Date: 02-14-2016

Case Style: Swarna Allam et al. v. Deepak Verma et al.

Case Number: A-3172-13T4

Judge: Mitchel E. Ostrer

Court: SUPERIOR COURT OF NEW JERSEY, APPELLATE DIVISION

Plaintiff's Attorney: Jeremy Esakoff

Defendant's Attorney: Bob Sanzo

Description: This appeal arises from the purchase of a wholesale
gasoline company. Plaintiffs Swarna Allam and Avighna Global
Traders, LLC (AGT) purchased one hundred percent of the shares
of Pioneer Enterprises, Inc., which were held by defendant
Deepak Verma.1 Plaintiffs asserted various tort and contract
claims against Verma, who responded with various counterclaims.
The matter proceeded to trial without a jury before Judge Barry
A. Weisberg. Upon the close of plaintiffs' proofs, the court
granted defendant's motion for dismissal. The court later
dismissed the counterclaims after defendant rested. Only
plaintiffs appeal.
On appeal, plaintiffs contend the court erred in excluding
testimony of plaintiffs' outside accountant, Sukumar Majmudar,
C.P.A. The court permitted Majmudar to testify as a fact
witness, but barred testimony that the court deemed to be expert
opinion. The court did so because plaintiffs had not identified
Majmudar as an expert or provided an expert report in discovery.
Plaintiffs also argue that they could have proven their
conversion claim even without Majmudar's opinion testimony.
Having considered plaintiffs' arguments in light of the record
and applicable principles of law, we affirm.
1 Plaintiffs named Pioneer Enterprises, Inc. as a defendant. However, plaintiffs controlled Pioneer at the time. Consequently, it appears that the only genuine defendant was Verma.
A-3172-13T4 3
I.
We discern the following facts from the record. The
parties entered into a Stock Purchase Agreement on March 1,
2011.2 Many terms of the contract were not clearly specified,
including the purchase price. Verma agreed to sell his stock in
return for the buyers' payment of certain accounts payable of
Pioneer. The contract stated the sale was "in consideration of
payment against open invoices to the refineries only, which will
come [to] approximately SEVEN HUNDRED AND FIFTY THOUSAND
($750,000.00) dollars." However, the contract did not identify
the outstanding invoices, or even the involved creditors.
The evidence demonstrated that the nature of the wholesale
gasoline business depended on substantial lines of credit.
Larger wholesalers or refiners sold product to Pioneer on short
term lines of credit. Pioneer in turn sold gasoline to
retailers on shorter terms. The volume of product was
substantial, and the profit margins were narrow. Pioneer took
advantage of the "float" between its purchase and sale
transactions.
2 AGT was formed by Swarna Allam and Daneesh Garlurgada. Swarna Allam testified that her husband, Rajasekha Allam, managed the business. Rajasekha Allam insisted that his wife was involved in the management. We will refer to the Allams by their first names for the reader's convenience. We intend no disrespect in doing so.
A-3172-13T4 4
The parties recognized the critical role of credit in the
operation of the business. The contract stated, in a provision
that was far from a model of clarity: "Supplier or refinery
related lines of credit shall remain consistent with current
practices and will be transferred to the buyer. All the
guarantees for the refinery lines, refinery lines of credits
will be transferred to the buyer from March 1st 2011." The
contract did not identify the lines of credit, let alone provide
any descriptive information about their amounts, terms, or
whether they were transferrable.3
Verma agreed to assist the buyers in the operation of the
business for three months. The agreement included a restrictive
covenant that barred Verma from competing with the buyers.
However, Verma remained in a related business, as a retail
gasoline station owner.
The parties agreed that the buyers were not responsible for
liabilities of the "seller" before March 1, 2011. The parties
did not expressly address the disposition of Pioneer's accounts
receivable. However, plaintiffs apparently conceded that those
were not included in the purchase.
In the months following the closing, AGT made substantial
3 Rajasekha allegedly believed that he would not need to apply for credit after the closing, and that over ten lines of credit would be transferred.
A-3172-13T4 5
payments to suppliers on Pioneer's pre-closing accounts payable.
It was undisputed that by March 22, 2011, AGT had paid $652,945.
Plaintiffs made these payments without presentation of the
invoices from the suppliers.
In the meantime, however, the parties engaged in numerous
other transactions — some in cash, others inadequately
documented — that gave rise to competing claims that one side
was indebted to the other.
Verma continued to collect payment from Pioneer's customers
after the closing, for deliveries made by the new owners. It
was undisputed that this amounted to $526,389. However, Verma
contended that this sum was more than offset by other
transactions.
Plaintiffs collected payment on pre-closing accounts
receivable. Verma presented the forensic accounting opinion of
