RIAD KABAKIBI VS. RAMESH SARVA, C.P.A. (L-9757-14, BERGEN COUNTY AND STATEWIDE) ( 2019 )

NOT FOR PUBLICATION WITHOUT THE
APPROVAL OF THE APPELLATE DIVISION
This opinion shall not "constitute precedent or be binding upon any court." Although it is posted on the
internet, this opinion is binding only on the parties in the case and its use in other cases is limited. R. 1:36-3.
SUPERIOR COURT OF NEW JERSEY
APPELLATE DIVISION
DOCKET NO. A-2795-17T2
RIAD KABAKIBI and LAMA
KABAKIBI, Husband and Wife,
and RIAD KABAKIBI, M.D.,
P.A.,
Plaintiffs-Appellants,
v.
RAMESH SARVA, C.P.A.,
RAMESH SARVA, C.P.A.,
P.C., and MICHAEL W.
FRANK, F.S.A., M.A.A.A.,
Defendants-Respondents.
____________________________
Argued September 9, 2019 – Decided October 24, 2019
Before Judges Fasciale, Moynihan and Mitterhoff.
On appeal from the Superior Court of New Jersey, Law
Division, Bergen County, Docket No. L-9757-14.
Jannat Nalwa argued the cause for appellants
(Piekarsky & Associates, LLC, attorneys; Scott B.
Piekarsky and Jannat Nalwa, on the briefs).
Kenneth B. Falk argued the cause for respondents (Falk
& Flotteron, LLC, attorneys; Kenneth B. Falk and
Jacob Davidson, on the brief).
PER CURIAM
Plaintiffs Riad Kabakibi and Lama Kabakibi appeal from an order for
judgment dismissing with prejudice their complaint alleging professional
malpractice against their accountant, defendant Ramesh Sarva and from the
denial of their motion for a new trial. Plaintiffs argue the trial court erred by
denying their motion for a new trial and committed trial errors by: failing to set
forth findings of fact and conclusions of law in its decision following a bench
trial; finding plaintiffs committed tax fraud; failing to find defendant negligently
advised them regarding a defined benefit plan (the plan) into which plaintiffs
transferred real estate, and that defendant was responsible for the damages—
taxes, penalties and interest charged by the Internal Revenue Service (IRS) after
an audit of plaintiffs' returns from 2008 through 2011—which plaintiffs incurred
as a result of defendant's negligent preparation of plaintiffs' personal and
corporate tax returns for Riad's 1 medical practice and inclusion of the improper
real-estate contributions to the plan. Because we agree that the trial court erred
1
At times, we refer to the Kabakibis by their given names for purposes of
clarity; we mean no familiarity or disrespect by so doing.
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by failing in its written decision to set forth its analysis, correlating its findings
of facts to the applicable legal principles, consequently supplying ample support
to grant plaintiffs' motion for a new trial, we reverse and remand.
In its eight-page written decision following a three-day bench trial, the
trial court said it would "deal with the first two audit issues raised in the [IRS]
auditor's report," then went on to list five
items, which increased corporate income in the years in
question[:] 1) [a]dditions to income of [the professional
corporation] from monies diverted by Lama; 2)
[d]isallowed deductions for rent; 3) [d]isallowed
expenses from [the professional corporation] that was
[sic] never paid; 4) [i]mproper contributions to [the
plan] from a real estate transfer; 5) [d]isallowed
automobile expenses.
The court then divided its decision into three parts: Diverted Income,
Deductions and Pension Plan Deductions.
Under the heading "Diverted Income," the court concluded plaintiffs
"wrongfully took" almost $684,000, which the IRS auditor determined was
income to the professional corporation, and deposited it in accounts in their
individual names in what the court described as part of "a large and willful
evasion of paying appropriate taxes." The court found "[p]laintiffs had eight
1099s for the two accounts where the diverted money went" and "[n]one were
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3
ever presented to [defendant]" showing plaintiffs purposely hid their diversion
from defendant.
The trial court labeled plaintiffs' deductions for rent and repair expenses
"clear tax evasion," finding Lama told the IRS auditor plaintiffs owned the
building in which the medical practice was located so no rent was paid, "the
utility and the repair expenses were not used for the [professional corporation]
but instead for other properties" plaintiffs owned, and that equipment rental
expenses were "arguable at best." The court determined, "Lama, by offering no
opposition to issues in audit's [sic] disallowed deductions, was conceding that
her conduct was wrongful" and "there was no attempt to prove that these
additions to income or deductions, which the auditor disallowed, are
defensible."
Lastly, the trial court considered evidence relating to the plan and
deductions for contributions of real estate in 2008 and 2009 which the auditor—
who did not testify—ruled improper. The trial court concluded the IRS "auditor
made comments regarding [the plan] but at no time gave any indication that
there was anything wrong with [it]. The plan had been approved by the IRS."
