T.D. BANK, N.A v. DOVER REAL ESTATE HOLDINGS, L.L.C.

NOT FOR PUBLICATION WITHOUT THE

APPROVAL OF THE APPELLATE DIVISION

SUPERIOR COURT OF NEW JERSEY

APPELLATE DIVISION

DOCKET NO. A-0

T.D. BANK, N.A., successor by

merger to COMMERCE BANK, N.A.,

Plaintiff-Respondent,

v.

DOVER REAL ESTATE HOLDINGS, L.L.C.,

ONCOLOGY ASSOCIATES OF OCEAN

COUNTY, L.L.C., PARVEZ DARA and

MODERN RADIATION AND ONCOLOGY OF

OCEAN COUNTY, L.L.C.,

Defendants,

and

BARBARA SCHNEIDER,

Defendant-Appellant.

_____________________________________________

January 8, 2016

Submitted November 17, 2015 Decided

Before Judges St. John, Guadagno, and Vernoia.

On appeal from the Superior Court of New Jersey, Law Division, Camden County, Docket No. L-2864-10.

Alan L. Frank Law Associates, P.C., attorneys for appellant (Alan L. Frank, on the brief).

Brown & Connery, LLP, attorneys for respondent (Paul Mainardi and Stephen J. DeFeo, on the brief).

PER CURIAM

Plaintiff T.D. Bank, N.A.1 loaned more than $4 million to two related business entities, Oncology Associates of Ocean County (OAOC), a medical practice, and Dover Real Estate Holdings, LLC, (Dover), which owned the building where the medical practice was located. The loan guarantors were medical doctors and former partners in both entities, Parvez Dara, Stewart Berkowitz, Michael Marchese, and defendant, Barbara Schneider.

The borrowers defaulted, and plaintiff foreclosed on the mortgage on the building owned by Dover. In 2010, plaintiff filed a complaint in foreclosure followed by a complaint alleging breach of contract and related claims against Schneider, Dara, Dover, and OAOC. Schneider filed a counterclaim seeking a set-off, asserting that plaintiff acted fraudulently.

The Law Division granted summary judgment to plaintiff against Schneider and Dara as to liability, and the matter proceeded to trial on damages. Prior to trial, the court denied Schneider's motion for leave to file an amended counterclaim. After a bench trial, the court awarded judgment to plaintiff and rejected Schneider's counterclaim.

On appeal, Schneider raises the following arguments

a. the trial court committed plain and harmful error by misapplying ucc 4a-204(a) and determining that td bank was not strictly liable for the fraudulent transfer of $1.7 million by dr. dara.

i. the ucc prohibits unauthorized transfers including electronic transfers.

ii. the funds transferred without authorization from the oaoc operating account do not represent dara's net profits.

iii. the court committed reversible error.

b. the court abused its discretion in denying defendant's motion to amend the counterclaim without finding that the amendments would be futile, and without any findings that the amendments would cause undue prejudice to the plaintiff or defendant dara.

c. trial court erred in denying dr. schneider's motion in limine for an adverse inference due to td bank's failure to comply with plaintiff's discovery obligations.

d. judge fratto committed reversible error in determining that dr. Schneider does not possess standing to assert counterclaims against td bank.

i. the honorable judge john t. Kelley repeatedly held that dr. Schneider possessed standing to assert counterclaims in her individual capacity.

ii. the decision of the appellate division in ads associates groupmandates reversal because judge fratto ignored the appellate division's determination that even a non-customer of a bank possesses an individual cause of action against said bank for permitting unilateral transfers in violation of a two signature requirement.

iii. judge fratto committed reversible error by ignoring the special injury exception to the derivative injury rule.

e. judge fratto committed reversible error by determining that td bank does not owe any duty to dr. Schneider and failing to recognize that plaintiff breached the duty of good faith and fair dealing and is therefore precluded from any recovery.

f. judge fratto committed reversible error by failing to recognize that plaintiff's impairment of collateral interfered with dr. schneider's rights as a surety and thereby extinguished dr. schneider's obligation as a guarantor.

We have considered these arguments in light of the record and applicable legal principles and we affirm.

We glean the following facts from the record. In 2003, Schneider, Dara, Berkowitz, and Marchese formed OAOC, a limited liability company that owned a license and equipment to provide radiation treatment. That same year, OAOC opened an operating account with plaintiff.

The same four doctors formed Dover, which owned real estate at 512 Lakehurst Avenue, in Toms River. In April 2004, Dover obtained a $1,211,000 loan from plaintiff to construct a radiation center, the Center for Advanced Radiation Oncology (CARO) on the Lakehurst Avenue property. To secure payment, Dover executed a mortgage and a security agreement creating a first lien on the property. All four doctors were guarantors of the Dover loan.

