RH CPAs, PLLC v. Sharpe Patel ( 2022 )

IN THE COURT OF APPEALS OF NORTH CAROLINA
2022-NCCOA-493
No. COA21-785
Filed 19 July 2022
Davidson County, No. 21 CVS 1155
RH CPAs, PLLC, f/k/a RIVES & ASSOCIATES, LLP, Plaintiff,
v.
SHARPE PATEL PLLC, JAY SHARPE, and AARON PATEL, Defendants.
Appeal by Defendants from order entered 2 September 2021 by Judge Stanley
L. Allen in Davidson County Superior Court. Heard in the Court of Appeals 26 April
2022.
Tuggle Duggins P.A., by Richard W. Andrews and Jeffrey S. Southerland, for
Plaintiff-Appellee.
Marcellino & Tyson, PLLC, by Matthew T. Marcellino and Clay A. Campbell,
for Defendants-Appellants.
INMAN, Judge.
¶1 Sharpe Patel PLLC, Jay Sharpe (“Sharpe”), and Aaron Patel (“Patel”)
(collectively “Defendants”) appeal from the trial court’s order denying their motions
for relief from judgment pursuant to North Carolina Rules of Civil Procedure 52, 58,
59, 60, and 68.1 and their appeal. Because the Confession of Judgment was properly
entered by the clerk and Defendants have failed to demonstrate the trial court abused
its discretion in denying them relief from judgment, we affirm.
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Opinion of the Court
I. FACTUAL & PROCEDURAL BACKGROUND
¶2 The record below discloses the following:
¶3 RH CPAs, PLLC f/k/a Rives & Associates, LLP (“Plaintiff”) is a public
accounting firm based in Lexington, North Carolina. Sharpe and Patel are former
partners of Plaintiff. Sharpe and Patel informed Plaintiff of their intent to dissolve
their partnership and separate from Plaintiff in January 2020 and invoked the
mediation provision in their partnership agreement. The parties participated in two
days of mediation, which resulted in an impasse.
¶4 Shortly after the mediation concluded, Defendants filed suit against Plaintiff
in Wake County Superior Court on 5 February 2020. In connection with the suit,
Plaintiff discovered that Sharpe and Patel had been planning to leave Plaintiff for
months and had contacted Plaintiff’s employees and clients about their planned
departure, all while they were partners and fiduciaries of Plaintiff.
¶5 On 18 February 2020, the parties entered into a Settlement Agreement
providing that Defendants would make a series of payments to Plaintiff in exchange
for their release from their obligations under the partnership agreement. Paragraph
2a of the Settlement Agreement provided explicit procedures for calculating these
payments:
[Defendants] shall pay to [Plaintiff] twenty-five percent
(25%) of all Gross Revenue from Accounting Services
provided to Partnership Clients (“Gross Revenue
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Percentage Payments”) from the Settlement Date to the
second anniversary of the Settlement Date in 2022 (the
“Second Anniversary Date”). Such payments shall be
calculated, due, and payable on an annual basis. All Gross
Revenue Percentage Payments due for Accounting Services
provided before the first anniversary of the Settlement
Date in 2021 (the “First Anniversary Date”), shall be paid
in full not later than February 28, 2021. All Gross Revenue
Percentage Payments due for Accounting Services
provided after the First Anniversary Date, but before the
Second Anniversary Date, shall be paid in full not later
than February 28, 2022. [Defendants] shall use their
commercially reasonable best efforts to obtain bank
financing if necessary to meet these financial obligations;
provided that, they do not guarantee that they will be able
to obtain such financing. To the extent Gross Revenue
Percentage Payments owed are not paid in full on the
applicable due date, such amounts due for each year shall
accrue interest annually from the date due until the date
such amounts are paid in full at a rate of the prime rate
published in the Wall Street Journal from time to time plus
two percent (2%). Payments of the outstanding amounts
owed plus accrued interest will be due monthly and the
amortization period is twelve months. Within five (5)
business days after the First Anniversary Date and Second
Anniversary Date, as applicable, [Plaintiff] shall be
provided a calculation of the Gross Revenue Percentage
Payments for the applicable year calculated by Rink &
Robinson, PLLC, who shall be engaged to conduct agreed
upon procedures (“AUP”) to calculate the Gross Revenue.
