HARCO INDUSTRIES, INC., USA VS. GOMIDAS HARTOUNIAN, MGB, LLC VS. HARCO INDUSTRIES, INC, USA (C-000089-15, BERGEN COUNTY AND STATEWIDE)(CONSOLIDATED) ( 2018 )

NOT FOR PUBLICATION WITHOUT THE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-2591-15T1
A-2922-16T1
HARCO INDUSTRIES, INC., USA,
BENOTECH CORPORATION, YORK TRADING
CORPORATION, TECH DISTRIBUTING, INC.
and NORTH ASSOCIATES, INC.,
Plaintiffs-Respondents,
v.
GOMIDAS HARTOUNIAN, MGB, LLC,
SOUND SECURITY OF RICHMOND, LTD.,
and WILLIAM NOVAK,
Defendants,
and
SHANTI KURSCHNER,
Defendant-Appellant,
and
GOMIDAS HARTOUNIAN, individually and
derivatively as a minority shareholder
of Harco Industries, Inc., USA,
Third-Party Plaintiff,
vs.
HARCO INDUSTRIES, INC., USA, HARCO
INCENTIVE SOLUTIONS, INC., BENOTECH
COROPORATION, YORK TRADING CORPORATION,
TECH DISTRUBTING, INC., SARO HARTOUNIAN
and NAREG HARTOUNIAN,
Third-Party Defendants.
____________________________________________
Submitted March 19, 2018 – Decided July 24, 2018
Before Judges Accurso and Vernoia.
On appeal from Superior Court of New Jersey,
Chancery Division, Bergen County, Docket No.
C-000089-15.
Noel E. Schablik, PA, attorney for appellant.
Chiesa, Shahinian & Giantomasi, PC, attorneys
for respondents (Adam K. Derman and Brigitte
M. Gladis, on the brief).
PER CURIAM
In these consolidated appeals, defendant Shanti Kurschner
challenges a January 15, 2016 order granting summary judgment to
plaintiffs Harco Industries, Inc., USA, Benotech Corporation, York
Trading Corporation, Tech Distributing, Inc. and North Associates,
Inc., a February 12, 2016 supplemental order awarding damages, and
a January 24, 2017 order denying defendant's Rule 4:50-1 motion
for relief from the prior orders. Having reviewed the record in
light of the applicable legal principles, we affirm in part and
reverse in part the court's orders granting summary judgment and
awarding damages, dismiss as moot defendant's appeal of the order
denying her Rule 4:50-1 motion and remand for further proceedings.
2 A-2591-15T1
I.
In March 2014, plaintiffs discovered their chief financial
officer, Gomidas Hartounian, embezzled in excess of $4,600,000
from them during the previous four years.1 On March 31, 2014,
plaintiffs confronted Hartounian, and he admitted stealing the
funds and agreed to make repayment.
The following day, Hartounian wrote two checks totaling
$750,000 from accounts containing the stolen funds. The checks
were made payable to Sound Security of Richmond, Ltd. (Sound
Security), and deposited in a Sound Security bank account.
Defendant and her father, William Novak, are Sound Security's
principals, and each had authority to sign checks drawn on the
Sound Security account. Six days after the $750,000 deposit,
Novak wrote a $50,000 check from the account to defendant for what
defendant later testified was an interest-free loan.
Plaintiffs filed a complaint against Hartounian and a company
he controlled, MGM, LLC, asserting claims related to the
embezzlement. In an amended complaint filed on September 29,
2014, plaintiffs added defendant, Novak and Sound Security as
parties, and alleged defendant and Novak knew the $750,000 received
1
It was later determined Hartounian embezzled a total in excess
of $6,100,000 from plaintiffs over a five-year period.
3 A-2591-15T1
from Hartounian was stolen, fraudulently deposited the funds in
the Sound Security account, used some of the funds to pay
Hartounian's and their own expenses, and permitted Hartounian to
control the expenditure of the stolen funds. The amended complaint
included claims against defendant, Novak and Sound Security
alleging: the $750,000 deposited in Sound Security's account
constituted a fraudulent transfer under the Uniform Fraudulent
Transfer Act (UFTA), N.J.S.A. 25:2-20 to -34 (count ten):2
defendant, Novak and Sound Security aided and abetted Hartounian's
fraudulent transfer of the funds (count eleven); defendant, Novak,
and Sound Security conspired with Hartounian to hide the stolen
funds from plaintiffs and deprive plaintiffs of the funds (count
twelve); and defendant, Novak and Sound Security were unjustly
enriched by their receipt of the stolen funds (count thirteen).
