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HEADNOTE Arie Rozen et al. v. Michal Greenberg, No. 1990, September Term, 2004. TORTS- FRAUDULENT INDUCEMENT- MATERIAL MISREPRESENTATION. Misrepresentations are material where the appellant claimed to be very experienced as a CPA in the area of tax preparation but had not prepared any tax returns up to that point, claimed to lead a team of professionals when no team actually existed, misled appellant about the location of his business, claimed to have clients when in fact he had no actual clients and the victim relied on his representation in deciding to sell her client list. TORTS- FRAUDULENT INDUCEMENT- MATERIAL MISREPRESENTATION. Victim of fraud was entitled to rely on the misrepresentation of the appellant. Under the circumstances, the appellee was not required to conduct any investigation into the appellant's misrepresentations because there was no apparent evidence that should have served as a warning sign that she was being deceived. The appellee was not required to ask the Virginia Licensing Board how long the appellant had been a CPA. The fact that appellant claimed his business was located in Rockville, but drove the appellee to Virginia, when the appellee asked the appellant to show her the offices of his company does not negate the victim's reliance on the misrepresentations. The appellee primarily resided in Israel, visited Rockville for only a few months every year, and testified that she did not pay attention during the drive. Appellant drove the appellee from Rockville to Virginia to visit, what he claimed was the business office of his company, "Taxido," but were actually the offices of a business called "C-Biz." The office had no signs identifying it as "Taxido," nor was there any signs identifying the office as that of "C-Biz."

REPORTED IN THE COURT OF SPECIAL APPEALS OF MARYLAND No. 1990 September Term, 2004

ARIE ROZEN ET AL. v. MICHAL GREENBERG

Davis, Kenney, Sharer, JJ.

Opinion by Davis, J.

Filed:

October 7, 2005

In 2001, appellant, Arie Rozen, told appellee, a Montgomery County woman named Michal Greenberg, that he "head[ed]" a tax preparation business in Rockville, Maryland, called Taxido, Inc., and appellant proposed to merge Taxido with appellee's tax

preparation business, which was also based in Rockville. than merging, appellee sold her client list to

Rather in

appellant

exchange for a share of the income he generated from preparing those clients' as returns. they The parties' their relationship under soon their

deteriorated,

disputed

obligations

contract of sale. Appellee ultimately sued appellant and Taxido in the Circuit Court for Montgomery County, alleging that appellant fraudulently induced her to sell her business by misrepresenting his background. After a four-day bench trial, judgment was entered for appellee on her fraud claim, and she was awarded $368,760 in damages as well as rescission of the contract to sell her business.1 Appellant noted

this appeal, presenting three questions for our review: I. Was the trial judge clearly erroneous in finding that appellant's misrepresentations were material to appellee's decision to sell her business to appellant? II. Was the trial judge clearly erroneous in finding that appellee reasonably relied on appellant's misrepresentations? III. Did the trial judge err in calculating damages based on appellee's projected gross revenues, as opposed to her projected income?

Appellant does not challenge the propriety of awarding both damages and rescission. See Sonnenberg v. Sec. Mgmt. Corp., 325 Md. 117, 124-25 (1992) (holding that the remedies are exclusive).

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We answer the first two questions in the negative, but, because the trial judge erred in his decision on damages, we shall vacate that judgment and remand the case for further proceedings.

BACKGROUND
Appellee's Rockville-based business consisted of preparing U.S. tax returns for Israelis. Appellee worked as a sole

practitioner, residing in Israel most of the year, but traveling to the United States annually to perform her work here. She had been

an accountant for nearly twenty years and, by 2001, she had nearly 700 clients. Appellant was not acquainted with appellee in 2001, but he sent her the following e-mail on November 9 of that year: My name is Arik Rozen and I am heading a TAX PREPARATION SERVICE for Israelis in the US. The service is based in Rockville, MD and we are focusing on the DC area, Boston, and NY. You can find more info at www.taxido.com. We have a powerful website which supports on-line preparation from any where [sic] in the US. I understand that you have been doing something similar in the last few years. Since I have always believed in joining forces I am writing to you to see if you are interested in cooperating and if so on which level. I truly believe that we can benefit greatly by working together instead of competing. I am looking forward to discussing the opportunity with you. Sincerely, Arik Rozen, CPA

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At trial, appellee testified that one of the reasons she found appellant's e-mail so intriguing was that it seemed that his business comprised a team of several professionals, whereas she had always been a sole practitioner. She testified:

. . . I all the time worked on my own, I never had any assistant or any employee and it was very interesting that there is here somebody who owns a company or have a business that many people are working for him, and it seems interesting. Appellee testified that, after receiving the e-mail, she visited Taxido's website. website was as follows: Q A And what did you see when you went to the website? When I went to the website I saw first of all About Us, that was the most interesting part for me and there I saw that -- When you say About Us, what do you mean when you say you saw About Us? Was that a heading on the website? Yes. Okay. Us? Yes. And what did you see under the heading About Her trial testimony regarding the

Q

A Q A

Under the heading I saw that this company is serving I don't know, I didn't know what entity it was, it said Taxido, and this entity is serving is specializing in foreigners and Israelis, there was a clause about it, that they are trying to serve their clients very well and many things, and then there was a heading Team and under the Team it says that they are account, tax professionals, accounts, supervised by CPA and leading of the team is Aric Rozen or Arie Rozen, I don't remember exactly how he pronounced his name there, who is having an accounting degree MBA from Harriett College U.K. and he is a very, he is experienced for years in