The firm conducting the AUP can be changed if mutually
agreed upon by the parties. The scope of the AUP will be
mutually agreed upon by the parties. Within five (5)
business days after the last day of each quarter,
[Defendants] will provide [Plaintiff] with a list of
Partnership Clients who retained [Defendants] in that
quarter. The costs of the AUP engagement will be paid by
[Defendants].
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The Settlement Agreement defines “Gross Revenue” as “all fees (whether unbilled,
billed, or collected).”
¶6 Paragraph 2c of the Settlement Agreement provided that Defendants’ payment
obligations would also be secured by a Confession of Judgment:
As security for the payments provided herein, [Defendants]
hereby agree to execute a Confession of Judgment . . . in
the amount of $500,000. . . . This Confession of Judgment
. . . shall not be filed or surrendered . . . unless and until
[Defendants] have been provided at least fifteen (15) days’
notice, in writing, of any alleged default in making any
payment allegedly due under this Agreement. During this
fifteen days, [Defendants] may cure any alleged default by
making the payment that is allegedly past due, in which
event the Confession of Judgment . . . shall not be filed with
any court[.]
In March 2020, Sharpe and Patel, on behalf of themselves and Sharpe Patel, PLLC,
executed the Confession of Judgment to secure and enforce their payment obligations
in an amount up to $500,000.
¶7 In January and February 2021, the parties exchanged several emails about the
procedures to calculate Defendants’ first gross revenue payment due on 28 February
2021. Sharpe objected to several procedures outlined by Plaintiff and informed
Plaintiff that despite many attempts, Defendants had not been able to retain the
agreed-upon firm to calculate the gross revenue percentage payments, Rink &
Robinson, PLLC (“Rink & Robinson”). Sharpe invited Plaintiff to propose alternative
firms. Plaintiff proposed five potential replacement accounting firms later that same
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day. The parties continued to correspond via email, but Defendants did not agree to
any of the accounting firms proposed by Plaintiff and disputed certain accounting
procedures.
¶8 Over Plaintiff’s objection, in February 2021 Defendants notified Plaintiff they
had engaged a new accounting firm, Goldberg & Davis, CPAs (“Goldberg & Davis”)
and instructed the firm to limit its calculations to only fees collected, in direct conflict
with the definition of gross revenue in the Settlement Agreement. Plaintiff had a
“material concern” about whether Goldberg & Davis would perform the calculation
objectively because Patel had a prior relationship with the firm and had even
contemplated an acquisition.
¶9 On 18 February 2021, Plaintiff’s counsel sent a Notice of Breach of Settlement
Agreement to Defendants’ counsel. Plaintiff sent additional notices of default to
Defendants on 10 March 2021 and 10 May 2021. Based upon the calculations from
Goldberg & Davis, Defendants tendered payments totaling $99,842.75 to Plaintiff,
which Plaintiff cashed on 29 April 2021.
¶ 10 Because Defendants had not cured their default despite three notices, Plaintiff
filed the Confession of Judgment on 27 May 2021. The clerk of court filed the
judgment decreeing that Plaintiff “have and recover judgment against Defendants
Sharpe Patel PLLC, Jay Sharpe, and Aaron Patel in the principal amount of
$307,946.98; plus interest accrued from the date of entry of judgment until paid at
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the rate of 8% per annum, together with the costs of filing this Confession of
Judgment.”
¶ 11 Defendants appealed to superior court pursuant to N.C. Gen. Stat. § 1-301(2021), sought to stay the clerk’s judgment, and moved for relief from judgment
pursuant to Rules 52, 58, 59, 60, and 68.1. The trial court denied Defendants’ motions
and appeal on 2 September 2021. Defendants appeal to this Court.
II. ANALYSIS
A. Confession of Judgment
¶ 12 The trial court denied Defendants’ amended motions under North Carolina
Rules of Civil Procedure 52, 58, 59, 60, and 68.1 along with their appeal pursuant to
N.C. Gen. Stat. § 1-301.1 because, the trial court concluded, the Confession of
Judgment was properly entered. We affirm the trial court’s order on this ground.
¶ 13 Rule 68.1 of our Rules of Civil Procedure sets forth the procedure for filing a
confession of judgment:
A prospective defendant desiring to confess judgment shall
file with the clerk of the superior court . . . a statement in
writing signed and verified or sworn to by such defendant
authorizing the entry of judgment for the amount stated.
The statement shall contain the name of the prospective
plaintiff, his county of residence, the name of the defendant,
his county of residence, and shall concisely show why the
defendant is or may become liable to the plaintiff.
