Opinion
A-2675-20
11-18-2022
POOJA GOEL, individually and derivatively on behalf of HASKELL LIQUORS CORP., and LEDGEWOOD LIQUORS CORP., Plaintiff-Appellant, v. HARSHAD PATEL, GUNVANTBHAI PATEL, HYMAVATHI RAGHU, RAGHU HARINATHAN, VALITKUMAR PATEL, SACHIN SHETH, HASKELL LIQUORS CORP., and LEDGEWOOD LIQUORS CORP., Defendants-Respondents
The Law Office of Shay Shailesh Deshpande, LLC, attorneys for appellant (Shay S. Deshpande, on the brief). Law Offices of Markman & Cannan, LLC, attorneys for respondents (Alan J. Markman, on the brief).
NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION
Submitted September 19, 2022
On appeal from the Superior Court of New Jersey, Chancery Division, Essex County, Docket No. C-000188-18.
The Law Office of Shay Shailesh Deshpande, LLC, attorneys for appellant (Shay S. Deshpande, on the brief).
Law Offices of Markman & Cannan, LLC, attorneys for respondents (Alan J. Markman, on the brief).
Before Judges Smith and Marczyk.
PER CURIAM
Plaintiff, Pooja Goel, appeals from an order finding a court-appointed expert report admissible because it was supported by factual evidence in the record. On appeal, plaintiff contends the expert report should have been barred as a net opinion. Plaintiff further argues the report was based on fraudulent documentation provided by defendants. Finally, she argues that her due process rights were violated when two witnesses sat in close proximity during the virtual trial. We affirm.
On January 15, 2015, plaintiff and defendants entered into an operating agreement (agreement) to form Haskell Liquors Corp. and Ledgewood Liquors Corp. for the purpose of operating liquor stores. The agreement provided that plaintiff would possess fifteen percent ownership interest in the two businesses, while defendants would collectively possess eighty-five percent ownership interest. The agreement also established a specific condition for dissolution:
Operating member responsible to ensure business produces minimum $200,000 return year over year. In case of not meeting the above expected business performance, existing members agree to dissolve the corporation[s] and sell the assets at the market rate unless mutually agreed by all members.
Shortly after the agreement took effect, the parties' relationship deteriorated drastically. Plaintiff accused defendants of siphoning money from the two corporations and intentionally misrepresenting the corporations' profit margins by keeping two separate sets of accounting records. Defendants countered, calling plaintiff's claims unsubstantiated, arguing the corporations' profits exceeded the agreement's minimum threshold, and that they reinvested profits in business inventory rather than distributing the profits to its shareholders.
Plaintiff filed a civil complaint against defendants in the Chancery Division, alleging shareholder oppression under N.J.S.A. 14A:12-7; breach of fiduciary duty; breach of covenant of good faith and fair dealing; breach of contract; unjust enrichment; and conversion.
During litigation, the parties consented to court appointment of a forensic accountant, Megan Sartor, C.P.A., to examine the corporations' business records. Sartor issued a report dated June 19, 2020.
Sartor reviewed numerous documents, including: the corporations' bylaws; certificates of incorporation; income tax returns from 2016 to 2018; QuickBooks files, which included financial activity from inception through March 31, 2020; bank accounts; general ledger reports; business invoices; credit card processing statements; sales summary reports; payroll; business transactions with the corporation's shareholders; and the operating agreement.
Sartor noted in her report that after reviewing all documents provided by the parties, she obtained third-party invoices in order to confirm her findings. She also explained her methodology, employing both the "capitalization of earnings method" and the "direct market data method" to analyze the evidence. She noted that the capitalization of earnings method "provide[d] an indication of value by either capitalizing the operational results historically achieved by the entity or by discounting its projected future earnings, however defined." Similarly, the direct market data method provide[d] "an indication of value based upon historical transactions of comparable publicly traded or privately held businesses." She described both methods as reliable and appropriate methods to reach an accurate valuation of the corporations.
Sartor found that plaintiff's ownership interest in Haskell Liquors Corp. and Ledgewood Liquors Corp. amounted to $61,800 and $157,116, respectively. In her report, the accountant stated her opinions:
Based upon the procedures we have performed it is our opinion, within a reasonable degree of professional certainty, that the fair value of a 100% interest in Haskell Liquors Corp. as of March 31, 2020 is $867,500.
....
[B]ased upon the procedures we have performed it is our opinion, within a reasonable degree of professional certainty, that the fair value of a 100% interest in Ledgewood Liquors Corp. as of March 31, 2020 is $2,261,500.
