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(NOTE: The status of this decision is Unpublished.) Original Wordprocessor Version (NOTE: The status of this decision is Published.)

NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION

SUPERIOR COURT OF NEW JERSEY APPELLATE DIVISION DOCKET NO. A-3112-10T4

ANWAR WALID, DONNA WALID and WALID COUTURE ENTERPRISES, INC.,
APPROVED FOR PUBLICATION

April 5, 2012

APPELLATE DIVISION

Plaintiffs-Appellants,

v.

YOLANDA FOR IRENE COUTURE, INC., a New Jersey Corporation, IRENE PASTER, MGR ENTERPRISES, INC., a New York Corporation and MICHAEL THOMAS and YOLANDA COUTURE, INC.,

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Defendants-Respondents. ______________________________________ April 5, 2012 Argued October 25, 2011 - Decided

Before Judges Yannotti, Espinosa and Kennedy.

On appeal from the Superior Court of New Jersey, Law Division, Morris County, Docket No. L-3351-06.

Thomas J. Hirsch argued the cause for appellants Anwar Walid, Donna Walid and Walid Couture Enterprises, Inc.

Raymond A. Grimes argued the cause for respondents Michael Thomas and MGR Enterprises, Inc. (Law Office of Raymond A. Grimes, P.C., attorneys; Mr. Grimes, on the brief).

Avrom R. Vann argued the cause for respondents Yolanda for Irene Couture, Inc., Irene Paster and Yolanda Couture, Inc. The opinion of the court was delivered by KENNEDY, J.S.C. (temporarily assigned). Plaintiffs appeal from a judgment entered November 19, 2010, following a bench trial, dismissing their complaint against defendants. They also appeal from a subsequent order of February 4, 2011, denying their motion for reconsideration. On appeal, plaintiffs contend the trial judge erred in determining that plaintiffs failed to prove by clear and convincing evidence that they justifiably relied upon material

misrepresentations made by defendants respecting the income of a business plaintiffs purchased, thereby causing them to sustain damages. For reasons set forth hereinafter, we vacate the judgment and remand the matter to the trial court for further proceedings. I

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The facts that follow are drawn from the record following a bench trial "on the papers." The parties explicitly agreed that the trial judge, having become "familiar with the matter through the summary judgment brief[s] and certifications and the like," would review the parties' pleadings, expert reports, deposition transcripts and "summary judgment papers, which included certifications, statements of material facts [and] many exhibits" and render a decision. Plaintiffs Anwar and Donna Walid (hereinafter sometimes referred to as the Walids) began looking for a business to purchase in 2005. Donna Walid had worked for a high-end retail clothing store in New York and had studied textile design prior to obtaining a Master's Degree in organization and development. Her husband, Anwar Walid, had a degree in electrical engineering and had worked in research and development of telecommunications systems for Lucent Technologies. In March 2006, the Walids learned from an internet website that "Irene's Bridal Shop" was being offered for sale and that Jim Hamdan (Hamdan), was the "listing broker." The Walids contacted Hamdan, who provided them with a "fact sheet" he had obtained from the seller and owner of "Irene's Bridal Shop," Yolanda for Irene Couture, Inc. (YIC), the principal of which was Irene Paster. The fact sheet described the business as a general retail store in Chatham, New Jersey, which sold "wedding dresses and related types of clothing." The fact sheet listed "annual sales of $582,500 and 'operating profit' of $289,445. The listing price for the business was $700,000." Because the Walids intended to finance the purchase, Hamdan referred them to a local bank and forwarded to the bank "information about the business, including tax returns for 2003 and 2004 and financial details for 2005, because the tax return was not yet available for 2005." After some negotiation, the Walids agreed to purchase the business for $700,000 subject to a review by their accountant and attorney and "pro[of] of sales." The Walids retained an attorney but elected not to retain an accountant to review the financial figures because "Mr. Walid would do the review himself." Their counsel explicitly advised them to "retain an accountant, a CPA, or a business evaluator to examine the finances [of] the business" but the Walids, as noted, elected not to do so. Irene Paster subsequently met with Mr. Walid and provided him with bank deposit summaries, tax returns and pending purchase orders. She also provided "profit and loss statements of the business, compilation reports and bank statements for the years 2003 to the first quarter of 2006." The financial information provided by Irene Paster showed "gross revenues" as follows:
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2003 - $582,913;

2004 - $731,166;

2005 - $588,000;

2006 (first quarter) - $173,607.

After reviewing this financial information, the Walids signed a contract with YIC on April 10, 2006, to purchase the business for $700,000. Paragraph 9A of the contract provided as follows: Buyer relies upon their [sic] own evaluation, inspection and legal search of the business and does not rely upon any representations that are not contained in writing in this contract of sale.