N.C. Gen. Stat. § 1A-1, Rule 68.1(b) (2021) (emphasis added). “When a statement in
conformity with this rule is filed with the clerk of the superior court, the clerk shall
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enter judgment thereon for the amount confessed, and docket the judgment as in
other cases, with costs, together with disbursements.” Id., Rule 68.1(d).
¶ 14 Here, the clerk entered judgment on 27 May 2021 based on the Confession of
Judgment Plaintiff filed. The trial court made the following findings regarding the
validity of the Confession of Judgment:
5. On May 27, 2021, the Firm filed a Confession of
Judgment that had been signed by Sharpe Patel, Sharpe,
and Patel in March 2020 (the “Confession of Judgment”)
with the Clerk of Superior Court of Davidson County.
6. The Confession of Judgment, on its face, does not identify
any conditions that must be met before filing the
Confession of Judgment.
7. The Confession of Judgment is verified or sworn to by
Sharpe Patel, Sharpe and Patel; authorizes entry of
judgment for the amount stated; contains the name of the
prospective plaintiff and its county of residence; contains
the names of prospective defendants and their respective
counties of residence; and concisely shows why Sharpe
Patel, Sharpe, and Patel may become liable to the Firm.
Defendants have not contested these or any other findings of fact in the trial court’s
order. See Jonna v. Yaramada, 273 N.C. App. 93, 104, 848 S.E.2d 33, 43 (2020) (“It
was [the appellant’s] duty ‘to challenge findings and conclusions, and make
corresponding arguments on appeal.’ ” (citation omitted)). As a result, the trial court’s
findings are binding on this Court. In re Schiphof, 192 N.C. App. 696, 700, 666 S.E.2d
497, 500 (2008) (“Unchallenged findings of fact are presumed correct and are binding
on appeal.” (citations omitted)).
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¶ 15 The trial court’s findings of fact support its conclusion that the Confession of
Judgment meets the requirements set forth in Rule 68.1 and that the clerk properly
entered the Confession of Judgment in accordance with Rule 68.1 and other
applicable law. The trial court had no basis to grant Defendants’ appeal from entry
of the Confession of Judgment. We affirm the trial court’s denial of Defendants’
motions and appeal on this ground.
B. Rule 60(b)(3)
¶ 16 Our dissenting colleague would reverse and remand the trial court’s denial of
Defendants’ Rule 60(b)(3) motion.
¶ 17 “[T]he standard of review of a trial court’s denial of a Rule 60(b) motion is abuse
of discretion.” Davis v. Davis, 360 N.C. 518, 523, 631 S.E.2d 114, 118 (2006) (citation
omitted). Under this deferential standard, we may reverse the trial court “only upon
a showing that its actions are manifestly unsupported by reason.” Id. (quotation
marks and citations omitted). On this record, we cannot reach that conclusion.
¶ 18 Rule 60(b)(3) provides that a trial court may relieve a party from judgment
where there is “[f]raud (whether heretofore denominated intrinsic or extrinsic),
misrepresentation, or other misconduct of an adverse party[.]” § 1A-1, Rule 60(b)(3).
“To obtain relief under Rule 60(b)(3), the moving party must 1) have a meritorious
defense, 2) that he was prevented from presenting prior to judgment, 3) because of
fraud, misrepresentation or misconduct by the adverse party.” Milton v. Hedrick, 188
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N.C. App. 262, 268, 654 S.E.2d 716, 721 (2008) (quotation marks and citation
omitted).
¶ 19 We are satisfied that the Settlement Agreement, despite the dissenting
opinion’s characterization, sufficiently defined what Defendants were required to pay
Plaintiff, how Defendants’ payments would be calculated, and what would happen if
Defendants defaulted. Defendants were required to pay Plaintiff “twenty-five percent
(25%) of all Gross Revenue from Accounting Services provided to Partnership Clients
(‘Gross Revenue Percentage Payments’) from the Settlement Date to the second
anniversary of the Settlement Date in 2022 (the ‘Second Anniversary Date’).” The
Settlement Agreement expressly defined “Gross Revenue” as “all fees (whether
unbilled, billed, or collected)[.]” (Emphasis added). The Settlement Agreement also
provided that Defendants would submit records for calculation by the firm Rink &
Robinson.