Plaintiff objected after issuance of the report, contending the expert relied on fraudulent financial records supplied by defendants. Plaintiff also claimed that Sartor's methodology distorted the corporations' true values, and thus, inaccurately portrayed a profitable business operation. Plaintiff moved to bar the expert's testimony, contending her report was a net opinion.
After seven hearings, including testimony from the parties and Sartor, the court found Sartor "highly" credible. The court found plaintiff turned over no documents to Sartor despite the expert's numerous attempts to obtain them. The court also described Sartor's analysis as "very thorough." The court cited many documents Sartor reviewed, including but not limited to: invoices from three independent vendors; eight boxes of original documents; QuickBooks records; bank statements and credit card processing reports; tax returns; and other government filings. The court found Sartor's methods were valid and reliable. It further found plaintiff elected not to present her own expert testimony. Consequently, the court concluded "there was no expert or other testimony which impeached the clarity of the established opinions of . . . Sartor based upon her thorough analysis of the businesses and documents."
The court rejected plaintiff's argument that Sartor had issued a net opinion. It concluded that "Sartor's report and her opinion are the farthest thing from a net opinion, which one could imagine." Accordingly, the court accepted Sartor's findings that plaintiff's ownership interest in both corporations were $61,800 and $157,116.
Plaintiff appeals, arguing that (1) the expert's report constitutes a net opinion because she relied on "faulty data" provided by defendants and (2) the virtual trial was tainted when the witnesses consulted with one another during the hearing.
A trial court's decision concerning the admission of expert testimony into evidence is entitled to our deference and is reviewed under an abuse of discretion standard. Townsend v. Pierre, 221 N.J. 36, 53 (2015). An abuse of discretion occurs when a court's decision "was not premised upon consideration of all relevant factors, was based upon consideration of irrelevant or inappropriate factors, or amounts to a clear error in judgment." Masone v. Levine, 382 N.J.Super. 181, 193 (App. Div. 2005); see also State v. S.N., 231 N.J. 497, 515 (2018).
Plaintiff contends the trial court abused its discretion when it declined to bar the expert's report because it was a net opinion. Additionally, she argues that the expert relied on fraudulent and misleading information to reach her conclusions. We are not persuaded by plaintiff's arguments.
N.J.R.E. 702 and 703 frame our analysis for the admissibility of expert testimony. Townsend, 221 N.J. at 53. N.J.R.E. 702 imposes three basic requirements:
(1) the intended testimony must concern a subject matter that is beyond the ken of the average juror;
(2) the field testified to must be at a state of the art such that an expert's testimony could be sufficiently reliable; and
(3) the witness must have sufficient expertise to offer the intended testimony.[Landrigan v. Celotex Corp., 127 N.J. 404, 413 (1992) (citing State v. Kelly, 97 N.J. 178, 208 (1984)).] Those requirements "are construed liberally in light of Rule 702's tilt in favor of the admissibility of expert testimony." State v. Jenewicz, 193 N.J. 440, 454 (2008).
Pursuant to N.J.R.E. 703, an expert opinion must be based on
facts or data derived from (1) the expert's personal observations, or (2) evidence admitted at the trial, or (3) data relied upon by the expert which is not necessarily admissible in evidence but which is the type of data normally relied upon by experts in forming opinions on the same subject.
[State v. Townsend, 186 N.J. 473, 494 (2006) (citation omitted).]
Rule 703's corollary, the net opinion rule, "stands for the proposition that an expert opinion must have a rational basis" and prohibits admitting an expert's opinion into evidence if its conclusions are "not supported by factual evidence or other data." Crispino v. Twp. of Sparta, 243 N.J. 234, 257 (2020) (citing Townsend, 221 N.J. at 53-54). "[T]he net opinion rule requires an expert witness to give the why and wherefore of his expert opinion, not just a mere conclusion." Jimenez v. GNOC, Corp., 286 N.J.Super. 533, 540 (App. Div. 1996). "[B]are conclusions, unsupported by factual evidence, [are] inadmissible." Buckelew v. Grossbard, 87 N.J. 512, 524 (1981); see also Fin. Servs. Vehicle Tr. v. Panter, 458 N.J.Super. 244, 257 (App. Div. 2019).