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some financing position and for years as a CPA, that's what I thought, that's what I saw there. Appellee then replied to appellant's e-mail, expressing her interest in discussing his proposal and inviting him to call her. At trial, she recounted their initial conversation, in which her primary concern was appellant's level of experience: Q A What did he say when he called you? He told me that he is very experienced, that he has many people working for him, that he specialized in Israelis and foreigners and he knows very well the law, and he praised himself about his experience, how good he is, how excellent he is and he says to me will you consider partnership and I'll never want a partner. And he said why and I said I don't believe that I can be in Israel coming for three months and that will work, and so that I remember very well. And then he said how about you giving me your clients. I said let's talk about it. He said I'm very familiar, I did it [sic] few times before, I can send you a contract. Q Okay. Let me stop you right there. Why did you say let's talk about it? Why were you interested in continuing that dialogue? As I told you, I didn't think of selling at that point, in particular, I didn't advertise, or thought, I mean, I had thought about how to retire. Okay. I thought that I would like to retire at some point in time, but I need somebody very special to give my clients to him because I have a niche. Okay. Had you ever received offers similar to this, prior to this occasion? I received offers from CPAs like one from Philadelphia, one from California before, and, in particular, the year before, just a year before, I - 4 -

A

Q A

Q A

received an offer from a client of mine who is a CPA in Israel and was about to take his exams in the United States, and he called me and he said to me that he is very interested to talk to me, how we can cooperate and I went to meet him in New York. I met him in New York and we discussed the issues and then I decided to decline it because he didn't have enough experience. Appellant told appellee that he was licensed as a CPA in Virginia and, to verify appellant's statements, appellee contacted that State's licensing authority to confirm appellant's good

standing.

She said that she relied on appellant's representation

on his website that he had been a CPA for "many years," and she did not ask the licensed. Appellant then sent appellee a contract offering to buy her client list. Appellee told appellant, "I am not going to sign with licensing authority how long appellant had been

you anything in the world unless I see you in person and I see your business." She testified that, by referring to his "business," she meant Taxido, the firm boasting of its team of "accountants, CPAs and Arie Rozen . . . leading over the team." Appellee traveled to

the United States to meet appellant in Rockville and to see Taxido's office. Appellant met appellee at the home of appellee's friend, where appellee stayed when she was working in the U.S. Appellant then

said, "let me show you my business," and proceeded to drive appellee, not to Taxido, but to C-Biz, an office in Northern Virginia where appellant was employed to prepare tax returns for

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clients of C-Biz.

Appellee was impressed by C-Biz's facilities, She soon agreed to sign appellant's

which she mistook for Taxido. contract.

In reality, appellant had only been a CPA for about five weeks when he first e-mailed appellee. called Taxido. He did not really have a business

His nonexistent business had no clients and no Once their relationship deteriorated due

"team" of professionals.

to other disputes, which we need not recount here, appellee sued appellant, seeking both damages and rescission. She alleged that

appellant's material misrepresentations induced her to enter into the contract to sell her business. The trial court found that the misrepresentations in

appellant's e-mail were indeed material, in that he had no such business as Taxido, no clients, and no team of professionals; at the time, Taxido was, at most, just appellant's idea for a

business. The court also found that appellant misled appellee into believing that C-Biz was Taxido. Appellee, the court concluded,

reasonably relied on these material misrepresentations in deciding to sell her business to appellant.2 Judgment was entered in

In his decision, announced from the bench at the end of the case, the trial judge stated, inter alia: I recognize the burden that exists in determining whether or not there was fraud in the inducement and in evaluating the evidence in this case, and the testimony, and weighing the credibility of the witnesses, and what has transpired, I am convinced that there was fraud in the inducement in the creation of this contract and the (continued...) - 6 -

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appellee's favor for $368,760, and the court ordered that the contract be rescinded.

LEGAL ANALYSIS
The tort of fraudulent inducement "means that one has been led by another's guile, surreptitiousness or other form of deceit to enter into an agreement to his detriment." Sec. Constr. Co. v.

Maietta, 25 Md. App. 303, 307 (1975); see also Paul Mark Sandler & James K. Archibald, Pleading Causes of Action in Maryland

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(...continued) execution of this contract. I believe that the evidence is clear and convincing that there was reasonable reliance by Ms. Greenberg on material misrepresentations made by the defendant, as well as Taxido, Inc., to her detriment. The lies begin with the heading of a tax preparation service for Israelis in the United States contained within the e-mail. They continue on with the location of the service, identifying the people involved as more than one, focusing on the D.C. area, Boston and New York. By the defendant's own admission, he had no actual clients at that time. The defendant had prepared no tax returns as of November 9, 2001 and there was no team that existed that would support this tax preparation service. The lies continued with the representations that were made and the impressions that were made when Ms. Greenberg came over to conduct a meeting with the defendant. Unfortunately for Ms. Greenberg, she is not sophisticated in the sale of a business or in the conduction [sic] of a referral relationship and she entered into an agreement that reflects that lack of sophistication. However, she operated in good faith under that agreement, as evidence by her e-mails and her referrals and where it starts to unravel for the defendant is frankly his greed. - 7 -



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