¶ 20 Contrary to the Settlement Agreement, Defendants instructed a different
accounting firm––without Plaintiff’s permission and in lieu of several other firms
proposed by Plaintiff––to calculate only those fees which had been collected by
Defendants omitting at least $10,937.50 in the calculation of the Gross Revenue
Percentage Payment due 28 February 2021.
¶ 21 After learning that Defendants proceeded contrary to the terms of the
Settlement Agreement, Plaintiff sent Defendants three separate notices, one for
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breach of the Settlement Agreement and two for default, on 18 February 2021, 10
March 2021, and 10 May 2021. The Settlement Agreement provided that Defendants
had fifteen days to cure the alleged default before Plaintiff could file the Confession
of Judgment. When Defendants had not cured their default after two months,
Plaintiff filed the Confession of Judgment with the clerk of court.
¶ 22 We disagree with our dissenting colleague’s characterization of Plaintiff’s filing
of the Consent Judgment as “fraud, misrepresentation, or misconduct requiring the
trial court to set aside the Consent Judgment.” Nor do we agree that Defendants’
alleged defense precluded Plaintiff from filing the Confession of Judgment. Cf.
Milton, 188 N.C. App. at 270, 654 S.E.2d at 722 (“When a Rule 60(b) movant has
failed to satisfy his or her burden of demonstrating the existence of a reason justifying
relief from a judgment, see N.C. Gen. Stat. § 1A-1, Rule 60(b)(1)-(6) (2005), “ ‘the
question of meritorious defense becomes immaterial.’ ” (quotation marks and
citations omitted)). We hold the trial court did not abuse its discretion in denying
Defendants’ Rule 60 motion.
¶ 23 In sum, to the extent Defendants are aggrieved, they simply sought the wrong
remedy. The trial court’s denial of their motion for relief does not preclude
Defendants from suing Plaintiff for money damages resulting from Plaintiff’s alleged
breach of the Settlement Agreement when it filed the Confession of Judgment.
III. CONCLUSION
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¶ 24 For the reasons outlined above, we affirm the order of the trial court denying
Defendants’ appeal and motions for relief from judgment.
AFFIRMED.
Judge DIETZ concurs.
Judge TYSON dissents by separate opinion.
No. COA21-785 – RH CPAs, PLLC v. Sharpe Patel PLLC
TYSON, Judge, dissenting.
¶ 25 The majority’s opinion fails to apply the plain language of N.C. Gen. Stat. § 1A-
1, Rule 60(b)(3) (2021). Their application of an abuse of discretion standard of review
of the trial court’s order condoning Plaintiff’s actions is contrary to our general
statutes and precedents. Defendants have demonstrated “misrepresentation, or
other misconduct of an adverse party,” and are entitled to relief. Id. I vote to reverse
the trial court’s order and remand for further proceedings. I respectfully dissent.
I. Standard of Review
¶ 26 “[T]he standard of review of a trial court’s denial of a Rule 60(b) motion is abuse
of discretion.” Davis v. Davis, 360 N.C. 518, 523, 631 S.E.2d 114, 118 (2006) (citation
omitted). “A [trial] court by definition abuses its discretion when it makes an error
of law.” Koon v. United States, 518 U.S. 81, 100, 135 L.Ed.2d 392, 414 (1996) (citation
omitted). The trial court’s conclusions of law are reviewed de novo. Judd v. Tilghman
Med. Assocs., LLC, 272 N.C. App. 520, 530, 847 S.E.2d 45, 52 (2020) (citation omitted).
The trial court’s denial of Defendants’ Rule 60(b)(3) was an error of law and is
properly reversed.
II. Rule 60(b)(3)
¶ 27 The trial court’s denial of Defendants’ Rule 60(b)(3) was an error of law and is
properly reversed. Defendant’s fraud claims against Plaintiff in their motions are
supported by: (1) the lack of a “mutually agreed upon” and completed AUP; (2) no
calculation completed by Rink & Robinson; (3) no agreed-upon substitute, nor a
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determination of a “sum certain” due as prerequisites required to be met; and, (4) no
mutual agreement being reached and notice prior to Plaintiff filing the Confession of
Judgment. In the absence of satisfying these precedents, Plaintiff had no right to
proceed and wrongfully filed the Confession of Judgment. Defendants possessed and
presented a meritorious defense. Rule 60(b)(3) permits a court to relieve a party from
an order where there is “Fraud (whether heretofore denominated intrinsic or
extrinsic), misrepresentation, or other misconduct of an adverse party[.]” N.C. Gen.