John P. Morey, C.P.A., who asserted that these amounts totaled
$338,000. However, the court ultimately determined that amount
was unreliable, as it was unsupported by invoices to demonstrate
that the amounts AGT received were tied to deliveries that
preceded the closing.
After the closing, Verma remained the guarantor of one line
of credit, from Petroleum Products Corporation (PPC), that had
been transferred to plaintiffs. Verma remained the debtor of
another supplier, Daibes Oil, LLC (Daibes), because it was
A-3172-13T4 6
unwilling to transfer its line of credit to Pioneer under the
new owners until it reviewed a credit application; that occurred
in mid-March. Verma also continued to purchase product from
Daibes in connection with his continuing gas station business,
utilizing the same line of credit.
The accounting of transactions became confused. Daibes
delivered product to Pioneer and billed Verma, and delivered
product to Verma and billed Pioneer. Petrocom Energy also
billed defendant for a delivery on behalf of Pioneer. Verma
claimed to have paid for shipments to Pioneer that exceeded the
amounts Verma received from Pioneer customers. In late March,
payments by plaintiffs to suppliers were refused for
insufficient funds.
Plaintiffs filed a complaint against Verma in January 2012,
later amended, which alleged that Verma did not transfer the
stock of the corporation; he competed with Pioneer; he failed to
transfer the lines of credit as promised; and he diverted to
himself payments due to Pioneer, while orchestrating plaintiffs'
payment of his obligations to other creditors. Plaintiffs
asserted claims of breach of contract, breach of the covenant of
good faith and fair dealing, common law fraud, conversion, and
unjust enrichment.
In March 2012, defendant served interrogatories on
plaintiffs requesting the name, and resume of any expert
A-3172-13T4 7
plaintiffs intended to call at trial. Although not expressly
requesting service of a "report," the interrogatories requested
a statement of the expert, signed by the expert, providing
"[t]he substance of the facts and opinions to which he/she is
expected to testify; and . . . [a] summary of the grounds for
each opinion." The interrogatories also sought the
identification of "any documents prepared or generated by the
expert which . . . contain the facts and opinions to which the
expert is expected to testify . . . ."
In his document production request, Verma expressly
demanded production of any expert reports. In an apparent
effort to secure notice of any anticipated lay opinion
testimony, Verma also requested the identity of any other
opinion witness who was not an expert, as well as the substance
and basis for that witness's opinion.
Plaintiffs apparently disclosed Majmudar as a non-expert
opinion witness.4 Defense counsel served a deposition subpoena
upon Majmudar, but he did not appear.
Majmudar testified at trial that plaintiffs hired him in
early April 2011 to analyze their financial data. He testified
that he examined purchase invoices, bank statements, checks, and
wire transfers to reconcile the accounts. He also examined
4 The record does not include plaintiffs' written responses to Verma's interrogatories or document production requests.
A-3172-13T4 8
defendant's records, including bank statements and invoices. He
admitted that he had not participated in the operations of
plaintiffs' business. Majmudar stated it took him six months to
complete a reconciliation of the accounts "because there [were]
far too many things co-mingled." Majmudar stated that in
addition to review of voluminous documents, he consulted with
Rajasekha. He requested from Rajasekha the documents he deemed
necessary to "tie the accounts together . . . to figure it all
out." He also asserted that he confirmed with personnel at
Daibes that the invoices he reviewed included every invoice
between AGT and Daibes. Majmudar compiled a listing of every
AGT purchase invoice. He finished his work in December 2011,
shortly before plaintiffs filed their complaint.
At trial, the court sustained defense counsel's objections
to Majmudar offering any opinions on the ground that they
constituted expert testimony. Majmudar was not permitted to
offer his "observations" about the significance of specific
financial records when he first reviewed plaintiffs' financial
documents in early April. He was also prevented from presenting
his "conclusions as to what [was] properly owed to Daibes,"
which he formulated after he completed his account
reconciliation. He was barred from identifying payments he
believed "belong[ed] to Pioneer." Plaintiffs were also not
permitted to introduce into evidence the compilations or
A-3172-13T4 9
reconciliations that Majmudar had prepared.5 These charts
included Majmudar's conclusions that certain invoices were
incorrect, disputed, or duplicative of others. The court
prohibited Majmudar from offering what it deemed expert
testimony because plaintiffs had failed to disclose him as an
expert or serve a report of his proposed opinions.
Plaintiffs' counsel argued that Majmudar's proposed