In February 2015, the court preliminarily enjoined defendant,
Novak and Sound Security from disbursing any of the monies
remaining in the Sound Security account. The court also directed
that defendant send any payments on the $50,000 loan to plaintiffs'
counsel to be held in escrow pending resolution of the case.
Eight months later, plaintiffs moved for summary judgment on
their claims against all defendants. In support of their motion,
2
Hartounian and MGM, LLC are also named defendants in count ten.
4 A-2591-15T1
plaintiffs provided a detailed statement of material facts in
accordance with Rule 4:46-2. The facts detailed Hartounian's
theft of almost $6.2 million from plaintiffs, and his deposit of
$750,000 of the stolen funds into Sound Security's account.
Plaintiffs also explained that defendant and Novak were principals
of Sound Security and authorized signatories on the Sound Security
account, which had a balance of only $723 prior to the $750,000
deposit.
Plaintiffs' statement of material facts further showed that
during the five months following the April 1, 2014 deposit, Novak
personally withdrew over $141,000 from the account, disbursed
funds to Hartounian's wife and counsel, and spent some of the
funds on motor vehicles, art, jewelry, and a Florida timeshare.3
Novak also issued a $50,000 check to defendant from the account
for the loan.
Plaintiffs also detailed Novak's deposition testimony that
the deposit constituted a payment from Hartounian for the sale of
diamond rings Novak gave Hartounian to sell, but Novak could not
produce any documentary evidence showing his ownership of the
3
By September 2014, Novak disbursed all but $149,808.91 of the
stolen funds from the Sound Security account.
5 A-2591-15T1
purported rings, their value or his alleged arrangement with
Hartounian for their sale.4
Plaintiffs' statement of material facts also detailed
defendant's actions upon which plaintiffs' summary judgment motion
was based. Plaintiffs showed defendant received a $50,000 check
from Novak six days after the $750,000 deposit, and that defendant
testified at her deposition the money was an interest-free loan
from her father. Defendant further testified she intended to
repay the loan and had begun doing so. She produced six $1,000
checks to Novak that she testified constituted loan repayments. 5
Novak did not make any other loan repayments and, in a May 4, 2015
certification to the court, Novak confirmed defendant had "not
made a payment on her loan in months."
In opposition to plaintiffs' summary judgment motion,
defendant's counsel, who also represented Novak and Sound
Security, did not submit a counterstatement of material facts as
required by Rule 4:46-2(b). Instead, he submitted a letter brief
4
According to the statement of material facts, Novak produced
two photographs of women's hands with rings on them as putative
evidence of his ownership of the alleged rings and testified he
took the photographs with his digital camera, but refused to supply
the camera for inspection to permit plaintiffs to determine when
the photographs were actually taken.
5
The checks were dated May 1, June 4, July 4, August 1, September
1 and September 30, 2014, respectively.
6 A-2591-15T1
arguing plaintiffs did not sustain their burden of presenting
evidence entitling them to judgment as a matter of law and, in the
alternative, plaintiffs' submissions demonstrated issues of
material fact precluding the award of summary judgment.
After hearing argument, the court rendered a written decision
and order granting plaintiffs' motion as to all defendants. With
regard to defendant, the court first noted that neither she, Novak
nor Sound Security contested plaintiffs' statement of material
facts in accordance with Rule 4:46-2(b). The court next found the
undisputed facts established Hartounian deposited $750,000 of the
stolen funds in the Sound Security account, and determined the
deposit constituted a fraudulent transfer under the UFTA.
The court also observed that defendant did not make any
payments on the loan following its February 12, 2015 order
directing that all payments be made to plaintiffs' counsel, and
rejected as not credible defendant and Novak's deposition
testimony, which plaintiffs submitted to the court in support of
its summary judgment motion, that the $50,000 Novak gave defendant
was a loan.