Stat. § 1A-1, Rule 60(b)(3).
¶ 28 In order “[t]o obtain relief under Rule 60(b)(3), the moving party must 1) have
a meritorious defense, 2) that he was prevented from presenting prior to judgment,
3) because of fraud, misrepresentation or misconduct by the adverse party.” Milton
M. Croom Charitable Remainder Unitrust v. Hedrick, 188 N.C. App. 262, 268, 654
S.E.2d 716, 721 (2008) (emphasis supplied). Defendants clearly asserted and meet
all elements for relief under N.C. Gen State § 1A-1, Rule 60(b)(3).
¶ 29 Plaintiff and Defendants both agree they failed to “mutually agree” on the AUP
and the Rink & Robinson firm failed to respond to both party’s inquiries. No AUP
was ever agreed to or completed, and calculations under the AUP was computed to
determine a definitive sum certain. Plaintiff also failed to propose or agree to an
alternative firm to Rink & Robinson for the AUP after Defendants had proposed
multiple alternative firms.
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¶ 30 Before the trial court, Defendants’ counsel stated: “The conditions precedent,
Your Honor, are these two things: An AUP must be established as agreed upon by
the parties, and the CPA firm of Rink & Robinson must perform that AUP process to
determine the calculations before my clients can determine the 25 percent and make
a payment.” During the hearing Plaintiff’s counsel did not state Rink & Robinson
had performed the AUP process at any time prior to the hearing or his client had
proposed a substitute firm in response to Defendants’ proffers of substitutes as
provided under the Agreement.
¶ 31 The Settlement Agreement does not contain the terms of the AUP, only these
procedures would be “mutually agreed upon” by the parties in the future. Neither
Plaintiff nor Defendants received a response from Rink & Robinson. Yet, despite the
proffers, tenders. and payments made by Defendants, and without the AUP agreed
to and sum certain calculated, Plaintiff pre-emptively filed the Confession of
Judgment with their purported calculation of monies due by Defendants. This self-
serving assertion was not performed by a “mutually agreed upon” firm. Defendants
were unable to present or plead the “meritorious defense[s]” before the clerk and to
address the “misconduct by the adverse party” in prematurely filing the Confession
of Judgment without authority. Id.
¶ 32 Unlike the focus of the majority opinion, the unlawful action and breach by the
adverse party, Plaintiff, occurred in the unlawful assertion and untimely filing of the
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Confession of Judgment before the assistant clerk of court. No date and time of notice
and no right to Defendants was provided to challenge that action until the Rule 60
motion and hearing. Contrary to the assertions in the majority’s opinion, the action
by the assistant clerk of court in filing the Confession is not the issue before the trial
court nor on appeal. The remedies Defendants have pursed are the proper means to
challenge Plaintiff’s premature and unlawful actions. Id.
¶ 33 At that time of filing, the only agreement between the parties was to mutually
agree upon the AUP in the future, based on calculations from a firm from which
neither party ever received a response. Plaintiff’s premature and unlawful action
forms the basis for the assertion of a Rule 60 motion to be reviewed in the trial court.
Id.
¶ 34 Defendants have satisfied all elements for relief under Rule 60(b)(3). Plaintiff
should not benefit for its unlawful action to unilaterally compute and file the
Confession of Judgment. Id.
¶ 35 The majority’s opinion baldly asserts the Defendants petitioned and pled the
improper remedy, and Defendants should have sought monetary damages from
Plaintiff from the alleged breach of the Settlement Agreement. Defendants’ remedies
and their damages for Plaintiff’s wrongful conduct cannot be made whole or
accomplished in a judicially inefficient and separate breach of contract action. Such
action will not extinguish and remove the prematurely and unlawfully filed judgment
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from the public record nor remove its lingering impacts on Defendants’
creditworthiness and history of timely payment of its liabilities. This reputational
damage is particularly relevant to potential clients, credit-reporting agencies, and
regulators of a CPA firm.
III. Conclusion
¶ 36 Defendants presented a meritorious Rule 60 motion and are entitled to relief.
Plaintiff possessed no lawful right to file the Confession of Judgment. Under de novo
review, the trial court committed an error of law in denying Defendants’ meritorious
Rule 60 motion. The trial court’s denial of Defendants’ Rule 60(b)(3) motion was an
error of law and is properly reversed. I respectfully dissent.