The court deemed defendant's testimony
strong evidence that [the plan], for which he listed a
deduction and which was approved by the IRS, was
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proper. He testified that such a plan never created an
issue for over 150 clients of his. The auditor's reason
for disallowing [the plan] contributions was that there
was no cash contributions by the corporation and that
[the] transfer was not permitted.
The court found that plaintiffs' expert Frank Brunetti2 "cleared up the issue" by
testifying the 2008 contribution was disallowed because it was not a contribution
by the professional corporation, but from a separately owned limited liability
company that owned the contributed real estate. The court found "no testimony
or evidence that the auditor was concerned with no compensation showed on the
11403 of the [professional corporation]." In addressing the 2009 contribution to
the plan, the trial court found it was "disallowed solely because [the professional
corporation] did not follow [defendant's] instructions in contributing to the
payment plan as directed." The court also found plaintiffs' experts, Jay Soled
and Brunetti "gave testimony, hinting but never stating, that the [p]lan was
improper." The court then rejected Soled's opinion that the plan "deductions
were the cause, in any way, of the audit [sic]," and found the "audit was caused
2
We note the trial court, at times, referred to Brunetti as Burnetti.
3
Plaintiffs contend the trial court's reference to form 1140 is erroneous because
the correct designation of the form is 1120.
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by the conduct of the [p]laintiffs in diverting [almost $684,000] of corporate
income."
Our review of "the findings and conclusions of a trial court following a
bench trial are well-established." Allstate Ins. Co. v. Northfield Med. Ctr., P.C.,
228 N.J. 596, 619 (2017). While we review the trial court's interpretation of law
de novo, Manalapan Realty, L.P. v. Twp. Comm. of Manalapan, 140 N.J. 366,
378 (1995), normally:
[W]e give deference to the trial court that heard the
witnesses, sifted the competing evidence, and made
reasoned conclusions. Reviewing appellate courts
should "not disturb the factual findings and legal
conclusions of the trial judge" unless convinced that
those findings and conclusions were "so manifestly
unsupported by or inconsistent with the competent,
relevant and reasonably credible evidence as to offend
the interests of justice."
[Allstate Ins. Co., 228 N.J. at 619 (alteration in
original) (internal citations omitted) (quoting
Griepenburg v. Twp. of Ocean, 220 N.J. 239, 254
(2015)).]
Nor do we "engage in an independent assessment of the evidence as if [we] were
the court of first instance," State v. Locurto, 157 N.J. 463, 471 (1999), and will
"not weigh the evidence, assess the credibility of witnesses, or make conclusions
about the evidence," Mountain Hill, L.L.C. v. Twp. of Middletown, 399 N.J.
A-2795-17T2
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Super. 486, 498 (App. Div. 2008) (quoting State v. Barone, 147 N.J. 599, 615
(1997)).
"If we are satisfied that the trial judge's findings and result could
reasonably have been reached on sufficient credible evidence in the record as a
whole, his [or her] determination should not be disturbed." Pioneer Nat'l Title
Ins. Co. v. Lucas, 155 N.J. Super. 332, 338 (App. Div. 1978). "Reversal is
reserved only for those circumstances when we determine the factual findings
and legal conclusions of the trial judge went 'so wide of the mark that a mistake
must have been made.'" Llewelyn v. Shewchuk, 440 N.J. Super. 207, 214 (App.
Div. 2015) (quoting N.J. Div. of Youth & Family Servs. v. M.M., 189 N.J. 261,
279 (2007)).
Unfortunately, the trial court did not apply any findings of fact to the
elements related to plaintiffs' malpractice claim and then make legal conclusions
relevant to those elements. In fact, the court's decision does not set forth any
legal citation. Rule 1:7-4(a) requires that a trial court "by an opinion or
memorandum decision, either written or oral, find the facts and state its
conclusions of law thereon in all actions tried without a jury. . . ." "[N]either
the parties nor [the court] are well-served by an opinion devoid of analysis or
citation to even a single case." Great Atl. & Pac. Tea Co., Inc. v. Checchio, 335
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N.J. Super. 495, 498 (App. Div. 2000) (emphasis added). "When a trial court
issues reasons for its decision, it 'must state clearly [its] factual findings and
correlate them with relevant legal conclusions, so that parties and the appellate
courts [are] informed of the rationale underlying th[ose]
conclusion[s].'" Avelino-Catabran v. Catabran, 445 N.J. Super. 574, 594 (App.
Div. 2016) (alterations in original) (quoting Monte v. Monte, 212 N.J. Super.
557, 565 (App. Div. 1986)). When that is not done, a reviewing court does not
know whether the judge's decision is based on the facts and law or is the product
of arbitrary action resting on an impermissible basis. See Monte, 212 N.J.