The trial judge found that the "impetus" for the formation of OAOC was to take advantage of an exception in the Stark Act. The Stark Act prohibits physicians from making patient referrals for designated health services (DHS), such as inpatient and outpatient hospital services, if the referring physician or an immediate family member has a "financial relationship" with the entity providing the services. 42 U.S.C.A. 1395nn(a)(1)(A). The Act further proscribes a healthcare entity from presenting a Medicare claim for services furnished pursuant to a prohibited self-referral. 42 U.S.C.A. 1395nn(a)(1)(B).

Schneider performed surgery, while the three other physicians were engaged in radiation and medical oncology. Each doctor had an individual medical practice or "profit center," and billed their medical services through OAOC. The revenue generated by each profit center was deposited in OAOC's operating account. After expenses were deducted, money was credited to each doctor's profit center as net income.

Schneider and Dara executed employment agreements with OAOC containing identical language providing that both doctors were entitled to 100% of the net income from their respective profit centers. Schneider received 100% of the revenues generated by her surgical oncology practice, a non-DHS service, less the expenses of her profit center. In addition, Schneider received between $6,000 and $8,000 per week from the operating account as a referral fee for the business her surgical practice generated for CARO. Dara received 100% of the revenues generated by his medical oncology practice, also a non-DHS service, less the expenses for his profit center. The only part of Dara's medical oncology practice that was classified as DHS were the profits on the sale of chemotherapy drugs; the other medical services he performed were non-DHS.

CARO began operating in 2005, and OAOC opened a payroll account with plaintiff. Soon thereafter, the principal amount of the Dover loan was increased from $1.2 million to $2.16 million.

Marchese was removed as managing member of OAOC following the execution of a March 1, 2006 operating agreement, and was replaced by Dara. Dara created a billing entity called Ocean Billing Services (OBS) through which he was compensated for his administration of OAOC.

In December 2006, Dara opened a money market account with plaintiff in the name of OAOC. The account listed OAOC's tax identification number, and Dara was the sole signatory. Dara deposited all net revenue from his profit center into the money market account.

In March 2007, Marchese withdrew his membership interest in OAOC and executed a buyout agreement in which Schneider and Dara acquired his interest. To finance the buyout of Marchese, OAOC obtained a loan of $1.9 million from plaintiff. To secure the loan, Dover executed a second mortgage on the Lakehurst Avenue property, and Schneider, Dara, and Dover guaranteed payment of the loan. As additional collateral, OAOC entered into a pledge agreement by which $200,000 would be kept in the money market account. Schneider signed the pledge agreement on behalf of OAOC. Berkowitz's interest in OAOC was also bought out in 2007.

Schneider's husband, Morton was hired by Dara to perform bookkeeping services at OAOC. Morton prepared checks for OAOC, kept the business's books, and maintained OAOC's financial records. He prepared financial reports for prospective buyers of OAOC and maintained OAOC's accounting program, Quickbooks, on which he recorded all of OAOC's expenses, transfers, and payments. Morton prepared separate financial ledgers for each member of OAOC, documenting the income and expenses for their profit centers. Morton was paid between $5,800 and $9,000 per month by OBS.

In 2008, Schneider and Dara, OAOC's remaining members, tried to sell OAOC. A prospective purchaser noticed that Robert Dosil, CARO's payroll administrator, and his wife, Angela Pellegrino, a radiation technician for OAOC, had been receiving large payroll overpayments. Prior to his employment at OAOC, Dosil had been personal friends with Morton. When Dara learned of the overpayments, he told Schneider, who said she would look into the matter, but apparently took no action. In December 2008, Dara terminated Dosil.

In January 2009, Schneider requested that plaintiff provide her with online access to all of OAOC's bank accounts, including Dara's money market account. Because the accounts were interconnected online and Schneider was not a signatory to the money market account, plaintiff refused to provide online access to her as it would have given her access to all of the accounts.

When Dara learned that Schneider attempted to gain access to the money market account, he sought to make transfers from the account into a new account. Plaintiff's regional vice president conferred with senior management and legal counsel prior to letting Dara transfer the funds. The only condition was that Dara leave the $200,000 pledge amount in the account.

In February 2009, Dara opened a new account with plaintiff in his own name. Dara then made several transfers totaling $1,027,282.84 from the money market account to the new account, leaving $200,000 in the money market account as required under the pledge agreement. Each of the smaller transfers was recorded in the Quickbooks ledger maintained by Morton, which showed the money originated in the operating account before being electronically transferred to the money market account. Emails between Dara and Morton specified the precise amounts that Dara intended to transfer.

In March 2009, the Attorney General filed a complaint with the New Jersey Board of Medical Examiners alleging that Dara had harmed his patients and employees by failing to implement proper infection control procedures. Following a hearing in April 2009, Dara's license was temporarily suspended. In October 2011, the Board revoked Dara's license, finding that he created an environment that risked, and actually caused, patient infections. Dara appealed, and we affirmed. In re Suspension or Revocation of the License of Dara, No. A-1110-11 (App. Div. Dec. 5, 2013) (slip op. at 1-4).