The net opinion rule does not impose a "standard of perfection." Townsend, 221 N.J. at 54. Rather, it "is a prohibition against speculative testimony." Grzanka v. Pfeifer, 301 N.J.Super. 563, 580 (App. Div. 1997) (citing Vuocolo v. Diamond Shamrock Chems. Co., 240 N.J.Super. 289, 300 (App. Div. 1990)). A judge should not admit expert testimony "if it appears the witness is not in possession of such facts as will enable him to express a reasonably accurate conclusion as distinguished from a mere guess or conjecture." Vuocolo, 240 N.J.Super. at 299 (quoting Clearwater Corp. v. Lincoln, 202 Neb. 796 (1979)). However, an expert's testimony should not be excluded simply "because it fails to account for some particular condition or fact which the adversary considers relevant." State v. Freeman, 223 N.J.Super. 92, 116 (App. Div. 1988). The net opinion rule does not "mandate that an expert organize or support an opinion in a particular manner that opposing counsel deems preferable." Townsend, 221 N.J. at 54. That an expert declines "to give weight to a factor thought important by an adverse party does not reduce [the expert's] testimony to an inadmissible net opinion if [the expert] otherwise offers sufficient reasons which logically support [their] opinion." Rosenberg v. Tavorath, 352 N.J.Super. 385, 402 (App. Div. 2002). Instead, the purported deficiencies in the expert's opinion may be "a proper 'subject of exploration and cross-examination at a trial.'" Ibid. (quoting Rubanick v. Witco Chem. Corp., 242 N.J.Super. 36, 55 (App. Div. 1990)).
Applying these principles, we find the trial court properly exercised its discretion in considering the expert's report. The court made thorough findings regarding Sartor's qualifications to render an expert opinion. Next, the court found that Sartor provided a sound foundation for her report, and she used accepted and reliable methods to reach her conclusions. Given the well-supported findings by the trial court, we discern no basis to disturb its order.
Plaintiff's allegation that defendants provided fraudulent documents to Sartor misses the mark. Sartor obtained documents from independent third parties to verify the business records produced in reaching her conclusions. Accordingly, we find that Sartor's report was supported by factual evidence and provided "whys and wherefores," Quail v. Shop-Rite Supermarkets, Inc., 455 N.J.Super. 118, 132-33 (App. Div. 2018), buttressing the opinions within.
Defendant also posits that her due process rights were violated when two witnesses sat in close proximity during the virtual trial. In furtherance of her argument, she relies on D.M.R. v. M.K.G., 467 N.J.Super. 308 (App. Div. 2021), to establish the proposition that a virtual trial is tainted when witnesses consult with one another during the hearing.
Our Supreme Court recently recognized the technological problems that arise in virtual settings, noting virtual proceedings "are a temporary measure invoked to meet an extraordinary, life-threatening public health crisis" because "the criminal and civil justice system cannot stand still." State v. Vega-Larregui, 246 N.J. 94, 136 (2021). In Vega-Larregui, the Court concluded that the virtual nature of a jury proceeding did not violate the fundamental fairness doctrine or defendant's constitutional rights, as the court took diligent precautions to preserve the sanctity of these proceedings. Id. at 134.
However, in D.M.R. we found defendant's due process rights had been violated when the court held a remote final restraining order trial over Zoom which contained several "irregularities." 467 N.J.Super. at 320-22. There, plaintiff's mother was present in the room with him throughout the trial and spoke during his testimony; the parties improperly addressed one another directly; and the court questioned the plaintiff's mother in a manner that resembled advocacy. Ibid. We emphasized during a virtual trial, "each witness must be alone while remotely testifying . . . 'to discourage collusion and expose contrived testimony.'" Id. at 320 (quoting Morton Bldgs. Inc. v. Rezultz, Inc., 127 N.J. 227, 233 (1992)). Because of these errors, we concluded that the defendant had been deprived of her due process rights. Id. at 322.
This record shows the Zoom trial did not suffer from the same procedural infirmities as those in D.M.R. Indeed, the court emphasized at the outset that witnesses adhere to the rules of court in the virtual proceeding. The court instructed all parties to cease communications with testifying witnesses during trial and informed the parties that "[i]t's completely improper for anybody, an attorney, another person, to in any way provide information while a witness under oath is testifying." The court gave a similar instruction after it heard noise in the background during witness testimony. But for that sole incident, nothing in the record suggests that prospective witnesses, or other third parties, were present in the room with the testifying witnesses. Our review of the record shows the court took appropriate precautions to maintain the integrity of the proceedings. Vega-Larregui, 246 N.J. at 134. We are satisfied that the virtual trial did not deprive plaintiff of her due process rights.
Affirmed.