The contract specified a closing date of May 15, 2006. After the Walids secured bank financing for the purchase, the closing occurred. The business ultimately failed and the Walids, together with the entity they formed to run the business, Walid Couture Enterprises, L.L.C., filed a complaint in the Law Division against YIC, Irene Paster, Michael Thomas (Thomas) and MGR Enterprises, Inc. (MGR). Thomas, through MGR, was the accountant for YIC and Paster and he prepared the compilation reports and tax returns that Mr. Walid reviewed prior to closing. The complaint alleged that defendants "intentionally misstated the financial condition" of the business and thereby fraudulently induced plaintiffs to purchase the business. In an amended complaint, the Walids also alleged a cause of action against Yolanda Couture, Inc. (YC), a New York corporation also owned by Irene Paster, which made wedding gowns for sale to retail bridal shops. Plaintiffs alleged that revenues generated by YC were deposited into the bank accounts of YIC thereby fraudulently overstating the income of YIC. The complaint asserted that YC conspired with Irene Paster and YIC to defraud plaintiffs. Irene Paster established YC in New York City in 1994. The nature of its business was the design and manufacture of wedding dresses for wholesale distribution to retail outlets. The trial judge found that
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receipts for YC were, in fact, deposited into the YIC bank accounts. The trial judge further found that in 2003, YC revenues of $314,611.44 were deposited into YIC bank accounts, inflating YIC's apparent income by over 50%. In 2004, $315,872.73 in YC revenues were deposited into YIC bank accounts, thereby inflating YIC's apparent income by over 42%. In 2005, YC revenue deposited into YIC accounts inflated its apparent income by 31% and for the first quarter of 2006, the apparent income was inflated by over 62%. Irene Paster attempted to explain the deposits by claiming that she did not want to have retail stores know that a "competitor was making the dresses." The trial judge specifically found Irene Paster's explanation was "false." The judge concluded: [T]he [c]ourt is unable to credit any of Ms. Paster's testimony. It is so at odds from one account to another, depending on whether one is looking at a deposition where there are contradictions within depositions . . .; contradictions between certifications and deposition testimony. And when one is telling untruths, that's what happens. It's very difficult to keep a story straight, and Ms. Paster was unable to do it.

The judge explicitly found "by clear and convincing evidence that Irene Paster fraudulently represented the gross revenues of [YIC], which was doing business as Irene's Bridal Shop for the years 2003, 2004, 2005 and the first quarter of 2006." The judge further found: This was a material misrepresentation of past facts. That the income of the business was a material fact cannot be argued. The contract provided the purchasers with an opportunity to investigate [proof of sales]. Obviously, the selling price of a business with no assets, other than inventory and a lease and good will, is based primarily on its income over a relevant timeframe; and that certainly was true here, where . . . that income was misrepresented by the seller, Irene Paster, because she had fraudulently increased that income by depositing checks issued to YC into the bank account of [YIC].

The court further found "by clear and convincing proof, that Irene Paster knew the income information that she gave to the plaintiffs to be false . . . . It was her scheme to inflate the income of [YIC] by diverting income from YC." The court also found "clearly and convincingly, that . . . Irene Paster intended for the plaintiffs to rely on the income figures she provided to them." Further, the trial judge noted:

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The clear and convincing import of Irene Paster's action is that she knew that [YIC] was not profitable, that she knew that she could not sell the business for $700,000 by truthfully presenting the revenue figures, that she embarked on a scheme to make the business appear profitable, so that it could be sold, and that she executed her scheme.

Next, the trial judge dealt with the issue of the Walids' "reasonable reliance" on these material misrepresentations. The judge stated: [W]here a party conducts an independent investigation before entering into an arm's length transaction, that party will be accountable for everything such party could have discerned by employing reasonable diligence.

Put differently, if upon conducting an investigation the representee learns facts such that he is alerted to the falsity of the representor's statements, he will be barred from seeking relief.