Super. at 565.
A claim for damages related to professional malpractice accrues when the
professional's negligence is the proximate cause of the client's damages. Circle
Chevrolet Co. v. Giordano, Halleran & Ciesla, 274 N.J. Super. 405, 413 (App.
Div. 1994). "One who undertakes to render services in the practice of a
profession or trade is required to exercise the skill and knowledge normally
possessed by members of that profession in good standing in similar
communities." Levine v. Wiss & Co., 97 N.J. 242, 246 (1984) (citing
Restatement (Second) of Torts § 299A (Am. Law Inst. 1965)). In Levine, the
Court "expressly recognized, and . . . stressed, that an accountant may be held
A-2795-17T2
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responsible to those to whom a duty is owed, for failure to adhere to the
[accepted] standards of [conduct for] the profession." Ibid.
In the context of an architectural malpractice case, we recognized:
In a professional negligence case, the standard of care
must normally be established by expert testimony. This
is so because a jury should not be allowed to speculate,
without expert testimony, in an area where laypersons
have insufficient knowledge or experience. Moreover,
opinion testimony "must relate to generally accepted . .
. standards, not merely to standards personal to the
witness." In other words, plaintiff must produce expert
testimony upon which the jury could find that the
consensus of the particular profession involved
recognized the existence of the standard defined by the
expert. It is insufficient for plaintiff's expert simply to
follow slavishly an "accepted practice" formula; there
must be some evidential support offered by the expert
establishing the existence of the standard.
[Taylor v. DeLosso, 319 N.J. Super. 174, 179-80 (App.
Div. 1999) (internal citations omitted) (quoting
Fernandez v. Baruch, 52 N.J. 127, 131 (1968)); see also
Skoloff & Wolfe, P.C., 339 N.J. Super. 97, 102-03
(App. Div. 2001) (relating the same tenet to an attorney
malpractice action).]
Thus, as with any professional malpractice case, the trial court was
compelled to follow the same analysis we would expect of any trier of fact and
determine what is standard [accounting] practice from
the testimony of the expert witnesses who have been
heard in this case. After deciding what the standard of
care is, what standard [accounting] practice is in the
circumstances of this case, [the trier of fact] must then
A-2795-17T2
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determine whether defendant has conformed with or
whether defendant has departed from that standard of
care.
[Model Jury Charges (Civil), 5.51A, "Legal
Malpractice" (approved June 1979).]
Although we have quoted the model jury charge for legal malpractice cases, the
same analysis is required for accounting malpractice cases for which no model
charge exists.
Plaintiffs presented expert testimony from Brunetti and Soled, who
testified as to deviations they said defendant committed with regard to the filing
of plaintiffs' tax returns and the advice defendant gave to plaintiffs regarding the
plan. Soled testified that accountants must prepare tax returns in accordance
with standards published by the American Institute of Certified Public
Accountants (AICPA), among which is the need to be accurate and proactive,
not just scriveners who "take whatever information [their] client says and just
put it on a tax return."
Soled testified the fact that the absence of reported salary for a medical
specialist such as Riad on the returns "seems on its face to be fundamentally
flawed" and that "there seems to be no bridge to be able to make qualified
contributions to a pension plan . . . because usually the sine qua non to having
bonafide contributions to a pension plan is the receipt of salary." Soled
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characterized these errors as "egregious flaws . . . on the returns." Soled opined
that an accountant "should have [heard] alarm bells going off" when faced with
such circumstances and if the returns seemed flawed, the accountant "cannot just
point the finger at the client and say . . . he or she or it gave me this information
and it's their fault because [an accountant has] to stand behind the work." Soled
referenced an AICPA standard in maintaining that an accountant "should make
a reasonable effort to obtain from the taxpayer the information necessary to
provide appropriate answers to all questions on a tax return before signing as a
preparer." He opined the absence of salary "scream[ed] out" that defendant
should not have signed the returns without demanding more information from
plaintiffs.
He also testified that because no salary was listed, the IRS disallowed the
deduction for the plan. Soled offered if the tax returns had been properly
prepared, plaintiffs would not have owed taxes. Defendant admitted on cross-
examination that a pension plan contribution cannot be made if a salary is not
paid, and the IRS can disqualify such a pension deduction.
Brunetti, in reviewing a Pension Plan Expense Lead Sheet marked P-14
for identification at trial, testified that the IRS auditor, citing to case law, held
firm to the opinion that transfers of property to a pension plan are prohibited.
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Brunetti also described the transfer of real estate to the pension plan as
prohibited.
The trial court never considered whether defendant deviated from the
standard that required an accountant demand further information from a client.