testimony did not constitute opinion, and if it did, that it
qualified as lay opinion. Plaintiffs' counsel argued that
Majmudar simply compiled documents that he personally reviewed
and his calculations involved little more than addition and
subtraction.
The judge disagreed. He explained, "He's taken facts and
draw[n] conclusions based on the facts, that's the essence of an
expert opinion." The judge noted that one schedule included
various conclusions that Majmudar had drawn based on his review
of the documents; Majmudar had characterized entries as "wrong
invoice, duplicate invoice."
The judge further explained to plaintiffs' counsel, "[T]he
thrust of what you're trying to get him to do . . . is . . . to
look at the books and records of the business, and to draw
conclusions about where monies came from, about where monies
5 These were marked for identification, but are not included in the record before us.
A-3172-13T4 10
went, about who owed what to whom, based on his analysis of the
documentation . . . ." The judge held that was expert opinion.
The court rejected plaintiffs' argument that Majmudar's
work was simply a summary of transactions. These conclusions
"represent his accounting work, which is in essence, his
expertise and his drawing of conclusions." The court dismissed
the suggestion that anyone could have made the compilations
Majmudar had prepared. The judge noted that plaintiffs sought
to present the compilations through Majmudar because of his
accounting expertise and his ability to review the documentation
and draw conclusions. The judge explained that Majmudar could,
for example, testify as to the content of bank records, but any
testimony regarding the significance of those records
constituted expert opinion.
The judge also explained that Majmudar's testimony did not
qualify as lay opinion admissible under N.J.R.E. 701, which
authorizes opinions based on the perception of the witness,
because Majmudar did not directly observe any of the
transactions. The judge found that he was not involved in the
day to day bookkeeping or processing of invoices as they were
generated. The judge observed that Majmudar's analysis was
based on hearsay, which is acceptable in the presentation of an
expert opinion, but not a lay opinion. "He has no direct
knowledge of those invoices, or of those transactions, he only
A-3172-13T4 11
knows what he knows by review [of] documents, or what other
people told him and then drawing a conclusion as an accountant,
that these are improper charges."
At the close of plaintiffs' proofs, the court granted
defendant's motion to dismiss. In particular, the court
rejected plaintiffs' conversion claim.6 The court noted that
plaintiffs failed to present an admissible compilation setting
forth the amount allegedly converted. The court noted that the
evidence demonstrated that substantial sums of money were going
"back and forth" between the parties. The court deemed
uncontroverted Verma's testimony that he paid Daibes for
invoices for plaintiffs' purchases in early March 2011. The
schedule prepared by Moyer indicated that these payments
exceeded $1 million. The court recognized that Verma received
payments from customers for sales made by plaintiffs, as
6 The judge also found that the stock was transferred. He rejected the claim of breach of the promise to transfer letters of credit, noting that some lines were transferred. Although plaintiffs alleged others were promised, the court noted that the agreement did not identify them and held that plaintiffs failed to present any proof of damages resulting from the alleged failure to provide other lines of credit. The court also found no basis in the evidence for the claim that Verma violated the restrictive covenant. Verma continued in the retail gasoline business, but there was no proof that he competed as a wholesaler. The court rejected the unjust enrichment claim because the parties had a contractual relationship and defendant performed his obligations under the contract. The fraud claim was dismissed as well, for failure to present sufficient proof of false representations or damages.
A-3172-13T4 12
reflected in the schedule reviewed at trial. The court held
that the proofs did not demonstrate these funds were converted,
explaining: "There was clearly a co-mingling between these
companies."
On appeal, plaintiffs contend the court unduly limited
Majmudar's testimony. Plaintiffs renew many of the arguments
presented to the trial court in the midst of trial.
II.
We review for an abuse of discretion a court's decisions
regarding discovery, see Pomerantz Paper Corp. v. New Cmty.
Corp., 207 N.J. 344, 371 (2011), and its evidentiary rulings.
Hisenaj v. Kuehner, 194 N.J. 6, 16 (2008). Applying this
standard of review, we discern no basis to disturb Judge
Weisberg's limitation of Majmudar's testimony.
At the outset, we note that plaintiffs failed to avail
themselves of the opportunity to make a specific offer of what
testimony would be elicited from Majmudar. See R. 1:7-3.
Moreover, the record on appeal does not include the calculations
or reconciliations that were marked for identification at trial