The court found defendant aided and abetted Hartounian's
fraudulent transfer of the stolen funds because "Novak accepted"
the funds and permitted Hartounian's "continued" access to them,
and Novak and defendant "used the funds for personal use." The
7 A-2591-15T1
court did not make any specific factual findings supporting its
determination defendant participated in a civil conspiracy to
commit the fraudulent transfer, but instead found only that "Novak
was aware of [Hartounian's] fraudulent transfer, [and] agreed to
assist in the theft by accepting the monies . . . ."
Last, the court found the unrefuted evidence established that
defendant, Novak and Sound Security were unjustly enriched by
their receipt of $750,000 in stolen funds. The court found Novak
acknowledged receipt of the funds from Hartounian and claimed the
funds constituted payment for the rings, but never produced any
evidence in opposition to plaintiffs' motion. The court concluded
defendant, Novak and Sound Security "must disgorge the monies
received in the fraudulent transfer."
The court imposed a constructive trust on the monies traceable
to the fraudulent transfer, including "the $50,000 loan to"
defendant, and found defendant, Novak and Sound Security jointly
and severally liable to plaintiffs in the amount of $750,000, plus
prejudgment interest. The court denied plaintiffs' request for
summary judgment on their claim for punitive damages against
defendant, Novak and Sound Security, finding "[t]here is
insufficient evidence to demonstrate [they] knew the $750,000 was
acquired as a result of fraud."
8 A-2591-15T1
The court subsequently conducted a plenary hearing on the
issue of damages against Hartounian and MGM, LLC, and prejudgment
interest as to all defendants.6 The court entered a February 12,
2016 supplemental order setting forth its damage awards, and
imposing a constructive trust on any assets obtained with the
stolen funds.
Defendant retained new counsel and filed a motion for relief
from the court's orders under Rule 4:50-1. She argued the orders
were entered because her prior counsel did not keep her informed
about a settlement offer, and failed to submit adequate opposition
to plaintiffs' summary judgment motion. She also claimed she was
responsible to plaintiffs only for the balance due on the $50,000
loan Novak funded from the stolen monies.
In a January 24, 2017 order and written statement of reasons,
the court denied the motion. The court reasoned that defendant
did not present exceptional circumstances permitting relief under
Rule 4:50-1.
In A-2591-15 defendant filed a notice of appeal from the
original and supplemental summary judgment orders, and in A-2922-
16 appealed from the order denying her motion for relief from the
6
Defendant did not participate in the damages hearing.
9 A-2591-15T1
orders under Rule 4:50-1. We consolidated the appeals. Defendant
presents the following arguments for our consideration:
POINT I
THE TRIAL COURT ERRED IN GRANTING SUMMARY
JUDGEMENT AGAINST KURSCHNER[.]
A. Standard of Review[.]
B. The Trial Court's Decision Was Improper As
There Was A Genuine Issue of Material Fact As
To Whether The Payment Received By Kurschner
Was A Loan From Novak.
C. The Court Misapplied The Law As It
Essentially Negated The Mental State
Requirements.
POINT II
THE TRIAL COURT ERRED IN DENYING THE MOTION
FOR RELIEF FROM JUDGMENT.
A. Standard of Review[.]
B. The Trial Court Abused Its Discretion In
Denying the Motion For Relief From [Judgment]
Based On Behrins' Egregious Negligence.
II.
Our review of an order granting summary judgment is plenary
and "in accordance with the same standard as the motion judge."
Elazar v. Macrietta Cleaners, Inc., 230 N.J. 123, 135-36 (2017)
(quoting Bhagat v. Bhagat, 217 N.J. 22, 38 (2014)). We must "view
the evidence in the light most favorable to" defendant, Steinberg
v. Sahara Sam's Oasis, LLC, 226 N.J. 344, 349 (2016), and determine
10 A-2591-15T1
whether "the pleadings, depositions, answers to interrogatories
and admissions on file, together with the affidavits, if any, show
that there is no genuine issue as to any material fact challenged
and that the moving party is entitled to a judgment or order as a
matter of law," Elazar, 230 N.J. at 135 (quoting R. 4:46-2); see
also Brill v. Guardian Life Ins. Co. Am., 142 N.J. 520, 528-29
(1995).
