled a violation of the [UCC], for in fact such a cause of action would have also failed. This is particularly so in this case, since it is undisputed that Sexton had complete and actual authority to make the check in the first instance. Since the law imposed no duty upon a business under these circumstances, the defendants cannot be liable in negligence for the checks passed by Sexton to the Raffi defendants, drawn upon CAD's account.

Cf. Globe Motor Car Co. v. First Fidelity Bank & Trust Co., 273 N.J. Super. 388, 393-95 (Law Div. 1993), aff'd o.b. in part, 291 N.J. Super. 428 (App Div.), certif. denied, 147 N.J. 263 (1996).

We are, of course bound by the trial court's findings and conclusions of fact because they are supported by substantial, credible evidence in the record. See Rova Farms Resort, Inc. v. Investors Ins. Co., 65 N.J. 474, 484 (1974). We must review a trial court's determinations of law on a de novo basis, however. See Manalapan Realty, L.P. v. Township Committee of Manalapan, 140 N.J. 366, 378 (1995). After considering the matter in the light of the parties' written and oral arguments and prevailing legal standards, we are in substantial agreement with the rationale Judge Messano employed in disposing of the negligence claim.

In this connection, we add a word only to note that the no-duty principle has its limits. For obvious reasons, that rule cannot be seen to govern sham transactions, where the real purpose, with the knowledge of all concerned, is to "launder" ill-gotten proceeds. And, based on other policy considerations, it may not apply, either, to situations involving those who make a business of purchasing dishonored checks at deep discounts, pursuant to an established relationship, with similar "laundering" motives, in order to profit from whatever value the checks may turn out to have. Cf., e.g., Breslin v. New Jersey Investors, Inc., 70 N.J. 466, 471-73, 485 (1976); Unico v. Owen, 50 N.J. 101, 109-110 (1967); Triffin v. Somerset Valley Bank, 343 N.J. Super. 73, 78-79 (App. Div. 2001).

The situation before us is different in kind for two reasons. First, Sexton was purchasing real goods for value, however inflated the Raffi defendants' profit margin may have been seen to be. Many of those items were, in fact, retrieved by plaintiffs, but the goods could not command, on resale, the value plaintiffs had lost. Second, plaintiffs' own actions in conferring on Sexton all the authority she had to write, sign and negotiate checks and to maintain the financial records of the business entity, were together with Sexton's own dishonesty the efficient cause of plaintiffs' losses. There was no adequate showing in the evidence of record that the Raffi defendants engaged with Sexton in any conspiracy to steal from plaintiffs or to deprive them, in any fraudulent way, of their due. There is no basis in good reason why these defendants should be called upon to indemnify plaintiffs for the consequences of their own misjudgments.

We are also in substantial agreement with Judge Messano's decisional rationale in disposing of the cause of action for conversion. Here, too, we are bound by the trial court's findings of fact, central to which is that the instant defendants had no knowledge the funds used by Sexton were stolen. Judge Messano observed that, to conclude these defendants were aware that the funds Sexton spent, in fact, belonged to CAD or anyone else "would, under the circumstances of this case, lead to the inescapable conclusion that the Raffi defendants knew she had stolen the money. This is another conclusion that the court cannot reach on the evidence in this case. In short, plaintiff[s'] theory fails to prove an essential element of the tort." The underlying fact findings and evaluations in this regard are also binding on appeal.

We note, as well, that the argument plaintiffs make that a conversion may be proved even though the defendant is unaware that the property was stolen, has inherent limitations where the plaintiff seeks the value of property stolen as distinguished from the chattel itself. See, e.g., Joseph v. Lesnevich, 56 N.J. Super. 340, 346 (App. Div. 1959). Here, plaintiffs sought to recover the amounts lost as a result of Sexton's defalcations to the extent they were passed on to the Raffi defendants, and not the material property stolen, i.e., the checks themselves, which were, after all, negotiable instruments with no intrinsic value.

The judgment is affirmed.

 

(continued)

(continued)

8

A-2895-04T1

 

September 14, 2006