In September 2009, Schneider opened a new checking account in the name of OAOC at Union Center National Bank, and began to deposit OAOC's funds into it instead of OAOC's operating account with plaintiff. Under the terms of the various OAOC loan documents with plaintiff, failure to maintain the operating account could trigger default. Plaintiff continued to automatically deduct the monthly payments due from the operating account until November 2009, when the account lacked sufficient funds to cover the loan installment. On December 18, 2009, plaintiff sent Schneider, Dara, Dover, and OAOC a notice of default. This litigation followed.

Schneider contends that the trial court misapplied the Stark Act, the common law, and various sections of the Uniform Commercial Code (UCC) when it held that plaintiff was not strictly liable for Dara's transfer of money from OAOC's operating account to the money market account. Schneider claims that the electronic transfers were subject to a two-signature authorization requirement contained in a deposit agreement, and because she did not personally approve the transfers, plaintiff is strictly liable to her.

The trial judge rejected this argument and found that Dara proved that the money in question was his non-DHS income from his profit center. Central to this finding was the judge's conclusion that Morton was "the equivalent of the business manager" for OAOC. The judge rejected Schneider's testimony that her husband was a mere bookkeeper as "not . . . credible and inconsistent with the documents in evidence and the other testimonies."

The judge also rejected Schneider's argument that the transfers violated a two-signature requirement in the operating account. The judge noted that the requirement applied to transfers made by check only, and noted the practical difficulty of obtaining two signatures for an electronic transfer.

Our review of the factual findings of the trial court is limited and we must uphold them so long as those findings are supported by sufficient credible evidence in the record. State v. Elders, 192 N.J. 224, 243 (2007) (citing State v. Locurto, 157 N.J. 463, 474 (1999)). A trial court's findings should be disturbed only if they are so clearly mistaken "that the interests of justice demand intervention and correction." Id. at 244 (quoting State v. Johnson, 42 N.J. 146, 162 (1964)). In those circumstances solely should an appellate court "appraise the record as if it were deciding the matter at inception and make its own findings and conclusions." Johnson, supra, 42 N.J. at 162. We review the trial court's conclusions of law de novo. Manalapan Realty, L.P. v. Twp. Comm. of Manalapan, 140 N.J. 366, 378 (1995). Whether or not a duty exists is a question of law. Cheng Lin Wang v. Allstate Ins. Co., 125 N.J. 2, 15 (1991).

Schneider argues that the judge erred in failing to find that plaintiff should not have allowed any transfers from the operating account to the money market account. Specifically, Schneider claims that the funds Dara transferred from the operating account were not Dara's net profits, but belonged to Schneider individually based on the application of the Stark Act.

The judge found that Dara testified credibly about the payment structure of OAOC and that the vast majority of his income was non-DHS. Moreover, Berkowitz, who was called as a witness by Schneider and, for a time served as OAOC's managing member, testified in accordance with Dara's description of the revenue system at OAOC, which gave both Dara and defendant 100% of the net income from their profit centers. The judge rejected the testimony of Schneider and Morton that they were not aware of the transfers to the money market account as not credible, and concluded that the transferred funds belonged to Dara as net income from his profit center.

Schneider's claims that Dara's practice was "entirely DHS" finds no support in the record. In contrast, Dara explained that the majority of his profit center income came from his provision of services, which were non-DHS, and that his only DHS income was from the sale of certain chemotherapy drugs. Schneider's employment agreement was identical to Dara's, and no evidence was presented to establish that funds transferred by Dara from the operating account belonged to Schneider.

Moreover, prior to Dara's transfer of $1.027 million from the operating account, OAOC carried a $1.2 million loan obligation to Dara on its books and included this on both its 2008 and 2009 tax returns.

We defer to the trial judge's credibility determinations, Elders, supra, 192 N.J. at 244, and we are satisfied that the judge's findings that Dara was credible and Schneider was not, and that the money transferred from the operating account belonged to Dara, are reasonable and consistent with the record evidence.

We find the remaining arguments presented by Schneider lack sufficient merit to warrant further discussion in our opinion beyond these brief comments. R. 2:11-3(e)(1)(E).

Because we are satisfied that the trial judge correctly concluded that the funds transferred into the money market account belonged to Dara, we need not address Schneider's claims that plaintiff breached a duty to Schneider by permitting Dara's transfers from the operating account, or that plaintiff is strictly liable under N.J.S.A. 12A:4A- for facilitating an unauthorized transfer.

Schneider's claim that the trial judge erred when he denied her motion to amend the counterclaim must also fail. Schneider sought to include a claim of breach of fiduciary duty against Dara and a claim of aiding and abetting that breach against plaintiff. As we are affirming the trial judge's determination that the money Dara transferred belonged to him, he did not breach a duty to Schneider and there was no breach for plaintiff to aid and abet. We also note that Schneider has failed to provide a copy of the transcript of the hearing at which leave was denied in violation of Rule 2:6-1.

Affirmed.

1 The loans were made by Commerce Bank. T.D. Bank Group acquired Commerce bank in 2008.