Citing a litigation report prepared for plaintiffs by an expert in the bridal business, Gary Wright, that the sales figures produced by the defendants were "unbelievable . . . to anyone with practical experience and financial knowledge of independently-owned bridal stores," the judge concluded that plaintiffs "have not carried their burden of proof as to the fourth element that must be proved to establish common-law fraud . . ." - reasonable reliance. The judge thereupon entered judgment dismissing the complaint "as to all defendants, with prejudice." While the trial judge did not fully explain his reasoning, he appeared to hold that having elected to forego employing a business consultant to review the purported income before buying the business, plaintiffs are thereby chargeable with knowledge that would have been readily apparent to an expert in the business - that is, that the income figures were inflated. II Appellate review of a trial judge's findings of fact is limited by well-settled principles. "Findings by the trial judge are considered binding on appeal when supported by adequate, substantial and credible evidence." Rova Farms Resort, Inc. v. Investors Ins. Co. of Am., 65 N.J. 474, 484 (1974). "[W]e do not disturb the factual findings and legal conclusions of the trial judge unless we are convinced that they are so manifestly unsupported by or inconsistent with the competent, relevant and reasonably credible evidence as to offend the interests of justice." Fagliarone v. Twp. of N. Bergen 78 N.J. Super. 154, 155 (App. Div.), certif. ,

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denied, 40 N.J. 221 (1963). See also Pioneer Nat'l Title Ins. Co. v. Lucas, 155 N.J. Super. 332, 338 (App. Div.), aff'd o.b., 78 N.J. 320 (1978) (stating that where the record "leaves us with the definite conviction that the judge went so wide of the mark that a mistake must have been made," we may "appraise the record as if we were deciding the matter at inception and make our own findings and conclusions."). Moreover, the scope of appellate review is expanded when the alleged error on appeal focuses on the trial judge's evaluations of fact, rather than his or her findings of credibility. Snyder Realty, Inc. v. BMW of N. Amer., 233 N.J. Super. 65, 69 (App. Div. 1989) ("[W]here the focus of the dispute is not on credibility but, rather, alleged error in the trial judge's evaluation of the underlying facts and the implications to be drawn therefrom the appellate function broadens somewhat."). Further, a trial judge's "interpretation of the law and the legal consequences that flow from established facts are not entitled to any special deference." Manalapan Realty, L.P. v. Twp. Comm. of Manalapan, 140 N.J. 366, 378 (1995). Our review of a trial judge's legal conclusions is de novo. 30 River Court E. Urban Renewal Co. v. Capograsso, 383 N.J. Super. 470, 476 (App. Div. 2006) (citing Rova Farms, supra, 65 N.J. at 483-84). III "To establish common-law fraud, a plaintiff must prove: '(1) a material misrepresentation of a presently existing or past fact; (2) knowledge or belief by the defendant of its falsity; (3) an intention that the other person rely on it; (4) reasonable reliance thereon by the other person; and (5) resulting damages.'" Banco Popular North America v. Gandi, 184 N.J. 161, 172-73 (2005)(quoting Gennari v. Weichert Co. Realtors, 148 N.J. 582, 610 (1997)). "Reliance is an essential element of common-law fraud." Byrne v. Weichert Realtors, 290 N.J. Super. 126, 137 (App. Div.), certif. denied, 147 N.J. 259 (1996). While "the buyer of a business is entitled to rely on the seller's statement concerning [the business's] . . . income," Trautwein v. Bozzo, 35 N.J. Super. 270, 278 (Ch. Div. 1955), aff'd o.b., 39 N.J. Super. 267 (App. Div. 1956), where the buyer undertakes an independent investigation and relies upon that, rather than the seller's statements, there is no reliance as a matter of law. Byrne, supra, 290 N.J. Super. at 137. Thus, "if the buyer knows before executing the agreement of purchase and sale, that the seller has misrepresented to him the income of the subject matter of the sale, the buyer is not deceived and may not . . . recover for fraud." Trautwein, supra, 35 N.J. Super. at 278.

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While reasonable reliance thus constitutes a critical element of plaintiff's cause of action, The nature and extent of the reliance required is subject to debate. For example, it has been held that "if a party to whom representations are made nonetheless chooses to investigate the relevant state of facts for himself, he will be deemed to have relied on his own investigation." D.S.K. Enterprises, Inc. v. United Jersey Bank, [ 189 N.J. Super. 242, 251 (App. Div. 1983)]. See also, John Hancock & Co. v. Cronin, 139 N.J. Eq. 392, 397-98 (E. & A. 1947)[]; Froelich v. Walden, 66 N.J. Super. 390, 395 (Ch. Div. 1961). On the other hand, our Supreme Court recently observed that "[o]ne who engages in fraud . . . may not urge that [his] victim should have been more circumspect or astute." Jewish Center of Sussex Cty. v. Whale, 86 N.J. 619, 626, n.1 (1981).

[United Jersey Bank v. Wolosoff, 196 N.J. Super. 553, 564-65 (App. Div. 1984).]

Cf. Union Ink Co. v. AT&T Corp., 352 N.J. Super. 617, 646 (App. Div. 2002) (where we suggested that when there is actual reliance upon a fraudulent misrepresentation, "objectively reasonable" reliance may not also be required to support common law fraud.) The Restatement (Second) of Torts

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