In our consideration of an order granting summary judgment,
we "must analyze the record in light of the substantive standard
and burden of proof that a factfinder would apply in the event
that the case were tried." Globe Motor Co. v. Igdalev, 225 N.J.
469, 480 (2016). We cannot "ignore the elements of the cause[s]
of action or the evidential standard governing the cause[s] of
action, ibid., and "must view the record with all legitimate
inferences drawn in the defendant's favor and decide whether a
reasonable factfinder could determine that the plaintiff has not
met its burden of proof," id. at 481. A plaintiff does not
demonstrate an entitlement to a "judgment or order as a matter of
law," ibid. (quoting R. 4:46-2(c)), where the record presented to
the court shows that "a reasonable factfinder could decide . . .
in defendant's favor," ibid. Applying these principles, we are
constrained to conclude the court erred in part by granting
plaintiffs' motion for summary judgment.
11 A-2591-15T1
Defendant does not dispute, and the record supports, the
court's conclusion that Hartounian's $750,000 payment to the Sound
Security account was a fraudulent transfer under the UFTA. The
evidence presented in support of plaintiffs' summary judgment
motion established Hartounian transferred the funds "with the
intent to hinder, delay or defraud" plaintiffs' efforts to recoup
the monies he embezzled. See N.J.S.A. 25:2-25; see also Banco
Popular N. Am. v. Gandi, 184 N.J. 161, 177 (2005) (explaining
"[t]he UFTA was designed as a vehicle by which creditors may
recover from debtors and others who hinder their collection
efforts.").
The court found defendant liable for the fraudulent transfer
based on its determination plaintiffs presented evidence
establishing defendant participated in a civil conspiracy to
effectuate the transfer and aided and abetted the transfer. In
our view, however, the court erred because, giving defendant the
benefit of all reasonable inferences that could be drawn in her
favor, the evidence supporting plaintiffs' summary judgment motion
does not permit a reasonable conclusion that plaintiffs sustained
their burden of proof on their civil conspiracy and aiding and
abetting claims. See Globe Motor Co., 225 N.J. at 480-81.
In Gandi, the Court considered a claim that an attorney
engaged in a civil conspiracy to violate the UFTA by assisting in
12 A-2591-15T1
a client's transfer of assets to defraud a creditor. 184 N.J. at
165. The Court defined a civil conspiracy as
a combination of two or more persons acting
in concert to commit an unlawful act, or to
commit a lawful act by unlawful means, the
principal element of which is an agreement
between the parties to inflict a wrong against
or injury upon another, and an overt act that
results in damage.
[Id. at 177 (quoting Morgan v. Union Cty. Bd.
of Chosen Freeholders, 268 N.J. Super. 337,
364 (App. Div. 1993)).]
"To establish a conspiracy, 'it simply must be shown that
there was a single plan, the essential nature and general scope
of which [was] known to each person who is to be held responsible
for its consequences.'" Morgan, 268 N.J. Super. at 365 (citation
omitted). A court will find a civil conspiracy where the purported
conspirator understood "the general objectives of the scheme,
accept[ed] them, and agree[d], either explicitly or implicitly,
to do [their] part to further them." Gandi, 184 N.J. at 177(citation omitted).
Plaintiffs' statement of material facts established
Hartounian and Novak agreed to the transfer of the $750,000, and
defendant does not argue otherwise. The funds were deposited in
the Sound Security account the day after Hartounian was first
confronted about his embezzlement, and thereafter Novak disbursed
13 A-2591-15T1
the funds for his own personal benefit, and on Hartounian's behalf
and at his direction. Plaintiffs' statement of material facts
demonstrates Novak's active participation in the receipt of the
funds from Hartounian, his communications with Hartounian
concerning the transfer and deposit of the funds, and his
disbursement of the funds for Hartounian's and his personal
benefit. Plaintiffs' unrefuted statement of material facts
satisfied their burden of establishing an agreement between Novak
and Hartounian to defraud plaintiffs through the transfer of the
$750,000.
Missing from plaintiffs' statement of material facts is any
showing defendant knew of Hartounian's and Novak's plan and its
objectives, or that she accepted them or agreed to do her part to
further them. See Gandi, 184 N.J. at 177; Morgan, 268 N.J. Super.
at 365. There is no evidence defendant had any involvement in the
receipt of the funds, their deposit in the account or their
disbursement. The facts presented by plaintiffs only showed
defendant was a principal in Sound Security, was a signatory on
the Sound Security account and received a $50,000 loan from Novak
six days after the $750,000 deposit was made.
We find nothing in that limited evidence satisfying
plaintiffs' burden of establishing defendant knew of the
fraudulent transfer, accepted it or agreed to assist in
14 A-2591-15T1
effectuating it. See Gandi, 184 N.J. at 177. We reject
plaintiffs' contention, and the court's conclusion, that
defendant's receipt of $50,000 from Novak and subsequent failure
to pay back the alleged loan establishes her participation in a
civil conspiracy to effectuate the fraudulent transfer. The
contention is founded on the premise that the $50,000 payment to
defendant was not a loan from Novak. But plaintiffs' statement
of material facts showed defendant testified the payment was a
loan, and defendant is entitled to the benefit of all such facts
in our consideration of whether plaintiffs sustained their burden
of proof in their motion for summary judgment. See Global Motor
Co., 225 N.J. at 480. In addition, we do not determine the
credibility of defendant's testimony concerning the loan in our
consideration of plaintiffs' summary judgment motion. See Brill,
142 N.J. at 536.
Accepting, as we must, defendant's testimony and all
reasonable inferences that flow from it, see Globe Motor Co., 225
N.J. at 481, her acceptance of a $50,000 loan from Novak following
the $750,000 deposit does not establish she knew about the
fraudulent transfer, accepted it or agreed with Novak or Hartounian
to participate in a transfer she knew was fraudulent. Plaintiffs'
statement of material facts does not show defendant knew
Hartounian's deposit had been made, that it was fraudulent or that
15 A-2591-15T1
it was the source of the funds for the loan. We are not persuaded
such knowledge can be reasonably imputed to defendant solely
because she is a principal in Sound Security and a signatory on
its account.
Giving all reasonable inferences to defendant, her testimony
which plaintiffs presented to the motion court establishes only
that she accepted a loan from her father, and made six monthly
payments to him in repayment. The testimony provides no support
for the conclusion she engaged in a civil conspiracy to effectuate
Hartounian's fraudulent transfer.7 We therefore reverse the
court's orders granting plaintiffs' summary judgment against
defendant on their civil conspiracy claim.
For the same reasons, we reverse the court's orders granting
summary judgment against defendant on the aiding and abetting
claim. To demonstrate an entitlement to summary judgment on their
aiding and abetting claim, plaintiffs were required to present
evidence establishing "(1) the party whom the defendant aids must
perform a wrongful act that causes an injury; (2) the defendant
must be generally aware of his role as part of an overall illegal
or tortious activity at the time that he provides assistance; (3)
7
We similarly reject the court's conclusion defendant's failure
to make any payments on the loan after September 2014 and following
the court's February 12, 2015 order proves she engaged in a civil
conspiracy concerning the fraudulent transfer.
16 A-2591-15T1
the defendant must knowingly and substantially assist in the
principal violation." State, Dep't of Treasury, Div. of Inv. ex
rel McCormac v. Qwest Comms. Intern, Inc., 387 N.J. Super. 469,
483 (App. Div. 2006) (citation omitted).
Again, plaintiffs' statement of material facts is
insufficient. The limited facts concerning defendant simply do
not establish defendant knew or was aware of Hartounian's
fraudulent transfer, or took any action to "knowingly [or]
substantially assist" in it. See ibid. To the contrary, the
statement of material facts plaintiffs presented, viewed most
favorably to defendant, showed no more than defendant was a
principal in Sound Security, was an authorized signatory on the
account and obtained a $50,000 loan from her father. Based on
that evidence, a rational factfinder could reasonably conclude
defendant was wholly unaware of the fraudulent transfer when she
accepted the loan, and that she did not aid and abet Hartounian's
unlawful conduct. Plaintiffs did not present sufficient evidence
establishing they were entitled to summary judgment on the aiding
and abetting claim, see Globe Motor Co., 225 N.J. at 480, and we
reverse the court's orders entering summary judgment on that claim
against defendant.
Under the circumstances presented, it is of no moment that
defendant failed to properly dispute plaintiffs' statement of
17 A-2591-15T1
material facts in accordance with Rule 4:46-2(b) in her opposition
to the summary judgment motion. Plaintiffs bore the burden of
presenting sufficient evidence to satisfy their burden of proof
on the causes of action asserted. Akhtar v. JDN Props. at Florham
Park, LLC, 439 N.J. Super. 391, 401 (App. Div. 2015) (noting that
where "the movant is also the party bearing the burden of
persuasion," the party "must show that the record contains evidence
satisfying the burden of persuasion"). Their failure to sustain
that burden on the civil conspiracy and aiding and abetting claims
made summary judgment inappropriate on those courts,
notwithstanding defendant's failure to properly oppose the
motion.8 See ibid.; see also Ferrante v. N.J. Mfrs. Ins. Grp.,
232 N.J. 460, 468 (2018) (noting the party moving for summary
judgment must demonstrate there is no genuine issue of material
fact).
We last address the court's award of summary judgment on
plaintiffs' unjust enrichment claim. To prove unjust enrichment,
8
We do not reverse the court's order finding Hartounian's
transfer of the $750,000 into the Sound Security account
constituted a fraudulent transfer under the UFTA as alleged in
count ten. That determination alone, however, does not support
the court's determination defendant is liable for the transfer.
The court's determination of defendant's liability is based on its
conclusion plaintiffs were entitled to summary judgment on the
aiding and abetting (count eleven), conspiracy (count twelve) and
unjust enrichment (count thirteen) causes of action.
18 A-2591-15T1
"'a plaintiff must show both that defendant received a benefit and
that retention of that benefit without payment would be unjust'
and that the plaintiff 'expected remuneration' and the failure to
give remuneration unjustly enriched the defendant." EnviroFinance
Group, LLC v. Envtl. Barrier Co., LLC, 440 N.J. Super. 325, 350
(App. Div. 2015) (quoting VRG Corp. v. GKN Realty Corp., 135 N.J.
539, 554 (1994)). For the reasons noted, we are convinced
plaintiffs' showed Hartounian's transfer of $750,000 into the
Sound Security account was a fraudulent transfer which became the
source of Novak's $50,000 loan to defendant.
We are also satisfied plaintiffs established that permitting
defendant to retain the $50,000 without repayment to plaintiffs
would unjustly enrich defendant. Because there was insufficient
evidence establishing defendant conspired to effectuate, or aided
and abetted, the fraudulent transfer, we vacate the court's orders
entering a $750,000 judgment against defendant on the unjust
enrichment claim. We affirm, however, the court's orders awarding
summary judgment on the unjust enrichment claim as to the $50,000
loan, awarding $50,000 in damages against defendant on the claim
and imposing a constructive trust on the $50,000 defendant
received. On remand, plaintiffs may pursue their unjust enrichment
claim for the balance of the $750,000, and their civil conspiracy
19 A-2591-15T1
and aiding and abetting claims, based on the evidence presented
at trial.
Because we reverse the court's orders granting summary
judgment on plaintiffs' aiding and abetting and civil conspiracy
claims and, reverse in part the courts' orders granting summary
judgment on the unjust enrichment claim, we dismiss as moot
defendant's appeal of the court's order denying her motion for
relief from the summary judgment orders under Rule 4:50-1. In her
Rule 4:50-1 motion, defendant did not seek relief from those
portions of the court's orders awarding plaintiffs a $50,000
judgment against her on the unjust enrichment claim. She conceded
she was obligated to make repayment of the $50,000 Novak loaned
her. Defendant sought relief only from those portions of the
orders finding her liable on the unjust enrichment claim for
amounts in excess of $50,000. Because we affirm those portions
of the court's orders from which defendant did not seek relief
under Rule 4:50-1, and reverse those portions of the orders from
which she did seek relief, we need not consider the court's
disposition of the Rule 4:50-1 motion and dismiss the appeal in
A-2922-16 as moot.
Reversed in part, affirmed in part and remanded for further
proceedings in A-2591-15. Dismissed as moot in A-2922-16. We
do not retain jurisdiction.
20 A-2591-15T1