Instead, he placed liability on plaintiffs who failed to provide defendant with
1099 forms and provided defendant with information "[a]s to all the deductions
that were disallowed," which defendant "utilized and relied upon." The court
also failed to analyze that standard of care in connection with its analysis of
"diverted income," concluding plaintiffs intentionally withheld eight 1099 forms
from defendant.
We also determine the trial court erred in focusing on the cause of the IRS
audit instead of whether defendant deviated from a standard of care by preparing
a return devoid of any income to Riad that deducted contributions to a pension
plan. The court also focused on whether the plan was "proper" but never
addressed whether defendant should have shown income and requested more
information from plaintiffs regarding the contribution, or both. Contrary to the
court's finding that plaintiffs' experts merely hinted that the plan was improper,
the experts clearly said the IRS prohibited the transfer of real estate to a plan
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and that the IRS would disqualify deductions to a plan if no income was
shown—a fact admitted by defendant.
We are unable to determine from the trial court's ruling if it did not believe
Lama had a conversation with a Florida attorney who she said questioned the
transfer of Florida real estate in 2008 to the plan or if it did not believe she
conversed with defendant about the Florida attorney's concerns about the
transfer. The court stated defendant's reply, after Lama allegedly told him "that
a Florida attorney said he could not do what [defendant] wanted done," was to
tell Lama "to tell the Florida attorney to do what he was supposed to do." From
the context of the decision, it seems the court found defendant's reply as a
finding of fact. Although he declared the Florida attorney's statement hearsay,
it conflated the two alleged conversations—Lama with the Florida attorney and
Lama with defendant—in its decision and expressed "[w]e do not know what
[defendant] allegedly wanted the Florida attorney to do or the Florida attorney's
ultimate response," before cryptically concluding "[a]ny reasonable evaluation
of this version by Lama leads one to believe that this conversation never
occurred." If the court did not believe the conversation with the Florida attorney
took place, it still had to analyze defendant's knowledge as to the real estate
transfer. The trial court's decision makes our review impossible.
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We also discern that the trial court did not analyze what it determined to
be plaintiffs' actions through the lens of our settled law regarding plaintiffs'
contributory negligence in professional malpractice actions. Our Supreme Court
observed:
Actions involving a breach of professional duty are not
everyday negligence claims—they involve obligations
arising from special relationships. Five years ago, a
unanimous Court in Conklin v. Hannock Weisman, 145
N.J. 395, 412, 678 A.2d 1060 (1996), observed that,
"when the duty of the professional encompasses the
protection of the client or patient from self-inflicted
harm, the infliction of that harm is not to be regarded
as contributory negligence on the part of the client."
The view that comparative or contributory negligence
generally may not be charged when a professional
breaches his or her duty to a client reflects our
heightened expectations of professional services in this
State.
[Aden v. Fortsh, 169 N.J. 64, 75 (2001).]
Thus, as to causation in professional negligence cases, "professionals may
not diminish their liability under the Comparative Negligence Act[, N.J.S.A.
2A:15-5.1 to -5.8,] when the alleged negligence of the client relates to the task
for which the professional was hired." Id. at 78. When, however, "a client
impedes the professional in his or her performance by . . . withholding or failing
to provide certain information to the professional concerning the matter for
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which the professional was hired[,] that [can] reduce[] a portion of the harm
committed[.]" Id. at 77. So too,
comparative negligence principles may be applied in
professional malpractice claims in which the client's
alleged negligence, although not necessarily the sole
proximate cause of the harm, nevertheless contributed
to or affected the professional's failure to perform
according to the standard of care of the profession.
Steiner Corp. v. Johnson & Higgins, 996 P.2d 531, 532
(Utah 2000). See also Scioto Mem. Hosp. Ass'n. v.
Price Waterhouse, 74 Ohio St. 3d 474, 659 N.E.2d 1268,
1274 (1996) (Cook, J. concurring) (noting that in
accounting malpractice actions "comparative
negligence may be applied only to negligent acts of a
client that contribute to the accountant's failure to
perform according to the standards of the accounting
profession.")
[Ibid.]
And if the client's—rather than the professional's—conduct was the sole,
proximate cause of the damages, the trier of fact may find the professional is not
liable. Ibid. While the trial court laid blame at plaintiffs' feet, it did not consider
whether defendant breached the standard of care due them.
Because the trial court did not address pertinent issues, and did not comply
with Rule 1:7-4(a), correlating its findings to relevant legal conclusions, we are
compelled to reverse and remand this matter for a new trial before a different
judge, after which findings of fact and conclusions of law addressing plaintiffs'
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allegations of malpractice should be made in accordance with that Rule. In light
of our holding, we need not address plaintiffs' contention that the motion judge
erred in denying their post-trial motions.
Reversed and remanded for proceedings consistent with this opinion. We
do not retain jurisdiction.
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