but excluded from evidence. We cannot reasonably assess the
admissibility of evidence that is not placed before us. See R.
2:6-1(a)(1) (stating that the appendix "shall contain . . . such
other parts of the record . . . as are essential to the proper
A-3172-13T4 13
consideration of the issues"); see also Cmty. Hosp. v. Blume
Goldfaden, 381 N.J. Super. 119, 127 (App. Div. 2005) ("Nor are
we obliged to attempt review of an issue when the relevant
portions of the record are not included.").
As for the court's limitation of Majmudar's testimony, the
court correctly characterized the barred testimony as expert
opinion, and appropriately exercised its discretion to bar it
based on plaintiffs' failure to make requested pre-trial
disclosure. A witness may offer lay opinion "if it (a) is
rationally based on the perception of the witness and (b) will
assist in understanding the witness' testimony or in determining
a fact in issue." N.J.R.E. 701. By contrast, "[i]f scientific,
technical, or other specialized knowledge will assist the trier
of fact to understand the evidence or to determine a fact in
issue, a witness qualified as an expert by knowledge, skill,
experience, training, or education may testify thereto in the
form of an opinion or otherwise." N.J.R.E. 702.
"[L]ay opinion testimony is limited to what was directly
perceived by the witness and may not rest on otherwise
inadmissible hearsay." State v. McLean, 205 N.J. 438, 460
(2011). In the case of accountants, courts have distinguished
between in-house and outside accountants. In-house employees,
who contemporaneously review or participate in the transactions,
may offer lay opinions based on their experience. By contrast,
A-3172-13T4 14
accountants brought in after the transactions occur to perform
an audit, review, or forensic examination may not offer lay, as
opposed to expert opinions, based on their review. See DIJO,
Inc. v. Hilton Hotels Corp., 351 F.3d 679, 686 (5th Cir. 2003)
("The further removed a layman is from a company's day-to-day
operations, the less likely it is that his opinion testimony
will be admissible under Rule 701."). First, Majmudar was not
personally involved in the numerous financial transactions at
issue. Rather, he analyzed the data after the fact. Majmudar
explained that it took six months to make sense of the complex
transactions, because of the extensive commingling of funds.
His task required use of his skills and training as an expert
accountant, and did not rely on any contemporaneous involvement
with the transactions.
Second, Majmudar's analysis was informed by the hearsay
statements of Rajasekha and financial personnel at Daibes. An
expert may rely on hearsay in formulating his opinions. McLean,
supra, 205 N.J. at 449. A lay witness may not. Id. at 460.
Also lacking in merit is plaintiffs' argument that Majmudar
did not propose to offer opinions at all, and the court barred
factual testimony. Plaintiffs' counsel repeatedly sought to
elicit Majmudar's conclusions, and observations, regarding the
financial relationship of the parties. It was evident that
Majmudar had characterized certain invoices as duplicative or
A-3172-13T4 15
erroneous. In drawing connections between various documents —
for example, by matching evidence of a delivery, with an
invoice, and then a payment, and then a deposit of the payment —
Majmudar evidently relied on his own judgment and inferences.
As Judge Weisberg correctly observed, this is the essence of
opinion testimony.
Finally, we reject plaintiffs' argument that its conversion
claim could have been proved without an expert. "Conversion is
the wrongful exercise of dominion and control over property
owned by another [in a manner] inconsistent with the owners'
rights." LaPlace v. Briere, 404 N.J. Super. 585, 595 (App.
Div.) (internal quotation marks and citation omitted), certif.
denied, 199 N.J. 133 (2009). "It is essential that the money
converted by a tortfeasor must have belonged to the injured
party." Commercial Ins. Co. v. Apgar, 111 N.J. Super. 108, 115
(Law Div. 1970).
Although defendant did not dispute that he accepted over
$500,000 in payments from Pioneer customers for post-closing
deliveries, he asserted he did so while he was paying
significantly more than that sum to Daibes for deliveries to
Pioneer. In other words, defendant contended that the exercise
of control over those receivables was not wrongful. See Chi.
Title Ins. Co. v. Ellis, 409 N.J. Super. 444, 456 (App. Div.
2009) ("Where a sum of money is identifiable, courts look to the
A-3172-13T4 16
relative rights of each party to possession and use of the money
to determine whether a cause of action lies for conversion.").
By virtue of defendant's offsetting payments to Daibes, the
court could reasonably find defendant had a greater right to the
portion of Pioneer's payments representing the difference
between the two sums.

Outcome: Plaintiffs failed to present sufficient, admissible evidence to the contrary.
Plaintiffs' remaining arguments lack sufficient merit to warrant discussion in a written opinion.

Plaintiff's Experts:

Defendant's Experts:

Comments: